About 10% of all home sales in SA currently are “buy-to-let” purchases by investors who intend to rent their properties to tenants, and this is expected to keep rising over the next few months because of the steep decline in interest rates that makes it easier to afford investment properties, combined with the rising demand for rental homes from people who cannot afford to buy, or who have sold their homes due to financial pressure and are now looking to rent.
In addition, there are already thousands of existing “landlords” who own one or more rental properties.
“It has been estimated that there are somewhere between 750 000 and 1m rented homes in the formal property sector, and we would venture to say that most of those are in private hands and not owned by big organisations,” says Gerhard Kotzé, MD of the RealNet estate agency group.
“However, the Covid-19 pandemic has highlighted the fact that managing such properties – and tenants – is becoming ever more complex, and that there are not many private investors with the specialist knowledge or time to do so. Increasingly, they need help from properly trained and qualified letting agents who also comply with relevant legislation and regulations.”
Depending on optional services and matters related to maintenance, such an agent is usually paid around 10% of the monthly rental but, he says, most landlords find that this is not actually a high price to pay for the peace of mind that comes from having a professional manage their leases, tenants and, if necessary, properties in their absence.
“Take an example of a property that lets for R7500 a month, or for a total of R90 000 a year when all is going well. A professional letting agent will earn around R9000 a year from this property, and this is considerably less than the two months’ rent which is the minimum a landlord can expect to lose if a tenant starts to default.”
What is more, says Kotzé, serious defaults are always less likely when you work with an agent who can offer you the two major advantages of better tenant selection and better rent collection. “Professional letting agents have access to systems and information that enable them to ‘pre-qualify’ tenants properly, so that there is a much lower risk of you ending up with a tenant that is a bad payer or likely to damage your property.
“In addition, by hiring a letting agent, you put a buffer between yourself and the tenant. You don’t have to listen to excuses, chase down rent, or be the ‘bad guy’ if it becomes necessary to evict the person living in your property. Agents also have an advantage because tenants usually realise that they, unlike the owner, are just doing their job and are obligated to enforce the lease terms. In fact many agents say that it is considerably easier to manage other people's properties rather than their own, for this very reason.”
The real question is, then, how to select a good letting agent? A personal recommendation always helps, he says, but if you have to decide for yourself, you should preferably choose an agent who already manages a portfolio of rented accommodation and can provide references from other landlords.
“Next you should make sure your agent is registered with the Estate Agency Affairs Board, has a trust account for clients’ money and only takes commissions from landlords (not from tenants). It is also preferable that the agent or agency is a member of one of the established national real estate groups, as it improves the chances of the agent using tried and tested management systems and complying with a number of Acts and Regulations that are specific to property letting. And of course, the fact that there is a ‘big brother’ with a corporate reputation to protect is also to your benefit.”
Kotzé says that having made your choice of agent, it is likely that you will then be asked to sign an agency agreement or “letting mandate” that covers the agent's right to let the property on your behalf and manage it during the tenancy. “You must make sure that you read this, and do not sign it if there’s any part that is unclear or that you don’t agree with.
“Similarly, you should check out the lease agreement your agent will be using. And if there are any special instructions you want your agent or tenant to follow, you must put them in writing, date them and keep copies in a clearly marked file. Remember that the agent always represents the property owner (landlord) and cannot and should not do anything without the express mandate of the owner.”
However, once you’ve reached agreement and the agent knows what you expect, it’s time to back off and let the agent do his or her job, he says.
“An experienced letting agent will know how to find a suitable tenant and how to check their records. He or she will also ensure that an adequate deposit is paid and react quickly and correctly if the rent is not paid promptly or if repairs are needed. An agent can only take corrective actions in terms of your mandate and a good agent will keep you informed of all relevant matters. And that is, after all, the service you are paying for.”
