Here's another example a two bedroomed apartment in Woodstock looking for renters (asking rent R4 800) on the 13th of February and then a month later the same apartment is for sale (asking price R880 000), now with a renter in place.I see two options here. Either the seller believes that an existing tenant will help it sell or the seller can not stomach the bond costs and needs a renter to make up the shortfall. If I were looking for an investment property buying an apartment with an existing tenant, especially a long term tenant would be a definite no-no for the following reasons:
- I would not have been the one to have vetted the tenant
- I would not have set the rent, nor any rent escalation clauses in the lease agreement
- I would not have set the length of the lease agreement
So dear readers correct me if I am wrong: Is it better for a property to be sold with or without a tenant?
6 comments:
Without a tenant. And there are more reasons than you list. For one, a tenant is an obstruction to the sale: their furniture is ugly, their kids make a mess, their dog digs up the garden. For two, a tenant crammed into the house you're trying to sell makes the place look smaller. For three, getting in touch with the tenant in order to show a potential buyer around the house is a pain in the neck.
I have a question, with the current rental prices (Between R3500 - R5000 a month) I wonder if it is really sustainable.
To my understanding, according to the new financial services law a person may only pay 40% max of his salary for rent or a down payment on a house. This equates to a R10000p.m salary.
Now even with the high interest rates as is with a down payment of say R4000 over 30 years you are likely to be able to borrow between R350000 and R450000 (estimate).
Now if tenants realize that paying a rent of R4000 a month vs. owning a property where you pay R4000 a month down on a bond means for then means living in a flat worth say R600 000 - R800 000 (renting) or owning a flat worth R350 000 - R450 000. I have to ask, how sustainable is the rental market at current prices?
Mal: Thanks for the answers. Those reasons you give are also extremely valid.
Rudi: I've stated on this blog that most 'specuvestors' who bought post 2004 are relying almost entirely on capital appreciation to make them money, not on the actual yield attainable from the rent.
For example there is no way a house in De Waterkant which sells for R2.2 million but rents for R6 000 could even be considered by a serious property investor. The person who does buy it and rent it out (as opposed to living there) has no other choice but to hope that in a year or two they can find a greater fool to take the place off their hands for a profit, even though in the meantime their rental income does not come close to covering the bond. If they paid for it in cash then they are getting horrendous returns.
I completely agree with you, the property market in SA (at least the buy to let market) is in shambles, Over the short term no property growth is predicted and already you see the for sale signs everywhere. The interest rates ain't helping at all. In my opinion the best place to be in the short term is in a foreign denominated money market account. anyway, good luck to all you property investors.
I should however add that in my opinion there might me a bit of hope as inflation and the weaker rand will increase the cost of building tremendously and therefore it might spin off into higher growth in the property market over the long term.
Only time will tell.
Some comments on the flip side of buying with a tenant.
I see a tenant as positive if you:
1) Do the credit vetting to determine the cerdit rating
2) Obtain a a payment track record - in form of deposits into the owners a/c
3) Get the tenant agreement to switch over to my lease for same period extent and agree escalation clauses
The average vacancy on my buy-to-let unit (all over SA) is 1- 2 months.
Therefore, I prefer to purchase with a tenant that I have validated.
Comments on the Buy-to-let market:
"A shambles" is good for the clevert investor who has been cautious. This is the time to find really good deals - and yes even in CT.
Although where I invest may be a paradigm shift for some investors.
I am really excited about the next 6 months to a year in terms of picking up bargains.
If one can afford to buy in cash (or mostly in Cash) I agree, there are some huge bargains, on average sellers get about 10 - 15% less on their asking price and if you look around you can find some great deals. But be very very careful when buying mostly on debt. Interest rates is set to go down over the longer term but with current world and local economic conditions all inverters should take a precautionary stance.
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