subscribe Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Subscribe now
Picture: 123RF/ALEXRATHS
Picture: 123RF/ALEXRATHS

Question:

Property is not passive income! Having dealt  with a police raid (drugs found, doors destroyed); the ceiling almost falling on a tenant’s head; a trip to the rental tribunal; and encounters with weather-related irritations, it’s been a very active month for me. I’m tempted to sell everything and restructure.

Fat Wallet Facebook community member

Answer:

The writer makes an excellent point. Buy-to-let is not passive unless you pay somebody else to manage all the issues, and that erodes your returns.

The solution, aside from skipping buy-to-let altogether, is scale. With enough units it makes sense to employ your own managing agent to get and vet tenants, collect rents and generally communicate with them once they’ve moved in. An agent probably costs about 10% if you hire a professional firm.

You can quickly work out how many units you need for it to make sense. For example, if the unit value is R1m and the annual rental, say, R80,000, you’re paying about R8,000 (10%) a year to the managing agent. Assuming the agent would want an annual salary of R240,000, you need 30 units, costing R30m. Not a small sum by any measure.

I checked with a friend who has a lot of units, and he found the ideal number is about 40 units for him to be able to employ both a managing agent and a maintenance person.

The numbers hurt quickly.

So the reality goes back to the initial point: buy-to-let is not passive income until you reach considerable scale. If you do want to go the buy-to-let route, you need to understand the effort that is required very clearly.

— Simon Brown, Just One Lap

We want to hear from you! Send questions to yourmoney@fm.co.za

subscribe Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Subscribe now

Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.

Speech Bubbles

Please read our Comment Policy before commenting.