Should you sell or rent when you go out of town?
March 2006
If you're a homeowner who's just been offered an overseas posting or a lucrative contract in another city, you may find your enthusiasm dampened by having to decide whether to sell your home or rent it out until you come back to town.
Should you sell and be "free", or become a landlord and ensure that you have a home to come back to in a year or two that will hopefully also have appreciated in value?
Berry Everitt, MD of the Chas Everitt International property group says that, tempting as the latter course may be, especially while property prices are still rising faster than inflation, it is actually probably better to sell if you still have a large bond on the property.
"The costs of operating a rental property can shave the return marginally thin. And if there is a sudden downturn in the market, or an absconding tenant, the financial consequences can be very serious for the owner who is paying rent or another home loan instalment elsewhere."
Costs you need to take into account as a prospective landlord are municipal
rates, advertising costs, regular maintenance costs (which may well be higher
than if you were living in the home yourself), comprehensive insurance, property
management (usually 10 percent of the monthly rent) and
the "turn" costs (cleaning, repairs and painting when the tenant changes).
You should also build in a vacancy rate contingency (say five percent) for safety.
"All of this can absorb up to 40 percent of the total rental and if you then also subtract the monthly home loan repayment from the remainder, there's not likely to be much profit in the arrangement," notes Everitt.
"But, the equation changes completely if the house is substantially paid-off and you're more interested in capital growth.
"Then the critical factor becomes the choice of managing agent - someone
who knows the area well and can advise knowledgably on a realistic rental level,
who has a good track record as regards the selection of creditworthy and reliable
tenants, and who will see to it that the property is properly
maintained in order to protect its value."
Issued by Chas Everitt International
For further information call Brenda Smith at
Chas Everitt International Bryanston on 011 463 2033
or visit www.chaseveritt.com