Rental income from second dwelling
Profiting from a rental income with a second property sounds good to everyone, but accumulating this property does not fit into every pocket. Another much more affordable option is to rent out a second dwelling (garden or granny flat) on your own property and generate a decent monthly income.
Before diving head-first into this grand idea, there are a few factors to consider.
Space & location
The size of your property’s erf should be big enough to allow this second dwelling, without compromising your own family’s personal space. A second separate entrance to the flat is crucial and would provide both you and your tenant your privacy.
Where your live is of great importance and do some research on the rental demand in the area. If you live in a popular area, quite close to schools or shopping malls, it would help you find tenants easily.
With the proper planning and correct management, the extra income from the monthly rental can go a long way towards your bank balance. It could be allocated towards the maintenance and upgrading of your own home, which would in the end add more value to your property.
Investing in your future
One day most people will find themselves empty nested, which is when the owners could consider moving into the garden flat themselves and generate a comfortable retirement income from the rental of their main property.
Don’t let asset turn into liability
To generate income from your own property with a second dwelling place could be a great source of income, but, if not exercised right, could become a liability.
Before anything else, make sure you do not over-expose yourself in comparison to other properties in the area. In other words, make sure the changes and renovations you bring to your home do not overcapitalize your property against the current market value.
If you have out-ruled the above and decide to proceed with the rental, put proper effort in the planning thereof. This include making sure the flat caters for all the tenant’s basic needs (well-fitted kitchen and bathroom, good ventilation and temperature control, etc) and privacy with a separate entrance. Rather make sure these basics are in place and ask a bit more rent, which in turn improves your chances of finding a good tenant.
Instead of letting out the property yourself, it is advisable to make use of a good rental agency. This way you will be guaranteed of all the necessary procedures like credit checks and contract are in place. With an established company like Just Letting, you will be offered a great security product which guarantees your rental income, regardless whether the tenant paid or not (Rent Secure).
This calculation is important in any investment you make and would be of great value when planning the rental of a part of your property. It is a decision to consider carefully, since you will have to sacrifice some of your privacy, and in the end it is the return on your investment which will determine if it is worth the risk.
The Gross ROI would be calculating by multiplying the rental income by 12 and dividing it by the sum you spent on the building or renovation of the flat or cottage which will be rented out. When you subtract the expenses (water, maintenance, etc) you will determine the net ROI.