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The Ultimate Landlord’s Guide

This Landlord's Guide is your roadmap to 1what’s involved in being a residential landlord :

The Buy-to-Let market in South Africa

Determining The Rental Value Of Your Property

7 Steps to Achieving Peace of Mind Across The Property Management Journey

6 Smart Moves Every Landlord Should Make

This guide serves as a thought starter. If there’s something you’d like to know more about,

please let us know.

We hope you find this guide useful!

Contact us at bankonit@just.property

1 This guide does not cover holiday or commercial lets, or homeowners renting out a room.

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The Buy-to-Let Market in South Africa

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It’s Relatively Easy To Get Started As A Landlord

There Are Costs & Risks Involved With Buy-to-Let Investments

Bond Registration Costs

Deciding whether or not you are able to afford a Buy-to-Let property requires you to look further than just the price tag. There are a number of short- and long-term costs that need to be factored into your affordability and calculations, including:

Telephone/Web Connection & Deposit (optional; contact a Telkom Office or other service providers near you for their rates)

A landlord is a person or organisation that owns a property and is paid by other people for the 2use of it . No special qualifications are required – and anybody who owns or wants to acquire

property to let can explore supplementing their income in this way.

Upfront/Once-off Costs

Bond Initiation Fee

Experts predict that the supply of tenants will continue to increase over the coming decade. Changing demographics, more mobile working patterns and relaxing attitudes to home ownership are driving more people to consider renting.

Demand For Rental Property Is Strong And Still Growing

Homeowner's Insurance (to cover the property and the permanent structures on it against natural disasters such as fire or storm damage)

Property Transfer Costs (incl. Transfer Duty)

Home Loan Protection Assurance or Life Assurance Policy (to cede as security against death, disability, retrenchment etc.; depends on the home loan package)

Water & Electricity Deposits (once-off costs; contact your local municipality to find out what the amounts are)

Deposit (optional)

Municipal Provision for Rates and Taxes

Such attractions help to explain why letting property is a growing business. Yet it is important that anybody tempted to become a landlord understands the risks and responsibilities involved, whether that property is one they already own or one they are looking to invest in. Beneath the national figures on tenant numbers lie significant variations from region to region, town to town, even street to street. As a landlord, you need to know your location, your tenants and, crucially, your likely returns.

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12 Adapted from the Cambridge Dictionary

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SECTION 1

Homeownership Costs

Bond Repayments

Maintenance Costs

Levies (for Sectional Title or HOA)

Problem tenants

Tax liabilities

Household Insurance (optional but advisable)

The Risks of a Buy-to-Let investment Include

Rates & Taxes

Unplanned vacancy periods

Variable rents from one lease period to the next

Rising mortgage bond interest rates

Short-term depreciation, and the possibility that your Buy-to-Let property could decline, rather than increase, in value

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Want to know more about these costs and WHY you pay them? Click this useful article.

There Are Multiple Ways To Gain From Buy-to-Let Investments

The property that you buy and the tenants that you aim to attract will be driven by your underlying reason for entering into the property rental market. There are 2 ways that you can seek to make a return on your investment: capital growth and rental income.

Rental income is the income you receive from your tenant. This may also increase over time but like house prices, rent can go down as well as up. Calculating your rental yield is a useful way of reviewing your Buy-to-Let strategy and assessing a potential purchase, whether it’s your first Buy-to-Let property or you’re adding to an existing portfolio. Rental yield is essentially the return on your investment.

Most people are looking for a combination of these, but it’s likely that your underlying reasons for investing mean you will place more focus on one or the other:

Capital growth is the term used to describe the change in property value over time. If you bought a property for R200,000 in 2002 and sold for R340,000 in 2012, the capital growth would have been 70%. Capital growth can be difficult to forecast and you need to remember that house prices can also fall. If capital growth is important to you, consider the region, town and type of property that you buy. Historical house price trends may be an indicator of future performance, so you may want to inform your decision regarding property location by reviewing regional trend data.

Our agents can provide you with city, suburb and sectional title-level reports that will help you better understand the opportunities in your area.

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The 3 P’s That Should Guide Your Property Search

When deciding whether to become a landlord – or asking yourself whether you are going about it in the right way – it pays to consider the 3 P’s that generate tenant demand: having the right property in the right place at the right price.

Whether or not your approach to being a landlord adds up depends on whether you can offer tenants these 3 P’s, whilst still covering your costs and generating a reasonable return on any investment you have made.

Don’t be dazzled by the high rents some areas command, as there are often higher costs associated with owning property in these locations. Further, this may not be where the demand lies.

In Q4 2018, 48.8% of the national rental demand was in the R3000 – R7000 per month 3bracket and 28% of the rental demand was in the R7000 – R12000 per month bracket .

By using reliable data and tried-and-tested tools, Just Property rentals and sales agents work closely together to give you insights into local market trends, including

expected yields, capital growth and risk measures.

3 Source: TPN

Determining the Rental Value of Your Property

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Your objectives; people own rental properties for various reasons and these can influence the desired rental income

Prices of other rental properties; tenants are well-informed and will certainly be aware of the rental values of comparable properties. Rental prices need to be competitive in the market.

Location of the property; suburb, sea views, amenities, schools, business districts, and transport routes all play a major part in the demand for a rental property and therefore influence price. More desirable locations command a higher rent value.

Pricing rental property is not an exact science and our industry experience is extremely valuable here. We use a number of factors to guide our rental valuations. They are viewed collectively to derive a fair and reasonable market value:

The condition of the rental property; rentals with high-end finishes or that are very well maintained will fetch higher rents than properties that are not as well presented

The basic economics of supply and demand influence rental values; in markets where demand exceeds supply, rental prices may be inflated

Establishing the market related rental value of the property; the accepted current standard calculation is to charge between 0.7% and 1.1% of the property’s market related sales value in relative terms. Take note: as the property’s value increases the percentage of rental yield can decrease because of the low demand for rentals in high-value properties in certain areas.

The Risk of Overpricing a Rental Property

When a property rental is priced according to fair market value, it attracts a pool of good calibre, long-term tenants to choose from. Setting the market value incorrectly can mean landlords can face costly vacancies or the risk of being targeted by questionable tenants.

The Risk of Underpricing a Rental Property

If you do not charge enough rent to cover expenses (both regular and incidental), you will experience negative cash flow. The cash flow of a rental property is the amount of profit that you earn from that property after paying off all expenses, taxes, and bond payments. A positive cash flow means that you’re actually earning money on your investment, while a negative cash flow means that your expenses, taxes, and bond payments are higher than your rental income, resulting in you losing money on your investment over time.

The combination of a fair-market-related rental price and attracting a responsible tenant is what will guarantee a consistent long-term return from a rental property investment.

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Just Property has dominated the property rental and management space for the last 18 years. Our agents have the knowledge, experience, insight and tools to

make sure you price your rental property correctly.

7 Steps to Achieving Peace of Mind Across The Property Management Journey

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STEP 1

Deceased alert check with home affairs

Bank account verification

Check all CPA (Consumer Protection Act) and NLR (National Loan Register) accounts

Get character references from multiple sources to help protect against false references

Unfortunately, not all tenants will be honest and transparent. It is critical to have access to at least 6 months’ bank statements; this will show income and it should also show regular rental payments. Some landlords may have preferred cash payments but a tenant’s inability to show concrete proof of payments should be a red flag. Debit orders bouncing and short-term loan repayments should also raise concern.

Identity match with the credit bureau

Fraud check against SAP database

Criminal check against SAP database

Identity check with home affairs

Check on any judgments or defaults

Almost anyone can generate a fake pay slip and so it is also critical to call the tenant’s place of employment and confirm that the tenant does work where they say they do. There are many other critical checks, such as the actual credit check, but perhaps the biggest mistake landlords make is feeling sorry for the tenant. It is not unusual for tenants to call us late on a Friday afternoon when we can’t check employment etc. saying things like, “the furniture truck is on the way, the kids are crying and we need a place to stay”.

Checks should include:

Tenant Vetting

Our tenant vetting process is strict and we perform the due diligence of credit and other checks before tenants can move in. If tenants don’t meet these requirements,

we will advise against placing them.

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STEP 3

STEP 2

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South African law gives important rights and protections to tenants living in rented accommodation. In the past, only the common law (mostly case law passed down by judges) and the lease agreement was used to govern the relationship between landlords (sometimes referred to as lessors) and tenants (sometimes referred to as lessees).

The Rental Housing Act sets out what should be contained in a lease agreement (sometimes referred to as a rental agreement or a lease). It also outlines the rights and responsibilities of both parties in a landlord- tenant relationship, and provides information on the cancellation or termination of a lease.

Comprehensive Contracts

Now, though, the right of access to adequate housing in Section 26 of the Constitution controls the relationship between landlord and tenant. To put this right into practice, Parliament passed the Rental Housing Act 50 of 1999 to set out the law between landlords and tenants in detail.

Our agents can help you better understand questions like these: What are the obligations of landlords and tenants? Are there any rights or

obligations that a lease cannot take away from tenants?

And our contracts comply with relevant legislation, including the Rental Housing Act and the Consumer Protection Act.

When tenants fail to pay their rent on time, many landlords feel the only course of action is to evict those tenants. Whilst it is an option, it should only be used as a last resort as it takes a considerable amount of time, money and effort. It can also be a struggle to pay your other expenses which rely on you receiving the rental payments on time.

As a landlord, it's absolutely vital to collect your rent payments on time each month. Unfortunately, it's also an aspect that many landlords have little control over: waiting each month to see if and when their tenants decide to pay.

Communication is vitally important in all aspects of being a landlord - particularly so when it comes to rent payments. Make sure you're entirely clear about when the rent is due. You should also outline any fees or other consequences for paying the rent late. This will help to avoid tenants paying late simply because they weren't sure when their rent was due. You'll also help your tenants to budget for their rent: they should know exactly how much to pay and when they need to pay it.

Here are our top 5 tips for getting your tenants to pay their rent on time:

Clear Communication

Rent Collection

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Credit checking bureaus now provide a service for landlords to report the status of rental payments. It's another strong incentive for tenants to pay their rent on time: they'll want to keep their credit score as clean as possible. You can also reward tenants who always pay their rent on time: they're rewarded with a better score which helps them to access credit.

Is it that they don't have enough money to pay the rent or that they've simply forgotten when the rent is due? Discuss whether changing the payment date or method would help. For instance, some tenants may prefer to make smaller payments on a more frequent basis. Asking your tenants to set up a Direct Debit or standing order will reduce the chances of them forgetting to make a payment.

Talk To Your Tenant About Why They're Not Paying On Time

Tip: Try to schedule the payments for a date and frequency that suits the tenant. Once a Direct Debit or standing order is set up, your tenants no longer need to worry about remembering to pay the rent every month. What's more, you won't need to waste any more time chasing for late payments. It's a win-win situation for you both.

Charge A Late Payment Fee

Charging tenants a fee for late payments may help to motivate them to pay their rent on time. You will need to make sure any late payment fees are clearly stated in the lease. NB: You need to be a registered debt collector to charge a late payment fee.

Report The Status Of Rent Payments To A Credit Check Bureau

Tip: If a tenant is late with their payments, let them know that you intend to report their payment as late. This may persuade them to pay their rent sooner rather than later.

Consider offering your tenants incentives for paying their rent on time. Reward programmes can provide motivation for your tenants to pay on time. It also benefits you by greatly reducing the amount of time you spend chasing payments

Offer Incentives For Prompt Payment

STEP 4 Dealing with Delinquency Promptly

Do not evict the tenant yourself!

Quite understandably, landlords sometimes resort to evicting undesirable tenants themselves just to find themselves in a far worse predicament than before. Lock-outs, power-cuts and other such tactics used by a landlord play right into the hands of tenants who refuse to move out of leased premises as they cannot be evicted by an owner of a property.

Sometimes, despite your best efforts, a tenant will still pay their rent after the deadline. If you wish to evict them, you'll need to make sure you follow a set of strict procedures for evicting a tenant. This process is regulated and needs to be carefully followed. Relevant eviction laws include the Debt Collectors Act, the Prevention of Illegal Eviction (PIE), and Extension of Security of Tenure Act (ESTA).

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With legal advice on hand, extensive experience in the market, and tried-and-tested systems and documentation, our agents are well positioned to help you manage

the risk of tenant delinquency.

STEP 5 Effective Maintenance & Management

Managing a rental property involves a short list of responsibilities that can take up much more of your time than you may anticipate: maintenance and management.

Tenant onboarding: incoming, interim and outgoing inspections, explanation of House Rules, deposit collection

Accounts: payment and reconciliation of accounts on a monthly basis, management of deposits (and interest earned in accordance with industry regulations) and monthly rental payments

Profitability

Maintenance: property faults, insurance claims and complaints

Profitably managing an owned property is quite a daunting task. Many owners incur losses when they are unable to tackle certain situations. Here are 3 problems that are quite common while managing properties, and their possible solutions.

Charging low prices to tenants and/or improper overall management can also impact profitability. The best solution is to hire a professional property management company that offers comprehensive services for handling all aspects of the property.

Complaints from tenants can keep pouring in on a daily basis. These complaints range from small issues with other tenants, to major complaints to do with the state of the property. However, most complaints are to do with repairs or correcting something on the property. It could be about the illumination in the common areas and requests for brighter lights, or it could be about the potholes in the driveway. Every complaint needs to be looked into and cannot be ignored, especially ones that show potential problems in structural aspects of the building. Tenants should also feel that their complaints are being heard and appropriate action is being taken.

Profitability is affected by several factors and the overall management of the property. One of the reasons is extended vacancy periods. This issue can be handled with the right marketing technique for attracting tenants to the property; ask people in your circle of influence for referrals. Someone is likely to know of a tenant looking for accommodation.

3 Common Issues in Property Management and Their Solutions

Buildings and individual houses need ongoing maintenance in structural aspects, plumbing, and electrical systems. Anything can pop up at any time, and repairs have to be attended to immediately to avoid inconveniences to tenants. The best solutions for managing maintenance issues is to have a preventive maintenance program in place, and have a professional staff attending to the repairs.

Handling Tenants and their Complaints

Maintenance Issues

STEP 7

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STEP 6

Outsourcing to Experts

Clear processes, established routines, standardised documentation and regularly soliciting feedback all help to provide quality assurance.

The rental industry is supported by the Rental Housing Tribunal, which moderates tenant and landlord disputes that cannot be resolved internally.

There is a lot more to managing rental property than what meets the eye. The table below outlines what Just Property offers for both Procurement Leases (where a tenant is sourced and you do the rest) and Management Leases (where everything is handled by your agent).

Quality Assurance

• Listing and advertising of property, as agreed in consultation with the landlord (all costs included)

• Monthly management of rental

• Accompanied property viewings

• Procuring a suitable tenant (identify and qualify)

• Accompanied handovers

• Collection of deposits & 1st month’s rental

• Extensive credit checks/vetting (incl. employment & affordability checks)

• Safekeeping of deposits in an interest-bearing trust account

• Use of comprehensive and up-to-date legal documents (comprehensive lease agreement)

• Protection of all tenant and landlord data and information

• Expert property evaluation and related market advice

• Inbound inspections

• Collect and clear all payments

• Outbound inspections and related reporting and resolution of identified issues

• Issuing of Letters of Demand for non-payment

• Maintenance; arrange quotes and liaise with contractors

• After hours/weekend assistance for maintenance/emergencies

• Manage body corporate matters and disputes

• Disbursements of funds on behalf of the landlord, as instructed (payment of utilities, municipal accounts, levies etc.)

• Represented by an experienced rental specialist well versed with the CPA and the rights of a landlord and tenant & Rental Housing Tribunal Matters

• Referral to sales agents, if appropriate (selling with a tenancy)

• Regular contact with landlord and tenant, as appropriate

• Tenant Liaison; buffer between landlord and tenant

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6 Smart Moves Every Landlord Should Make

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SMART MOVE 2 Start small

SMART MOVE 5 Get professional help when you need it

SMART MOVE 3 Don't invest somewhere you don't know

SMART MOVE 6 Keep your tenants happy

SMART MOVE 4 Figure out the right rent

SMART MOVE 1 Recognise that being a landlord is a business

Being a landlord is a long-term investment that needs to be approached carefully. Here are 6 smart moves that, we think, every landlord should make:

Want to talk to a rental and property management expert?

Email us at bankonit@just.property or find an agent near you.

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