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Is buying an investment property on an estate a good idea?
Buy-to-let is a form of investment where an individual purchases a property with the sole intention of renting it out to tenants. It has become increasingly popular with units in residential estates.
Buy-to-let properties on an estate are generally allowed, but there may be rules and regulations set by the estate management that must be followed. It’s important to check the governing documents before investing in a property as each estate has its own set of rules, which may include restrictions on renting out the unit, prohibition of short-term rentals, or restrictions on the number of tenants allowed in the unit which could affect the viability of your investment.
‘There’s a significant demand for rental homes on estates because of the high quality of life on offer. These properties are often found in sought-after locations where residents enjoy outstanding safety and security, scenic surroundings in areas of great natural beauty, well-maintained facilities, multiple leisure options in convenient proximity, and more.
‘Tenants are willing to pay a premium to stay on an estate and this could translate to your property delivering a considerable return on investment,’ says Carl Coetzee, CEO of BetterBond. ‘We have seen from data released by Lightstone that transactions for homes in estates increased from 14.8% of all sales in 2018 to 16.2% of all property transactions in 2022.’
What are the costs associated with buying to let in an estate?
Coetzee says that buying a home in an estate is like buying any other Sectional Title property. It’s important to remember that in addition to the usual costs associated with buying – deposit, conveyancing fees, transfer duties, bond registration costs, etc. – homeowners in estates will usually also pay monthly levies as most estates are Sectional Title schemes. ‘If you are planning on renting out this property, you should factor all costs into your rental calculations,’ he advises.
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Finding the Right Tenants
Cobus Odendaal, CEO of Lew Geffen, Sotheby’s International Realty adds: ‘Rental properties in estates generally seem to be more attractive to long-term tenants and it’s important to research the local rental market and the demand for rental properties in the area before buying.’
Vetting prospective tenants is essential to avoid the drama of dealing with tenants who may cause property damage, or fail to pay rent, which could lead to potential legal issues.
‘When considering prospective tenants, it is important to do thorough credit and background checks, including character references, as you would when renting out any other residential property. Estates have rules of conduct that landlords must communicate to their tenants because if your tenants do not comply, they risk being held liable for any transgressions,’ adds Coetzee.
Some estates, like those in popular coastal towns, may even be more appealing to tourists. Temporary residents from overseas make up a considerable number of tenants on lifestyle estates as they love to spend the summer months in South Africa and appreciate the peace of mind and the lifestyle offered in these locations. You could get more rent from tourists but the downside is that they can be less considerate of the rules as they’re only there for short periods of time.
The pros and cons
‘The pros of renting out a unit in a residential estate include a steady income stream as estate homes are in high demand, great security, potential capital growth in property value, and the ability to diversify your investment portfolio. Cons include dealing with difficult tenants, overly enthusiastic residents‘ associations, potential vacancy periods, and the cost of maintenance and repairs,’ says Odendaal.
Case Study
We spoke to Rowan S. about the choice to buy an investment property in Cape Town. He says: ‘We decided to invest in a unit because there’s a development boom in the area and it made sense to buy as units are always in demand so a tenant is guaranteed.
We focused on new developments because of their location as well as their proximity to commercial or recreational areas and amenities.
‘We’ll only be renting out to long-term tenants and using an agency to vet prospective tenants and oversee the details. Even though the unit is still under development, there’s already been an approximate 15% increase in the property value if we compare our unit to similar units that are still on sale.
‘In my opinion, anything in a residential estate is a worthwhile investment because most people want the security of living on an estate and the return on investment is almost guaranteed as most complexes appreciate more in value compared to free-access neighbourhoods.’
