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Hold onto your investment property if you can!

10 Aug 2011

While the effects of the recession have influenced investors, particularly in the buy-to-let segment of the property market, owning a property is still a sound investment that will pay dividends over the long term, says Adrian Goslett, CEO of RE/MAX of Southern Africa.

Goslett notes that while the buy-to-let market has remained weak due to the current economic climate, the rental market has remained strong as many consumers are battling with high debt-to-disposable-income ratios and therefore are unable to save up for a deposit or secure mortgage finance. It is expected that these market conditions will underpin the recovery in the buy-to-let market in the future. In the mean time, he says investors are taking stock of what they have and what they can afford and where they stand with their current investments.

For those who have decided to sell their buy-to-let property for whatever reason, Goslett warns that there are a number of considerations that need to be taken into account, especially if there is a lease agreement in place and a tenant occupying the property that the investor plans to sell. This is because legally, the lease agreement takes precedence over a sale agreement.

The best course of action in this situation, says Goslett, would be to notify your tenant of your intent to sell the property as soon as you have made the decision. "The tenant will need to work with you to showcase the property to any prospective buyers and the tenant also has first right of refusal to purchase the property. This means that as the landlord and property owner, you must notify the tenant of any offers on the property and they must be allowed the opportunity to match or better the offer."

However, if the tenant does not want to purchase the property, they are entitled to remain in the property until the lease agreement expires, despite the sale of the property. In essence, Goslett explains that when a rental property is sold and transferred into the new owner's name, the new owner is not permitted to move into the property until the tenant's lease has expired and they have moved out.

"But," he says, "should the new owner have bought the property as an investment and not as a primary residence, the purchaser will then have the option to take over the role of landlord from the seller as soon as the transfer of the property has been registered."

At the end of the day, Goslett says that if investors are in the position to hold onto their buy-to-let property, they should do so, as the returns from the rental yield and the capital gains over a longer period of time will make holding onto the investment a worthwhile decision in the long run.

He explains that even though tenants have enjoyed flat to relatively low rental increases over the last three years due to an oversupply of stock, the rental market is shifting to favour landlords more than tenants. According to TPN Credit Bureaux, due to a variety of factors there are now more tenants than stock, especially in the low to mid-priced properties, which allows property managers and landlords to be more choosey when placing tenants at their preferred prices.

"This means that you are highly likely to be able to secure a high quality tenant - should you follow sound practice of properly qualifying your tenants - for your buy-to-let investment at a rental return that works for both the tenant and the landlord," Goslett concludes.