How to future-proof your investment property during and post Covid-19

As an investor in property, you already know that it pays to hold for as long as possible, as your mortgage pays itself off through wise tenant selection. Indeed, property has consistently been a far more resilient asset class than many others, especially during times of uncertainty, as it’s a physical asset that caters to the needs of an ever-growing population.

What we can expect in the medium term

However, the expected recession caused by the Covid-19 pandemic will drastically lower disposable income for both buyers and renters, which places pressure on bonded landlords. We can therefore expect an increase in properties for sale, which results in lower property valuations, and in turn has a knock-on effect on rental prices. We predict that this, combined with economic pressure on the consumer, will lead to an average rental reduction of 10% over the next 12 months. Banks are already responding with locked interest rate offers to landlords in order to prevent a flood of repossessions.

So how do I safeguard my property asset?

1. Retain good tenants

Cash flow and a stable income will remain critical considerations for months to come, and finding new tenants will be challenging in the current lockdown period and for some time afterwards. We therefore advise landlords to hold on to good tenants where possible. If you or your tenant don’t want to renew for a full year, consider a short-term lease extension instead.

We also recommend being as negotiable as possible to assist tenants that have suffered during lockdown. Options include temporarily reducing rent, offering a longer time to repay, or a payment indulgence which must be repaid by the end of the lease. All of these have been used to good effect since April 2020 and have resulted in good relationships – and in many cases saved leases – between landlords and tenants in South Africa.

Long term letting is likely to significantly outperform short-term holiday lets as the world resets to a new normal. If short-term letting was your approach previously, consider lowering your daily or weekly rates to attract tenants who are keen to stay for longer.

2. Embrace technology to secure great tenants

Tenants are proving reluctant to attend many physical viewings, and are basing their decisions increasingly on the visuals available to them on online property marketplaces. We therefore recommend upgrading to professional photos and even including a video walk-through on your property advert to stand out from the increasingly fierce competition.

Check out our tips for:

• Taking professional looking photos yourself,
• Making your own virtual tour,
• And even hosting a virtual viewing through Zoom.

Lockdown has certainly forced rapid behavioural change towards the adoption of technology, and many now opt to complete processes online rather than face-to-face. It’s no surprise therefore that HouseME has seen a doubling of its listings in recent months, as landlords and tenants seek its tech-driven platform, digital lease, and online payment system. For example, they have a digital two-way auction that allows tenants to place competing offers on your property above or below the asking price. This gives you a real-time sense of the current market value instead of having to test the market yourself at different prices.

3. Mitigate risks with third party cover

Now more than ever, you’ll want to make sure that your tenant will be able to meet their rental obligations. Run thorough credit checks on new tenants, or consider paying for a professional rental service such as HouseME, which has a 99% collection rate on the tenants that pass their vetting, to ensure the stability of your income stream.

To avoid the heart-breaking confrontation with a tenant who is struggling to make rent due to the Covid-19 fallout, push the risk of default onto a third party. For example, HouseME offers an affordable Rental Guarantee which pays out rent on time even when the tenant pays late, as well as up to two months’ rent (on top of the deposit) in the event that your tenant can’t pay rent at all.

In the sad case that an eviction is necessary, be aware that legal fees can cost anywhere between R5,00 and R100,000. To prevent this kind of blow to your investment, it’s worth considering an eviction coverage product.

4. Take this opportunity to increase your investment’s value in the long term

Vacancy rates are as high as 8% in the major cities, but HouseME’s data indicates that properties with renovated kitchens and bathrooms, pre-installed fibre internet, space to work-from-home, and tolerance towards pets are better placed to beat those odds. So, if you are able to, we recommend taking advantage of the current low interest rates for renovations or overdue maintenance.

Besides attracting tenants faster, it also increases the property’s capital value, and better-equipped units command higher rental, which improves returns. Plus, maintenance and building outfits are desperate for the work and might very well give you a great deal. These kind of works are much easier to coordinate when the property is not occupied, so it’s a great way to make the most of an unplanned vacancy.

Looking to the future

In conclusion, despite the uncertainty surrounding the pandemic and its impact on the economy and rental market, there are a few things you can take charge of to improve your chances of a stable income. They may involve some sacrifice in the short term, and doing things differently than you’re used to, but the Covid-19 situation is bound to stabilise eventually, so chances are that from your next lease onwards the market will have settled a bit.