Successfully Letting Your Property

How to find the right property as an investment?

• Buy close to home. It is easier to manage.
• Do not buy a property in haste, just because you have fallen in love with it. Make sure that what you are buying is going to generate the expected return on your investment.
• Obtain as much information as possible about the property before you view it.

Tips on Successfully Letting Your Property

• Draw up a lease agreement in writing. Although a verbal lease agreement is legal, it is not advised.
• Always check the credibility of your potential tenant. It is advisable to rather accept a good tenant at a lower rental than a bad tenant at a higher rental:

1. Check that your prospective tenant has regular employment, where that is, and how long he has been working there. Also check what position he holds;
2. Ascertain whether he receives sufficient income to meet his obligations in terms of the rental;
3. Ensure that your prospective tenant has no judgments against his name, i.e. black listed. This information is generally available and can be confirmed by the Credit Bureau.
4. Check that he is not an unrehabilitated insolvent (this can also be checked by the Credit Bureau); Click here for more information on Credit Bureau.
5. Confirm his current residential address.

• If you lease your property to more than one person, it is best to contract all the parties and specify that they are all jointly and severally liable in respect of the lease agreement. In the event of dispute you can take action against each individual.
• If your tenant is a company or a close corporation, it is a good idea to bind all members/directors as surety in terms of the lease agreement. In the event of a dispute you can take action against the entity and its representatives.
• Never agree to let your property without taking a deposit. This will cover many unforeseen costs incurred during the lease period, like arrear payments, repairing damages to the property or replacing lost keys.
• Make sure you are aware of the defects on your property. On commencement of the lease, your property should be jointly inspected and a list of any defects or damages should be attached to the lease agreement; make sure both of you sign the list.
• Inspect your property regularly. Just remember, surprise visits are illegal. Be reasonable.
• It is probably the safest to get payment by Debit Order each month from the tenant. Make sure you have consent from the tenant, in writing, that this can be done.
• You need to make provision out of your own pocket for rates and taxes or the levy.
• You may even need to make an extra monthly contribution to the home loan repayment, over and above your rental income, so as to reduce the outstanding balance on your bond faster, in order to reap the benefits of a quicker return on your investment.
• It is not advisable to take the law into your own hands if a tenant does not pay the rent. Speak to a lawyer to understand your legal rights otherwise it could end up very ugly.
• If you are entrusting a letting agent to look after the letting of your property, make sure you still keep your finger on the pulse. It is very easy for things to get out of your control.
• Remember that a well maintained rental property normally attracts the right type of tenant. Poorly maintained properties may attract some who would overlook these ‘problems’, and may also be ‘not too worried’ to make rental payments timeously.

Rental Income Tips

Regarding Rental Payment… Here are some guidelines:

• Generally rent must be paid in money.
• A rule-of-thumb that is used is that the rental is usually calculated at 1% of the property value, however the rental market may dictate otherwise, and you may find that at certain times during an economic cycle you may not be able to ask as much as 1%.
• Rent must be fixed at a definite sum, i.e. R 2 000.00 per month.
• The escalation in the rental should be reasonable.
• Rent can either be payable in advance or in arrears, although payment in advance is most common and safest.
• It must be paid at the place agreed upon in the lease agreement, i.e. into a specific bank account, or in cash at the physical address of the rental property.
• The landlord has to provide the tenant with a written receipt for all payments received. It must contain the date, address of the rented property, the amount paid, what it was for i.e. deposit, arrears, rent, etc. as well as the period for which the payment is made.
• The deposit is normally equal to one month's rental and belongs to the lessee (tenant), however it can be used to recover damages at the end of the lease agreement.
• NEVER allow the tenant to use the deposit as the last months’ rent. If you need to recover damages it is highly unlikely that you will be able to claim the money back from the tenant once he has left your property.

Things That Could Go Wrong:

• You may lose rental income for a month or longer while you are between tenants. Make sure that you are financially able to survive this.
• You may experience a decrease in rental income due to various factors, such as worsening economic conditions or an increase in the supply of rented accommodation in your area, which brings down the rental rates because of increased competition.
• The location of your property could decline in popularity, meaning that you will experience a decline in your monthly rental income.
• There are always unexpected problems that arise, i.e. a burst geyser, leaking taps, faulty stoves and other general maintenance costs.
• Interest rates can go up, which will result in an increase in your monthly home loan instalments. It is not always that easy to increase your rental income accordingly.
• Tenants may pay late, or not at all.

Tax Implications.

Any rental income received becomes part of your personal or business income which means you are liable for tax on the income received. Certain expenses can be written off against the income you derived from the rental. Please consult a tax adviser to assist you when doing your tax returns.

Insurance Cover to Protect Landlords.

Certain Long-term Assurance Companies are providing insurance cover for landlords who want to safeguard themselves in terms of rental income losses and legal costs due to defaulting or absconding tenants. The insurance policy will cover a certain amount of the legal costs as well as a number of months rent to assist the landlord financially during the eviction process.
For more information speak to your a Licensed Financial Services Provider or your Insurance Broker.

This article was provided by The Property Guide. To order the latest edition of this book, click here.