How to be a successful landlord

Owning rental property has long been regarded as one of the best ways to safeguard a long-term investment and achieve a decent return, but current conditions in the property market mean that landlords now really have to “work smarter” to come out ahead.

“It is not that there is any lack of demand for rental property,” says Jan Davel, MD of the RealNet estate agency group. “In fact, according to recent research published by Mike Schussler, one in every five households in SA is currently renting a home – of which properties about 660 000 are in the formal sector and 1,6m not formally recorded.

“In addition, rental returns do seem to at least be keeping pace with inflation. According to the newly-launched PayProp Rental Index, the average home rental in SA is currently 6,6% higher than a year ago, whereas the rate of inflation is only expected to top 6% in the first part of this year before dropping back again into the Reserve Bank’s preferred 3% to 6% range.”

The problem, he says, is that the economic woes that have beset the country over the past few years have also affected tenants, and that, according to the TPN Rental Payment Monitor, the percentage of tenants who do not pay their rent every month, or pay only part of it, has consistently remained at around 20% since the third quarter of 2009.

“And this situation is poised to get worse in the light of a possible new recession in Europe this year, higher food and transport costs locally, higher municipal tariffs for water and electricity and the possibility, however faint, of an interest rate increase to curb inflation that would further weaken household budgets – and tenants’ ability to afford their rent.”

Consequently, Davel says, prospective and existing landlords should take the following steps to ensure the safety and profitability of their investments:
  • Choose your rental property very carefully with regard to location and type. For example, the TPN figures show that rental payment rates are best in the R3000-R7000pm and R7000-R12 000pm categories, and that the best payers are to be found in Eastern Cape, where 88% of tenants are in good standing, followed by the Western Cape (84%) and KZN (83%), while Gauteng has the worst record, with only 76% of tenants in good standing. On the other hand, the PayProp index shows that Mpumalanga currently has the highest average rental (R6101pm), followed by Limpopo (R5571pm), but that the most popular price bracket for rentals nationally is R2500-R5000pm, which accounts for 51% of all rental contracts and 38% of the value of all rentals.

  • Give yourself some leeway. Buy for cash if possible or pay the biggest deposit you can afford on your rental property and use any positive difference between the monthly rent and bond repayments to pay down the bond as fast as you can. This will provide a cushion against possible interest rate rises and also against possible non-payment by your tenants and any delay while you clean up the property, advertise and replace them with paying occupants.

  • Get professional help. One of the biggest mistakes you can make as a landlord is to overpay for your rental property in the first place, so it’s really worth getting help from a reputable estate agent to properly value any property you consider buying, and to help you negotiate the price you’re willing to offer. Given the typically small margins at the moment between rentals and bond repayments, it also pays to make use of a specialist rental management agency to ensure that your rent is collected on time and in full every month, and that you can react swiftly and correctly if your tenant defaults.

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