Rental Properties - Income Generator or Financial Headache?

Rental Properties - Income Generator or Financial Headache?

Category Expert Insight

Residential Rental Properties: Income Generator or Financial Headache?

If you are already a landlord or looking to buy an income generating property, Seeff Properties Botswana looks at the pros and cons and key aspects of becoming a property investor. The attraction of passive income is clear, but there are several realities that a landlord needs to consider.

Income Generation (Pros):

• Steady Income Stream: Rent provides a consistent and regular source of revenue, potentially supplementing your income or funding other investments.
• Inflation Hedge: Junior Makopola, Head of Valuations at Seeff advises buyers to speak to their financial advisor, assess the inflation and lending rates and analyse the benefits of property investment. "Property values in Botswana generally appreciate over time, thus growing your wealth," advises Junior.
• Tax Benefits: Rental income could attract tax advantages, making your investment even more lucrative. In some instances, you would be able to deduct certain expenses which could reduce your taxable income. It is advised to speak to a Tax Consultant to fully explore the tax implications of becoming a landlord.
• Portfolio Diversification: Assuming you have other investments or savings, adding property to your investment portfolio diversifies your risk, spreading your eggs across different baskets.

Financial Headache (Cons):

• Maintenance Mayhem: Leaky roofs, old or damaged plumbing, and demanding tenants can quickly turn your investment into a financial burden. Be prepared for unexpected expenses and the occasional emergency call. Seeff recommends landlords to set up a contingency account for unforeseen and emergency expenses. It is important to have funds available in this contingency for routine maintenance, especially at times of a tenant changeover. Sego Ramolefhe, a residential and commercial agent at Seeff, advises landlords to look after and maintain their properties on a regular basis. "If the property is well maintained, not only are you likely to get a better tenant but it is also more likely that the tenant will look after the property" summarises Sego.
• Tenant Troubles: Finding reliable tenants, dealing with late rent payments, and navigating eviction processes can be time-consuming and emotionally draining. Additionally, bad tenants can (through neglect or lack of care and consideration) cause damage and create expenses for you. When looking for a tenant for your property, Seeff advises that you use a registered estate agent to help find you the best possible tenant and to use a legally fair and correct rental contract.
• Vacancy Void: Empty properties mean no income. Listing and marketing your property and finding new tenants can be a costly and time-consuming process. Any rental property needs to be kept in a condition that tenants will find appealing.
• Market Volatility: Economic downturns can impact rental demand and property values, potentially eroding your returns. This can also affect the rental market pricing. The rental market has itself seen peaks and troughs over the years affecting the rental prices.

Seeff's Advice:

Before taking the leap to landlordship, do your research. Take time to understand the local rental market, calculate potential returns, and factor in all associated costs. In the current climate, lending rates are lower than they have been, coupled with lower inflation rates. This is creating favourable conditions for investing in property.  Speak to a qualified and registered estate agent for advice on the current rental market and what properties are on the market for sale.

Landlordship can be a profitable venture, but it's not without its challenges. By carefully weighing the pros and cons and making informed decisions, you can increase your chances of success and reap the rewards of this exciting investment opportunity.

Author: Seeff Properties Botswana