The property market has
progressively evolved into an investment opportunity
- many people are looking at the property market
as a means of earning extra income, and over time, making their
capital grow. Louie Hanna, owner of Landlords Resource Agency and
host to the Landlords website (www.landlords.co.za), offers
landlords a number of useful tips, information and blank contracts
that can be used to ensure that their properties are rented out as
efficiently as possible.
The six
fundamentals
When asked if she believed
whether most home owners handle the leasing of their properties out in a
proficient manner, Hanna commented: “We agree with Australian property
guru Dolf de Roos who said that successful leasing of property hinges on
how correctly and legally six main letting functions are fulfilled.
These functions are
-
running checks on prospective clients,
-
knowing the documents and procedures required,
-
taking swift action to address problems,
-
making use of information resources,
-
adequately maintaining the property and
-
having knowledge of your market and competition.
“Property owners handle most,
but usually not all, aspects of these six functions correctly and
legally. Some may appoint a managing agent, but then they fail to ensure
that the agent has the knowledge and skill to fulfil these six functions
correctly.
“When problems arise and crisis
results, owners often discover that their screening was incomplete or
incorrectly done, that documents and procedures do not conform to legal
requirements or action was never taken in time to solve a problem. In
such circumstances, the cost that results is always paid for by the
owner, regardless of who caused the problem.”
She says that the most common
mistake made by property owners is that they often expect that once they
have invested in a property and found a tenant, they can delegate both
the management function and full responsibility for the property to an
agent while they sit back and grow wealthy - which is definitely not
the case. Other common mistakes include failure to manage and constantly
check the performance of an agent, becoming friends with the tenant,
allowing the tenants to do maintenance, as well as the incorrect
handling of documents and procedures.
Agents versus doing it yourself
Hanna believes that while an
informed property owner might do a better job than a bad agent, the
reverse is also true. “We believe that the choice to let your property
should be based on whether you have the time and live close enough to
manage your property sufficiently, or whether you will need to hire
somebody with the necessary time of who lives close by and can manage it
for you,” says Hanna.
The direct benefit of letting
your property is, of course, the financial saving of the management
fees. Hanna points our that when owners do their own letting, they often
tend to be more “connected”, their judgement is more accurate , they
invest better and they become very competent at advertising and
screening. She says their returns are usually higher and their losses
lower.
When asked what consumers ought
to look for when choosing a rental agent, Hanna replied: “Consumers
should find an agent who works and knows the area where the rental
property is situated. Then, the agent who will be handling the property
ought to be interviewed in person, and should be questioned on how they
would handle difficult situations. Consumers should get this in writing
and make it part of the mandate.
“do a credit check and get a
bank code on the agency. The agency is going to take your tenant’s
deposit as well as handle your monthly rent and you have every right to
ensure that you are dealing with a company who will not increase your
risk even further. Finally put systems in place to manage and follow up
on your property agent.
Keep yourself informed, so that
you know when the agent slips up with procedure, because the landlord is
likely to foot the bill. Most importantly, your mandate is the agreement
you have with an agent. Do not assume things will be done; document them
in the mandate.”
Handling the
deposit
With regards to the correct
method of deposit handling, agents registered with the Board of Estate
Agents must handle banking of deposits and interest in accordance with
the Estate Agency Affairs Act, 1976 (Act No.112 of 1976).
Tenants do not necessarily get
their interest on their deposit when they vacate a property leased
through a registered agency. Everyone else, non-registered managers and
property owners, must bank the deposit in an interest-bearing account
with a registered financial institution, and not in the property’s bond
account.
“The interest together with the
deposit must be refunded to the tenant within seven days after they
vacate the premises. Deductions for outstanding payments, maintenance
and damage can be made, but must be clearly presented to the tenant and
supported by documentation. Where deductions are necessary, the balance
of the deposit and interest must be refunded within 14 days after the
tenant left,” explains Hanna.
Screening Tenants
Experian and ITC are two
national credit bureaus in SA who can help you perform a credit check on
prospective tenants – a number of websites provide access to credit
profiles using these two bureaus. As a subscriber to these cites, a
landlord can draw a credit profile report after providing the tenant’s
information. One must however have written permission from the tenant to
do this.
“It must be said that while a
credit profile will certainly identify and disqualify a poor quality
tenant, a clear record is not necessarily a guarantee that a landlord
will receive rent regularly – the tenant will require further
screening,” says Hanna. Things to be aware of when screening tenants
include getting them to fill in a well designed application form, their
appearance and disposition.
Many property owners borrow
money to invest in property and then lease it out. In the current
climate, where there is and oversupply of rental properties and a high
vacancy rate, investors often feel pressurised to fill their vacancies,
which can lead to devastating results where they frequently neglect or
relax the screening process. “Right now, owners should be more vigilant
and selective than ever,” warns Hanna.
According to Hanna, the legal requirements of a lease are that the
lease requirements of a lease are that the lease contains the
following:
§ Names
and ID numbers of the landlord and the tenant. If the landlord is a
company or trust, then the name and registration number if the landlord
must be on the document.
§
A
description of the property.
§
The
amount of rent.
§
Any
other charges that may be payable by the tenant, such as screening
costs, contract fees, penalty fees, etc.
§
The
rent payment interval. Such as per week, month or day. A reasonable
escalation, if any.
§
The
lease period, including the start and the expiry date. If no expiry date
is required, then a notice period must be included.
§
The
obligations of both the landlord and the tenant.
§
A list
of defects as an annexure and a copy of house rules, where applicable.
Landlords can amend and existing
lease. When change are required or agreed upon, they can be done on a
separate document called and addendum. This document must be signed by
both the landlord and the tenant. Hanna believes that adding an addendum
to a lease is a tool that should be used more often than is the case
currently. “For example, when municipalities make changes to their
billing methods for services, refuse and sewerage, owners ought to amend
their existing contracts with addendums to match,” she explains.
If a tenant violates their lease
in any way, what rights does the landlord have? According to Hanna most
landlords assume that they can immediately terminate the lease
agreement, but this is not necessarily true – they are required to give
the tenant notice of the breach and time to remedy it. “We strongly
recommend that landlords spell out in their lease agreement the exact
consequences in the event of a breach of a tenant.”
She notes that the most common
violation in non-payment of rent and refusal to vacate, and that the
only way to enforce these is by way of an eviction order and threats of
blacklisting.
