Rise of the 'Rentvestor'
More first-time buyers are entering the market by investing in property to let in the suburbs, while living elsewhere as tenants.
Urban centres throughout SA are seeing the emergence of a new kind of property investor — the “rentvestor”. Rentvestors are people who may not be able to afford to buy in the areas where they live and work, but are so determined to become property owners that they are seeking out less expensive areas with a promising future, and buying homes that they can let to others, says Realnet MD Gerhard Kotze. “In other words, they are becoming landlords themselves while remaining tenants, which is a new take on the buy-to-let model,” says Kotze. “One generally finds that the investors own their primary residences.”
The rentvestor trend, also happening in other parts of the world, is facilitated by technology that gives property buyers much easier access to quality information and statistics, and allows them to communicate and collaborate much more easily. It is also fuelled by an awareness of first-time buyers that property is becoming an increasingly elusive market, but potentially lucrative, once they’ve invested wisely in it.
In Johannesburg, Kotze says rentvestors are looking for property in areas such as Lonehill, Rivonia, Morningside, Bryanston and Northcliff. Apartments are available for between R900,000 and about R1.4m, with rentals from about R9,000 to R13,000 a month, which should cover bond repayments. “Over time the bond gets paid off, the owner’s equity in their property grows along with capital appreciation, so you end up with a valuable asset that can be sold at a profit or retained as an income-producing unit,” says Kotze.
Amdec Property Development MD Nicholas Stopforth says there is a healthy appetite for residential property in Johannesburg. “One on Whiteley apartments in our Melrose Arch mixed-use precinct sell from just above R2m, as first-time buyers opt to invest in a smart city where you can live, work and play.” Buyers are looking for convenience, the latest technology, connectivity and security. “Increasingly, mixed-use precincts are offering all of these,” says Stopforth. “Each apartment offers urban living that is ideal for working professionals and corporate long-stay tenants, affording investors excellent rental yields and capital growth.”
Sandton CBD is also attracting rentvestors with access to larger bonds. Bargains have cropped up due to an oversupply of apartment units, which drove down returns last year, says Lew Geffen Sotheby’s International Realty rental specialist Shaun Groves. “One of our buyers recently purchased an apartment in Sandown for R1.7m and we let it for R17,000 a month. That is a 12% gross yield.” Kotze says the rentvestor trend is noticeable in Tshwane. “We are seeing families rent homes in prestigious estates such as Silver Lakes and Cornwall Hill, and buy houses and townhouses to let in popular central suburbs such as Villieria, Moregloed and Rietfontein, or flats in areas such as Hatfield and Arcadia, or Die Hoewes in Centurion. “These are in high demand because of their proximity to the Gautrain station,” says Kotze.
Home prices start at about R2.7m in Silver Lakes golf estate and at about R3.5m in Cornwall Hill, while monthly rentals for quality three- and four-bedroom homes in these estates start at about R20,000, making it far more cost-effective to rent there. Conversely, a three-bedroom house in Villieria starts at about R900,000 and can fetch a rental of about R8,500 to R12,000 a month.
The typical rentvestor in Cape Town rents an apartment or townhouse close to the city centre to avoid severe traffic congestion. They own a home out of town that they plan to move to in the future, letting it in the meantime. However, there are fewer of this kind of investor in Cape Town than other parts of the country because property prices are generally much higher, says Multi Spectrum Property marketing manager Werner Scheffer. “The percentage of first time buyers is much lower in Cape Town than the national average because the market is less accessible.”
That said, people are realising they have to start investing somewhere in order to reach financial freedom, and there is no better way than to invest in areas delivering great rental returns and capital growth on their investments. “The time is now, because the gap between the escalation of income and property prices is ever-widening,” Scheffer says. “It will become more and more difficult to enter the property market.” In the sweep of suburbs from Rondebosch to Sea Point, rentals for a two-bedroom apartment start at about R9,000 a month, and at R12,500 for a three-bedroom unit. Purchase prices for these apartments start at about R1.2m for two bedrooms, and R1.6m for three bedrooms. A house or apartment along the West Coast, such as in Saldanha or Winelands towns such as Robertson, Tulbagh or Wellington, starts at about R800,000. “In Robertson, there are three-bedroomed cottages available from about R800,000 to R1m, or even less for buyers who are prepared to renovate,” says Kotze. Savvy rentvestors do, of course, keep an eye on older properties on the Atlantic Seaboard close to town that may be selling under the R2m mark, as these solid ROI properties do crop up. “The best options are sectional title units in lower Sea Point and Green Point, especially apartments in older blocks,” says Debra Levin, Lew Geffen Sotheby’s International sectional title specialist in Sea Point and Green Point. “Although these buildings were remarkably well built, many have not been well maintained and are therefore priced more accessibly. The buildings on Main Road especially have seen fantastic growth in rental yields over the past two or three years,” Levin says.
Durban is another robust market for rentvestors, as the acquisition costs are low enough to make the yields and gearing highly attractive, says Pam Golding Properties area principal for Durban Coastal Carol Reynolds. “Umhlanga is a good example. You can secure an apartment in the New Town area for about R1m and get a monthly rental return of between R7,000 and R8,000. If you simply pay a 30% deposit, your property is perfectly geared and the return on cash invested is excellent,” she says.
Trendy hubs closer to town are a good bet. Mandy Testa, area specialist for Lew Geffen Sotheby’s International Realty in Durban North and Umhlanga, recently sold a one-bedroom apartment in Morningside for R550,000 to a rentvestor couple, and rental was set at R5,000. “We sell many apartments in Morningside and Gateway as investments,” says Testa.
Author: Helen Grange - HomeFront