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Cape Town - The residential rental market is not for the faint-hearted and requires discipline, says Fin24 user Denis De La Port. He was responding to Susan Erasmus' article Buy-to-let: Tips for new landlords, in which she provides pointers to help new landlords navigate their way past potential trouble spots.
He writes:
I have over the past 16 years built up a rental portfolio and thus have my share of success and horror stories.
I must say, however, the residential rental market is not for the faint-hearted and requires discipline. The owner/landlord will need to exercise restraint at times and prompt reaction at other times, i.e. control yourself when you feel you want to strangle your tenant and follow the rules and strict timetable when your tenant tugs at your heartstrings. Remember it is an enterprise, and manage it as such.
It is true that the rental market is particularly buoyant right now. Contributing to the “buoyant” rental market is, in my view, the high cost of property and the "debt review" trap many people find themselves in. In short, the tenants cannot get loans due to the strict National Credit Act rules. But that is a debate for another time.
Besides the obvious risks - a tenant, once in your property, can strip out all the valuable parts, e.g. the gate and garage motors, aluminium and solid wood doors, zinc etc, in addition to the clear contempt some tenants have for your property e g accommodating the 125kg pet pig in your family room - there are a multitude of risks that are not as obvious.
Estate agents
In my mind a definite risk.
I have a significant dislike of estate agents. The first thing out of their mouth is usually “what about my commission”.
I have yet to find an estate agent that drafts a mandate that is balanced. All of the mandates presented to me have always been in favour of the agent and never a commitment by that agent on what can reasonably be expected that they do. Most agents undertake to market your property and to procure a tenant. That is all.
They undertake to collect the rent but that is only so that they can deduct the commission first. The managing of the property (garden maintenance, etc), attending of tribunals (civil court and RHT), the regular inspection of the property and detailed accounting are commonly absent.
There are no guarantees. A simple request by me to include just the items above has met with shock and an expression that it is an unreasonable expectation from the agents.
Susan Erasmus alludes to the luxury of the “firewall” an agent places between a tenant and a landlord. It is so; however, in the final analysis it would be naïve to believe this is absolute. Never become an absentee landlord.
Become involved in your property, manage the agent and if you elect to give an agency a mandate, make sure every year that the agent is registered with the Estate Agency Affairs Board and has a valid fidelity fund certificate. If this is not the case, the owner may find himself compromised.
Qualify your applicants
Do credit/tenant profile enquiries on all applicants.
Erasmus is correct, if an applicant flashes cash in you face, think twice.
Test the affordability of the tenant. Get bank statements and proof of employment and proof of income.
The best applicant is an individual/couple who is employed and has a gross joint income of three times the rental asking price. Self-employed individuals present an increased risk and thus greater care should be taken.
There are multiple vendors in the market that can assist the owner in this endeavour.
Don’t be afraid to turn applicants away.
Deposits
Always take a deposit.
A rental deposit, key deposit and services deposit (water and lights) are common.
A good formula is to take two months' rental deposit and an equivalent of three months' service charges for the services deposit, in addition to what you deem reasonable to replace the locks and/or keys as a key deposit.
Never agree that the tenant can pay the deposit off or in instalments.
Inspections
Always execute an inspection as per the Rental Housing Act. Upon occupation of the property and upon exiting the property, this is mandatory. Visit your property regularly in the beginning of the lease and do an inspection every two months. Later you can relax the inspection, when you become more comfortable with your tenant.
Written lease agreements
Always enter into a written lease agreement.
Disclaimer: All articles and letters published on Fin24 have been independently written by members of the Fin24 community. The views of users published on Fin24 are therefore their own and do not necessarily represent those of Fin24.
