Category Archives: Property letting

Information, articles and news that is relevant to property letting in South Africa.

What you should look for in a tenant.

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There are always risks when taking on a new tenant, will they pay their rent ,will they keep the property in a good condition, will they give you suitable notice of their intention to vacate the property.

Here are three main points to check thoroughly:

The prospective tenants work situation.This is so that you have a good idea of their stability and their ability to pay you the rent.It is extremely difficult to evict a tenant these days and you would be better off selecting a professional with a job who has a steady income.

The prospective tenants rental history.Insist on at least one rental reference if possible and use that information.Phone their former landlord and ask them if they paid on time, ask if they where ever in breach of their lease agreement and if so find out why.

The prospective tenants credit history.This will give you an immediate indication of their reliability to pay their rent on time and in full.

As I said before it is very difficult to evict a tenant so make sure ,as far as you can ,that you are choosing the best possible tenant, it can only be beneficial to you.

Check your letting agency out carefully.

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We recently published an article about landlords taking out insurance to cover themselves in the event of tenants defaulting on their payments.Certain letting agencies provide this service and it covers the landlords rental income for a maximum of three months.It was initiated because of the difficulty landlords have trying to evict unsuitable non-paying tenants or when a tenant decides to leave suddenly leaving the landlord without income.

While this is certainly a good thing to have don’t always assume others have your best interests at heart.Some landlords I know have told me that they paid for the cover but were not informed when the tenant left or when the cover started paying out.

As our readers can imagine this is potentially disastrous to any property investor.The letting agency only informed the owner when the three months of cover was finished and there was no still replacement tenant.The agency had stipulated that the owner would be informed at all times of any developments that might affect them, this is apparently not what they did.

One landlord reported that it had happened to him with two tenants in succession.They had both packed up and left without giving notice and the letting agency only informed the landlord three months later,once again they still had not found a replacement tenant.

Investors use letting agencies for a variety a of reasons,one of which is the distance they live from their investment property.If an investor lives in Nelspruit and has a rental property in Durban it is usually easier to entrust the daily running of the property to a letting agency.It is therefore imperative that one chooses ones letting agency with great care.If yours is the only property they have in a certain area they may find it inconvenient to travel there to check on your investment.Try and find a reputable agency that has a history of servicing your specific area well and maintains contact with you in the ways they have promised.

If you find yourself calling them when they should be calling you make this very clear to them and make sure they understand that they work for you, remember this is your money, your credit record and your livelihood.You cannot afford to take chances simply because of bad communication.

It is of course also the owners responsibility to follow up and ensure that the people they have working for them are doing their jobs.It is an unfortunate fact that while property investors are worried about saving money so are all the other businesses and they may be cutting corners that will affect you.

Misuse of landlord insurance.

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I would like to tell you a story about how a letting agency misused my landlord insurance.

The letting agency sold me an awesome product, landlord insurance. If my tenant does not pay the insurance pays up to 3 months GREAT, or so I thought…

The first time I got suspicious was when I was notified that my property did not have a tenant and that the insurance had already paid out 3 months rent. I was furious, why was I not notified? The excuse I got was that the assigned agent was not very reliable and has been fired and that this would never happen again.

About 6 months after the incident I received an email from the new agent. He informed me that the property did not have a tenant and that the insurance had paid out 3 months rent. He can not help me any more and urged me to find a new letting agent. AGAIN!!! Why was I not informed.

My suspicion is that this company used this insurance to make money out of me. If they informed me earlier I could have done something about it, but no, they waited until the 3 months had past and then only informed me of their plans.

So the wrap up, always insist on financial documentation, on a monthly basis, that indicates that your property still has a tenant. Believe me, it will save you stress and money.

Pre-paid electricity meters the way to go. – part 2

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After receiving plenty of interest in the post entitled “Pre-paid electricity meters the way to go.” I have decided to write a follow up article to address some of the questions posted to us. I will answer to the best of my ability and hope it helps.

Getting a pre-paid meter for your home or rental property.

If you own the property and are not part of a body corporate you should contact your specific council/municipality directly and work through them. They will advise you on the steps to follow to change to a pre-paid meter. You should be able to find a helpline number on your last electricity bill aswell. This will be what most people are looking for and most of the time only the municipality has the authority to implement the change for you.

Getting a pre-paid meter if you belong to a body corporate.

If you are part of a body corporate or similar agreement you will need their permission to implement any changes at all. You have two options, you could either have everyone involved in the body corporate get pre-paid meters for their properties or you as an individual could install what is called a secondary meter. This means that you will get a third party (not the municipality) to install a meter inside the premises that works in conjunction with the municipal meter that is already there.

You will then still receive a monthly bill for the electricity your tenants have consumed from your body corporate but the tenants will be paying you/third party (depending on which company you use) for units. Once the tenants have paid they receive a voucher via sms with a 20 digit unique pin that they then enter into their meter in exchange for kilowatts/units.

The reason you will still receive a monthly bill from your body corporate is because an organization like that gets a bulk bill for various utilities that then gets divided between those belonging to it. You only pay for what you consume so it is a fair arrangement. So the money you collect during the month from your tenant should cover the bill you receive from the body corporate exactly. Most secondary pre-paid meter suppliers’ charge a small monthly admin fee, but the peace of mind you get in return is surely well worth it.

Do not forget to get approval from your body corporate, even for a secondary pre-paid meter.

Availability of the service.

The manufacturers have stated that it is a costly exercise to install and maintain the machines that actually dispense the electricity vouchers, like the ones you see at the supermarket or cafe. Therefore they need a certain amount of customers in need of the service before they will make the service available to a new area. From what I have seen this almost never happens and it would be worth your while to check that the service is available in your area already if you intend on buying a new property there for the purposes of renting out.

This is not so say they won’t ever designate a new area to service. Maybe if you and all your likeminded neighbours got together and contacted your municipality you could initiate a change.

Cost.

The cost of installation varies from manufacturer to manufacturer and Eskom will tell you to get a quote from the manufacturer , they have a “Links” section on www.prepayment.eskom.co.za and this will give you easy access to some of the manufacturers websites. From what I have seen they can run you up to R2000 for the initial installation and startup. But there are many different manufacturers and not all of them charge this much.

To summarise, if you are an independent homeowner contact your municipality and if you belong to a group, like a body corporate, contact them first and then a manufacturer.
I hope this information is useful.

To part 1…

Holiday season is here.

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Most people with rental properties really look forward to the holiday times throughout the year as they are almost certain to make money.December is still the most popular and most travellers need to book their accommodation months in advance to get a booking at the venue they want.

Coastal areas are also far more popular with us South Africans in this peak time as the the months around the festive season can get incredibly warm.Those of you with coastal properties probably know that if done correctly the month of December can be very lucrative.

That said, the landlord of a short term rental property also runs a higher risk in some aspects.The first point of concern is damage to the property itself.Most people ,when renting a home for themselves,will take care of the place and try to keep it in good order.This is not always the case with holidaymakers, they often celebrate the festive season while indulging in too much alcohol,having raucous parties and doing things they would never do at home.

This could all lead to potential damage of your property.Certainly this is not always the case but it is better to be aware of what may happen.Some holiday resorts over recent years have even started banning matric vacationers because of the bad experiences they have had in the past with damage and alcohol consumption.

The ideal would be to have repeat customers that you know are well behaved and pay their bills.Which brings me to my next point: take a deposit when a booking is confirmed.This is a great idea because some people make bookings at multiple venues so that they are assured a place at all of them and can then choose between them closer to the time.This can be a very bad thing for the venues taking the bookings as they then lose real customers who will definitely come and pay for the stay.So ask for a deposit, can be up to 50% ,and be secure in the knowledge that your customer wouldn’t want to waste that money.

A friend of mine recently wanted to make a booking at a Cape Town resort for over the holiday season and the resort asked that he pay in full ,a very large sum, when making the booking.My friend was quite taken aback and refused to do so as he didn’t have the full amount at the time.While I can understand why the resort wanted the payment, it must be far easier to deal with payments now and then not run the risk of someone skipping out on the bill, I would not necessarily practice this myself,although some may feel it necessary.

In my personal experience many holiday accomodation venues will request the balance of the amount owed on the first day of arrival.This is great because as the landlord/proprietor of the venue, you are assured of payment and the holidaymakers need not be concerned with a final payment at the end of the holiday when all their money has been spent on the family and having a good time.

So whether you have a coastal self-catering cottage or a B&B in Pretoria, remember to take a deposit and know all the possible negatives of renting out to holidaymakers.

Pre-paid electricity meters the way to go.

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Investors,landlords and property owners are always looking for ways to decrease disputes that may occur between themselves and their tenants.Landlords should then seriously consider installing pre-paid electricity meters.

Although most properties these days do have these devices,some landlords have been a little slow to catch on.The device I am referring to is a meter installed in the home that one can purchase units for at predetermined outlets.The units are provided to the customer in voucher form and the unique sequence of numbers on the voucher are entered into the meter,the more units you buy the more electricity you will receive.The same basic principle as buying pre-paid airtime for a cellphone.

There are a couple of reasons this device is a good idea, one of which is that it almost eliminates landlord/tenant disputes over electricity bills.The tenant must in this case purchase their electricity as they use it up, instead of waiting for a bill at the end of each month.

The tenant will be able to observe how his habits directly affect his electricity consumption,because the meter allows you monitor how fast your electricity is being depleted.There can be no big bill to shock the tenant at the end of the month and no reason for a dispute with the landlord over the matter either.

Furthermore this also eliminates the possibility of the landlord being left with an unpaid bill if the tenant should default on his/her payments.This happens more often than one might think and always comes as a nasty surprise to the landlord.Making the landlord and tenant more directly involved in what he/she is responsible for according to the lease agreement will always make life easier for both parties.

I have landlord friends who have told me they believe installing a prepaid electricity meter has so positively affected landlord tenant relations that they have more tenants renewing their leases than before.

Whether or not you believe a prepaid meter will encourage tenants to renew their leases most landlords will will be happy with the knowledge that they won’t be getting irate tenants phoning them at the end of each month firmly in the belief that there has been a mistake with the bill.It is ,as always, a choice for every individual to make and what works for one may not work for everyone.

…To Part 2

Investors suffer as "buy to let" market slumps.

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Recently there have been many reports stating the major increase in demand for rental properties.However more recent information provided by experts has indicated that there is actually only a small increase this year and in some cases even a decrease in the demand for rental properties.

This will come as a surprise to most investors who expected a big increase because of the high cost and difficulty in obtaining a bond.The low demand is said to be due to the high cost of living these days because of the increase in interest rates recently.This will of course make food,petrol and other basic living essentials more expensive which in turn tightens the household budget.

The tenants then either downscale and move to smaller more affordable accommodation or decide to pool their resources and live together with family.So this is leaving investors with empty properties,defaulting tenants and major shortfalls on their bonds.

Many owners of rental properties can’t lower what they charge in rent either because of the effect this will have on their monthly shortfall.They have also been affected by the interest rate increases and have stretched their finances as far as they can go in most instances.This reality may further increase the percentage of distressed selling and properties in possession.

We, as South Africans, are still waiting for the full impact of what the global financial market has suffered through recently.Hopefully we are as resilient and protected as Trevor Manuel has indicated and we continue to grow as a country.We are still hoping for that interest rate cut to come soon and offer some relief to us all.

What if your tenant wants to cancel the lease?

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There are many things a landlord should be concerned about, getting the rent on time,maintaining your rental property and of course having a tenant.This sounds like a relatively easy thing in this time of high rental demand,However what if your tenant wants to downscale or move out for any number of reasons before the agreed upon end of the lease.

This could be a potential disaster.That is why it’s a great idea to have a cancellation policy in your lease agreement from the beginning.This will certainly save you many headaches in the future.One of the ways to do this is to state that the tenant is responsible for a certain percentage of the total monies owed for the remainder of the lease.

You could do that or have a fixed cancellation fee, as long as everything is legal and both parties agree ,this could really help you find a quick resolution to a potentially sticky situation.It is probably not a situation that occurs very frequently but it could also work to your advantage, you could then negotiate a completely new rental agreement with a new tenant.

In other cases where there is no such agreement the tenant will be liable for the payment of the rent for the remainder of the lease even after they have moved out if the landlord has been unable to find a replacement tenant.That said a landlord may never receive full rental payment for a property from two different tenants,because one of them will be paying for nothing in return.

The biggest reason a tenant will want to cancel their lease agreement early is because of financial strain and being unable to keep up with the payments.Another reason they may want to cancel their lease is for health reasons related to the specific type of property they rent.For instance ,if for some reason they can no longer climb stairs and their current home is on the second floor and their is no lift.

Job transfers to other cities and the landlords poor maintenance of the property are of course other factors to consider.The landlords maintenance of a property should be up to standard at all times as poor maintenance thereof is also considered a breach of contract on the landlords part,if the tenant can prove this they can cancel their lease without any negative implications for them as tenants.

Alot of times the tenant really doesn’t have any option but to move and there is no reason why you shouldn’t have protected yourself ,and indirectly the tenant , by already having a legal,satisfactory clause in your lease agreement that will resolve these situations smoothly.

Would you allow a tenant to run a business from your property?

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There is often a certain amount of tension between a landlord and a tenant,whether it be due to a landlord’s poor maintenance of a property or a tenant paying their rent late.These are usually issues that can be resolved with both parties feeling happy with the outcome,but what if your tenant makes their living by using your residential property as a business premises.This is a situation with no easy resolution and as a landlord or property owner you need to protect yourself from it happening in the first place.

The first thing you need to do is check your lease agreement and ensure that there is a clause stating that the premises be used for “private residential purposes only” and “no other purpose whatsoever.” You could also then include something saying the tenant needs written consent from the owner to perform any kind of business from the rental property.These simple inclusions in your lease agreement could save you ,as a landlord, many headaches in the future.

The main reason a landlord should be concerned about this kind of activity on their property is that they could be liable in labour law issues if an accident should occur on the rental property being used as a business.Other concerns are complaints from neighbours, and these could be never ending.There is a possibility of noise complaints,complaints of where customers of the business park their cars, the kind of people utilising the business and of course security concerns about theft and the amount of people coming to the area.

If you currently have a tenant running a business from your property and you are not happy with the situation check what the lease agreement says.If the lease has the clauses stating the property may only be used for residential purposes or specifically prohibits the running of a business from the premises you are entitled to cancel the lease agreement following legal requirements.In terms of the breach of contract clause you could either notify your tenant of your wish to cancel the lease agreement or give them written notice stating they have to immediately cease any business activities or face the cancellation of the lease agreement.Alot of what the landlord may do in these situations will be determined by the lease agreement, so read it carefully.

Depending on your specific property and your relationship with the tenant you can make your own decision regarding this subject.However most property owners are of the opinion that a tenant running a business from your property is far to much of a hassle and you should protect yourself from it.As in all things ensure you follow the legal route and get advice from qualified people.

Try and avoid a bad tenant.

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There are so many things to think of when purchasing a property for investment purposes and the work doesn’t end when you take transfer and the property is finally yours.After all the excitement of closing the deal you will probably now need to find a tenant.This can be tricky and you should take as much time as possible before signing anything and make sure you are comfortable with your choice.

The reason a good tenant is so important is obvious,if they don’t pay you will probably end up in a sticky financial situation.They can also just not care about the property and things they are responsible for can easily be ignored and your property may suffer.

When screening possible tenants be thorough,check their references,make sure there aren’t any holes in their information.Take the time to have a conversation with the applicant and really listen to what they are saying,are they happy in their job or relationship.These factors contribute greatly to where a tenant decides to stay and if they will stay if their situation changes.

You should also research the area you have bought the real estate in and the tenants that rent there.The average income of the area will give you a good idea of many things,like how much rent you can charge.

Once you do have a tenant try and avoid future problems by getting all communications in writing or by confirming any conversations via email.This really will save you alot of stress and confusion.Then you should definitely familiarize yourself with the legal side of being a landlord.From the basics,such as who is responsible for maintaining what, and the more serious aspects like tenant eviction.

Tenant eviction is not a simple process and most laws are in favour of the tenant.So take responsibility,do your research and be happy with your tenant from the begining.Nothing is foolproof but at least you will know you tried your best to get a good tenant.