Tenant risk a big challenge for property owners | Fin24
 
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Tenant risk a big challenge for property owners

Mar 06 2015 18:52
Carin Smith

Cape Town - More and more property owners are choosing to let their properties themselves instead of using an agent, but the tools available make it difficult to find a great tenant amongst all the faceless strangers on the internet, according to Ruark Ferreira, co-founder of of the property company Ekaya.com.

“Managing your property and tenant relationship can be stressful and time-consuming," he told Fin24.

Ekaya has been in development and testing its services in Cape Town and surrounds up to now, but has been looking at the national stage since day one.

"More people are renting now than ever before and they're renting for longer. Since 2008, this trend has really accelerated as fewer individuals can afford to buy property or at least take longer to reach home ownership," said Ferreira.

"This underlying trend has created a property owner's market with demand far outstripping supply, making things very competitive for tenants."

The majority of properties that Ekaya deals with are on the market no longer than 10 days (from time of listing to lease signing) and the site experiences lots of interest from would-be tenants, often 20 final applications to every property.

READ: Cape Town rental market remains buoyant

"We understand the trend of an the increasing number of property owners choosing to handle their rentals themselves versus using an agent. It is largely rooted in the fact that yields are tight on rental properties (6% to 8%) and rental agents tend to charge around 10% commission," said Ferreira.

Currently around 70% of the market choose the do-it-yourself model in order to maximise their returns, but this comes with its own downsides, he warned.

The biggest challenge property owners will face in his view is tenant risk.

"Putting the wrong person in your property can have serious implications for your investment. One month of non-payment by a tenant can erode your entire yield for the year and it can be a difficult, unpleasant and often expensive process to remove a bad tenant," he said.

“In the past, security deposits may have helped to mitigate some of the risk, but in reality the protection they offer is negligible. Recent changes to the law have made correctly administering a tenant’s deposit an onerous affair and once the deposit is depleted the property owner is still stuck in unfortunate circumstances without any leverage and an asset that isn't generating any income."

READ: CT rental demand stronger than ever - Seeff

The best thing a property owner can do in his view is to be contentious during the vetting process.

"Because demand is so high, you'll get a lot of interest for your property but the trick is to cut through the noise to find the right fit for you. Candidates with a solid payment history and good references are a great start but property owners should try and look at the whole picture and make an informed decision by using the tools and information available," he said.
"You can do it all yourself, you just need to be smart about it."

In his view it is still a great time for buy-to-let investors.

"With so much demand, the price of rentals increases by a solid 10% on an annual basis, which significantly shortens the period it takes for rental income to exceed the mortgage repayments turning the property into an income-generating asset," Ferreira explained.

ALSO READ: Ever increasing demand for rental properties

property  |  money  |  rental
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