Wipe out your shortfall
| The interest rate has increased by 0.5 percent and prime
is now 14.5 percent. How can property investors optimize their income
to make up for the shortfalls in their bond repayments? Market conditions
are near perfect for buying property and making money from rentals. Follow
these tips and you will negate the extra cost incurred by rate hikes:
1) Short Leases. Enter into short lease agreements of three to six months. Short leases enable you to keep assessing rental rates and increase yours accordingly. Most investors will now be able to increase their rental price. Longer leases may result in you falling behind as rental prices increase. Having the cheapest rental in the neighborhood is good because many clients will want to rent from you. It will not, however, help your profitability or loss reduction if you are subsidizing. As a result of rising interest rates and the National Credit Act (NCA) market conditions are in your favor. Many people can't afford monthly bond installments or cannot qualify for financing. This means that there is increasing demand in the rental market. Rental supply is decreasing and, correspondingly, prices will increase.
If you have a long-term tenant with predetermined increases that tenant has a real right over the property. You wont be able to increase your rental by more than what the lease states until it expires.
Rental prices are rising from a low base and should therefore increase steadily while interest rates remain high. You do not want to be in the situation where rental prices in your area increase and you are left behind. You need the flexibility that leases of three to six months ensure.
2) Manage your property yourself. If your margin does not allow for management by an estate agent, then do it yourself. Self management can save you even more than increasing your rentals. For example, on a R3000 rental property your estate agents management fee could be anywhere between R240 to R300 per month. If your rent increases, this expense can increase to R350 to R400 per month.
This means that, depending on your bond, self managing can help you cover anywhere from 0.5 percent to two percent of the recent interest rate increases or improve your cash flow by approximately R4800 per year.
Of course this means that you must do the work yourself, but if you have two or three properties self management could result in a R10 000 increase in profits per year.
3) Ensure that you are collecting all charges that are legally chargeable to the tenant. Many property owners do not know that they can legally charge fees for bin collection, refuse removal and sewerage to their tenants. These items are charged to property owners in their municipal taxes and rates bills and are legally chargeable to the tenant if stated in the lease agreement.
Charging these items obviously requires an appropriately structured lease agreement. These small things add up and investors with a number of properties can save thousands of Rands per year by charging these expenses to the tenant.
There is more that you can do, but these three often overlooked strategies can dramatically increase your profitability and reduce your shortfalls.
Article from: http://www.iafrica.com