Don't rush to sell your investment property

The rate of rental growth in SA continued to climb in the second quarter of this year, and is currently positive in all nine provinces for the first time in almost five years - but is still well below the rate of inflation in most areas, and many landlords are now asking whether it might be time to get out of the rental market.

So says Gerhard Kotzé, MD of the RealNet estate agency group, who notes that the latest data from leading rental payment and reconciliation platform PayProp also shows that the average actual rental in SA is now just R200 a month more than it was at this time last year.

"And the financial pressures being created by the current high levels of inflation as well as increasing interest rates are making it really difficult for landlords to raise rentals any further or faster unless they want to risk losing tenants and having to deal with the problems associated with finding new ones.

"So it is not really surprising that an increasing number of those who own residential rental properties are questioning whether they should hang on to them or sell now and perhaps invest the proceeds elsewhere."

However, he says, they should not be too hasty to rush to market to sell these properties, for the following reasons:

- Stability. Whenever events like the Covid-19 pandemic or the global financial crisis of 2008 occur, astute investors always move fast to exit the stock markets and put their money into property - and we now see this happening again in the US, for example, where the news that inflation and rates are set to keep rising and fears of a coming recession are creating severe equity market volatility.

"And the reason is that investors see property as a much more stable, less risky investment that has always delivered steady if not spectacular value growth and returns in the medium to longer-term. Rising inflation drives up the cost of building new homes and thus the value of existing ones, and property is especially attractive to those who have the means to buy rental homes outright and don't have any concerns about rising interest rates and having to make higher monthly bond repayments."

- Passive income. In addition to capital growth, rental properties have also been providing investors with passive income for a long time, and some of the most affluent people in the world owe their wealth to their real estate holdings, says Kotzé. "If you have good tenants that pay on time and in full, that's income every month that you don't have to work for or worry about - especially if you enlist the help of a specialist property professional to help you find and manage good tenants."  

"Rentals also tend to rise along with interest rates, simply because fewer people can afford or want to risk buying their own homes, and the rate of new development slows down. Rental income is also pretty recession-proof, because people always need somewhere to live, and once again, you can maximise your advantage as a landlord by ensuring that your rental properties are bond-free."

- Tax benefits. Wherever your rental property may be, ownership means you are likely to enjoy some tax benefits. In SA, for example, you can claim a tax reduction for any interest paid if you have a bond on the property, for your homeowners' insurance and for expenses incurred to keep the property in good repair - although you will of course have to declare the rental income you receive.

What is more, he says, before landlords decide to throw in the towel and exit the market altogether, they should seriously consider that they may just need to change the location and type of rental properties they own.

"Investing in rental property means you are in charge of where to invest, what sort of property to buy, how much to pay, and how to manage the investment. This is a really attractive proposition for those who prefer to know exactly where their money is going and who's earning fees from helping them."

As a real estate investor, says Kotzé, you can decide these days if you want to buy a rental unit in a popular holiday location and let it out on a short-term basis, or if you would rather let long-term to a family in a secure estate or a suburb with great schools, senior citizens in a retirement village, students in a house close to a university or affluent empty-nesters in a luxury apartment.

"You can also if you wish sell units you already own and buy different ones in accordance with changes in your own lifestyle, location and financial situation.

"There are so many options now, and it is also relatively easy to research the market trends and areas and types of property that are not only experiencing high rental demand and but also promise good capital growth, especially if you have expert help and support from an experienced agent and a reputable real estate company."