Contact Us
Monday Oct 19, 2015

'Holding out for a high rental may prove costly'

Landlords need to guard against pricing themselves out of the market as rental prices slow in tandem with the movement out of a sellers' property market.

That's according to Lorraine-Marie Dellbridge, rentals manager for Lew Geffen Sotheby's International Realty in the southern suburbs, Noordhoek and False Bay, who says: "In 2014 rentals were already hitting a ceiling, but this year they've exploded through the roof and we are finding that many properties, especially at the upper end of the market, are now sitting empty for months.

"This essentially means that landlords are actually losing money as their properties are not earning anything while they are empty. So, over a year they will yield much smaller returns than if they had been rented out immediately at realistic, market-related rentals."

Although the goal is to maximise return on investment, rent should be set at the highest point that will easily attract tenants, and Dellbridge says the best way for landlords to determine realistic rentals is through research.

"They need to see what is happening in their areas and compare their properties to those that are similar. It is also advisable to consult a reputable estate agency with experienced and knowledgeable agents who can offer up-to-date advice on the ins and outs of the rental arena in their area."

Dellbridge says just as sales agents are able to appraise properties to help sellers set realistic market prices for their homes, rental agents offer exactly the same service to landlords.

"My advice would be to call in three agents. If two come in at the same price and the third comes in a lot higher, chances are that the two are likely to be correct. But don't only rely on what they tell you; take their advice in tandem with the research you've done about your area and then set the price accordingly.

"It'll be clear soon enough if you've overpriced the property, because the tenant market will simply not respond, or they'll respond with lower offers."

Dellbridge says it's understandable that landlords want to cover all their property expenses with rental income, but it's not always possible and this is where research is invaluable. Property rates are higher in certain areas and older properties and homes with gardens usually have higher maintenance costs.

"New investors in the rental market also need to realise that they won't see immediate returns on investment. It usually takes up to four years before they do start to see returns, and if a property stands empty for a few months the return on investment will be further delayed," says Dellbridge.

Lew Geffen, chairman of Lew Geffen Sotheby's International Realty says: "Landlords should be aware that tenants also do their own research and will view many different properties before making a choice; often as many as 10.

"If two properties are the same price and are on a par in general but one has three bedrooms and the other has five, tenants will understandably choose the larger home. Similarly, if they can rent a property for R32 000 a month which is just as appealing as the house down the street which costs R40 000, there is no guesswork about which property they will apply for."

He says the rental market has become more like the sales market in that tenants now also negotiate and make offers. Gone are the days when a landlord can be positive he'll realise the rental price he's set.

However, Dellbridge says that in spite of the growing trend of negotiation in the rental market, some landlords get stuck on an amount and will often not accept a good offer.

"For instance, let's say a property is being marketed at R40 000 a month and an offer of R38 000 is made, but the landlord declines and holds out for the R40 000 which could take a month or even two to realise while the property stands empty.

"Potentially the landlord has then lost two months' income, which in real terms equates to a loss of R76 000 at R38 000 a month for the sake of the R24 000 they could have made that year with the additional R2 000 a month. They can't recoup that in a year or even two."

There are also other factors which influence the time a property spends on the market, especially in suburban areas.

"We are seeing more and more landlords stipulating that no pets are allowed and, as most families have pets, this definitely makes the landlords' potential rental pool smaller," says Dellbridge. "This means the property could sit on the market for longer and the owner will lose income.

Property
Weekend Argus (Sunday Edition)

 
comments powered by Disqus

Calendar

Search

Property Searches:

RSS Feeds

Browse Property For Sale

© 2015 Independent Online Property Joint Venture (Pty) Ltd. All rights reserved.
Reliance on any information this site contains is at your own risk. Please read our Terms and Conditions of Use and Privacy Policy.