Holiday home? Airbnb? Buy-to-let? A second or even third property can boost your income and increase your assets if you do it right.
While many prefer to invest in hassle-free property shares, there is good money to be made from a bricks-and-mortar additional property in the form of buy-to-let, a holiday home, or becoming part of the global Airbnb network. So let’s look at the pros and cons of acquiring a second or third property, and how this can add to your bank balance if you go about it wisely and make informed decisions.
Long-term rental properties are not bought with a view of selling them and making a profit, but rather for the long-term income stream that can be derived. However, simply buying a property to lease out and collect rent every month does not necessarily make for a good investment. But, if done correctly, investing in a rent-producing property can yield outstanding returns. Consider the following:
Tax implications Income from property rental is taxable so you will have to declare it as part of your monthly earnings. Remember also that when you sell, because it is a second property, the house or flat will be subject to Capital Gains Tax.
Where to buy Areas close to economic activity and schools attract the most rental interest. This is especially true in tough economic times, when people may struggle to get bonds, or require the flexibility of a rental agreement.
Property managers While it may be cheaper to manage the property yourself, do you have the time and personality to do it properly? If you are employed full time, then a property manager is the best option.
Selling your rental property This can be a tricky area if you are not fully informed of the legal requirements. Under South African law, a landlord is entitled to put their property up for sale at any time, but that doesn’t mean that tenant rights and obligations are automatically forfeited. Laws and processes are designed to treat all parties as fairly as possible.
Tenants often rely on the South African legal principle of ‘huur gaat voor koop’ to protect their interests. This basically means that a lease agreement is given precedence over an agreement of sale, which effectively entitles tenants to retain occupation until such time as their lease agreement expires.
While this may be the default principle, there are circumstances in which it does not apply. ‘Huur gaat voor koop’ only comes into play when a property is sold under ‘normal’ circumstances on the open market. In distress sales, where banks and sheriffs are involved, things become more complicated.
As a property owner you should always include a sales provision in the lease document to give yourself and your tenants more flexibility in the event of a sale. As long as both parties have agreed to the terms, they replace the ‘huur gaat voor koop’ principle.
Holiday homes used purely for holidays tend to stand empty a lot of the time. If this is the case, it is not a smart investment. Ideally, your holiday home should serve the dual purpose of leisure and investment, especially if it is in a good location where property values are likely to increase and where holidaymakers are willing to pay good rentals.
When considering a holiday home, the following aspects have proven to be winners:
To put it in a nutshell, Airbnb is a global, online room-letting website. The hugely successful concept began nine years ago when two designers who had space to share in their San Francisco apartment hosted three travellers looking for a place to stay – on air mattresses, hence the name! It works like any holiday booking site where prospective travellers select their accommodation and dates from a list of options. The listed properties are not hotels or guesthouses, but simply rooms, flats or houses of ordinary people looking to make some extra money. Wannabe hosts register on the website entirely free.
Nicola D’Elia, managing director for Airbnb Africa and Middle East, says South African Airbnb hosts earn, on average, around R28 000 a month by making their property available for short-term let. And www.nested.com recently reported that South Africans could recuperate house value faster through Airbnb than via traditional rental options.
But not all Airbnb listings are created equal and the average income quoted by Airbnb will be skewed by properties in the hottest locations in South Africa.
Do your homework:
Airbnb provides host-protection insurance, but make sure you know what this entails, and get additional cover if necessary. Tax-wise, you will need to declare your additional revenue. Hidden operational costs include a weekly cleaning service and welcoming gifts for guests, which go a long way to getting you good reviews.
By Helen Ueckermann