Buying property to rent is not an investment prospect that should be entered into blindly. There are many risks and pitfalls. Here are 10 facts to consider before you entertain this idea as an investment opportunity.
- It is important to first determine whether you can afford the financial risk and burden of making such an investment decision. It is true that property value escalates, does the risk of damage offset against the increase in value.
- A serious fact to keep in mind and consider is that there is always a risk that your tenants could abscond, leaving you with a damaged property. Could you carry the cost of the bond until new tenants are servicing your bond repayments?
- The market determines that a property which is bonded would not fetch much more than 1% of the bond repayments as a rental property.
- Can you afford the maintenance and upkeep of the wear and tear to the property. It is an unfortunate fact that not all people have respect for others property and it is not always possible to defer costs of damaged property from tenants. You could go the legal route but this costs more money than the damage rendered to your investment.
- Would you be able to carry the bond repayments if for some reason your tenets can not make the rent payments.
- It is not that simple to evict tenants from your property. An application has to be made to The Supreme Court of which a waiting period of up to 5 years can elapse before you have a court appearance or date and to start the process to recover your money from a default judgement. And sometimes you do not recover all your expenses regarding litigation and legal fees. Then you are out of pocket with no way to recover these exorbitant losses. In the meantime your tenants are living rent free in your investment.
- There are instances where tenants claim Squatters Rights for occupying your investment. You have to then again resort the The Supreme Court to intervene at serious costs to you.
- It is your legal right to inspect your property, this has to be done at the convenience of your tenant as The Law of Alienation of Property precludes you from entering the property as you wish and at best all you can do if there is some illegal activity which is being conducted from your property is to involve the Police.
- It is a fact that not all people are accommodating and helpful. If you at some stage consider selling your property for a better investment opportunity your tenants could make it very difficult for you to sell your property as you may not enter the property without their permission.
- A property which is bonded is not really an investment as even if you take into account the growth of the value of the property and the annual increase in rent, all you are doing is servicing more debt.