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Rental property doesn't make money

by , 08 July 2016
Rental property doesn't make money
“Investing in property doesn't make money any more. I should rather sell everything and put my money in the bank.”

That's the words of a friend of mine, Jaco, whilst we spoke about property investing the other day.

Jaco owns a number of properties but feels that he's not making enough money from them to keep on bothering investing in property.

The thing is, after investigating the matter further I found that Jaco has made a number of grave mistakes…
 
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Three mistakes that destroy value when investing in rental property

 
Rental Property mistake #1 – “I need to repaint my flats every time a tenant moves out!”
 
Jaco complained that he needs to repaint an apartment every time a tenant moves out. The cost of repainting a one-bedroom flat is at least R4,000 at a time. So he loses a month’s worth of rental income.
 
My advice to Jaco was that he should hold tenants accountable for walls with scuff marks and dirty finger prints on them. It’s one thing to need to repaint a wall after five or six years, but if a tenant fouls a new paint job within six months or a year, they should be held accountable – that’s what rental deposits are for.
 
Often a new paint job isn’t even necessary. You can merely get a cleaner to wash the walls with sugar soap and a car wash sponge. It’ll cost you R200 and the apartment will be shiny and new again.
 
Often owners are too fast to spend their own money on a rental property. First decide if a problem is normal wear and tear or whether the tenant is at fault. Also remember there are often simple, inexpensive solutions as well.
 
Rental Property mistake #2 – “It’s always such a hassle getting tenants to pay rental on time” 
 
If you own a rental property like Jaco you’ll know the risk of a non-paying tenant or even just one that pays their rental way too late.
 
But this needn’t be a problem.
 
 
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In the first place I always do credit checks on tenants to screen them for bad payment behaviour up front. Secondly – you want to ensure you have at least two months’ worth of rental deposit on hand. That way, if the tenant doesn’t pay you are left with a buffer.
 
I recently wrote about a product that gives you 2.5 times monthly rental when a tenant damages your property or doesn’t pay rent. And the best is – your tenant doesn’t need to worry about putting that much money down up front.
 
Rental Property mistake #3 – “Buying at the listing price” 
 
Property these days has become a lot more expensive thanks to low interest rates. If you buy a property straight from a listing on Private Property or Property24 you’ll end up with a property that only gives you a 6% or 7% a year rental yield.
 
Property companies listed on the JSE currently offer you around 7-9% a year in dividends. Why would you invest in a property that generates less income than that per year?
 
You should always look at buying properties that generate 10%+ rental yields. That means you need to find opportunities that are not on the web, or you need to negotiate price with the seller.
 
Many property investors think getting 10%+ yields are impossible. I’ve personally bought two properties in the past year with 14% gross rental yields.
  
 
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If you are willing to be patient and wait for the right property on a sheriff auction you could pick up a property on yields as high as 15%-25%.
 
The secret is not to settle for an average property selling at an average price. This means you might not find a property to buy within the next week. You’ll need to be patient.
 
Buying a property with R4,200 rental per month at a rental yield of 14% compared to a rental yield of 8% means the difference between R22,708 in your pocket after 36 months compared to R75,232 that you have to pay in on your mortgage over the same time.
 
The short and the sweet of it is, that you need to treat your property investments as a business. It won’t take much more time – but by being professional, having processes in place and ensuring you analyse deals properly beforehand you can make yourself much more money…
 
Here’s to unleashing real value,
 

Francois Joubert
Author, Become a Master Property Investor in 90 days



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