“The impact of the buy-to-let frenzy is especially evident in the Western Cape where rental vacancies recently reached a record low of 3.18%,” shares Grant Smee, managing director of Only Realty Holdings. “The same report cites that investment properties contributed a whopping 31.1% of all applications processed in the region.”
However, while demand has skyrocketed, Smee shares that not all investment properties will deliver “astonishing rental returns”.
“Property investment can be a successful wealth-creation strategy, but it can also be a costly and time-consuming mistake if you rush into it and don’t do your homework.”
Some of the guidelines for property management:
The key to ensuring a profitable investment property comes down to two factors:
“Begin by researching the vacancy levels - not just of the city - but specifically of the neighbourhood where you plan to invest. It's crucial to study both current and historical (three to five years) keeping in mind that vacancy rates in some areas may be in a temporary bubble that doesn't accurately reflect true demand.”
You can find this information by researching the Payprop Rental Index or consulting with an experienced local estate agent.
“Once you have a clear understanding, you can then assess whether the property will appeal to your target market,” continues Smee.
If you’re looking to appeal to young working professionals (Gen Zs and millennials), Smee advises that you look for a property that spells convenience. “Look for properties that are easy to maintain, are conveniently located near to major transport routes, shopping centres, gyms, eateries and more. This generation prioritises convenience and lifestyle above all else.”
Similarly, if you are targeting young families, then Smee suggests looking for a property in proximity to good schools, hospitals and retail centres. “Put yourself in the shoes of your target market.”
Additional factors to consider when choosing your investment property include:
Rental prices in South Africa are highly dependent on location - varying widely from province to province. According to the latest PayProp Rental Index, the Northwest has the lowest average rent in the country at R6,301 while the Western Cape boasts the highest at R10,300.
“One thing to keep in mind is your breakeven point to maximise your profitability,” he adds. “Sadly, if you are bonding a home on a 100% bond for instance, you will most likely not break even if you’re simply renting out over a year’s lease period.”
Beyond traditional financing, investment may require one to look to non-traditional avenues to yield returns, these include:
Another way to maximise the profitability of your rental property is by going the route of short-term letting, which can generate as much as 30% more income than long-term leases especially in high-demand tourism destinations like Cape Town.
“Keep in mind that this option may be lucrative but is significantly more labour and time intensive than long-term leasing,” says Smee. “Hiring a property management company can mitigate this, but often carries a hefty fee in addition to the higher operating costs of regular cleaning and maintenance fees, as well as the risk of hosting unvetted short-term tenants.”
He concludes saying that short-term rental demand can also fluctuate based on the season, potentially leading to extended vacancy periods and difficulties maintaining a consistent cash flow.