Reports in the property media regarding the return of buy-to-let investors to the residential property market, although in some cases a little too bullish, are fundamentally correct, says Tony Clarke, Managing Director of the Rawson Property Group, as there has been a definite increase in the number of buy-to-let investors over the last year.
“Rawson franchises like those in Table View or Green Point report a 40% rise in buy-to-let investors over the last year,” said Clarke. “However, we are now beginning to see what we saw in previous eras, a tendency to rush into this asset class without taking sufficient care on the preliminary investigations. Under these conditions the investor seldom gets the best return.”
Before buying any property to rent, said Clarke, the purchaser should take the obvious but often neglected step of checking on the strength of the market and current rental demand. This can be done by phoning a selection of rental agents in the area.
“Quite often,” said Clarke, “an estate agent will market a property, emphasising its potential to give good rental returns. This, however, should not be good enough for the average investor, especially if he is paying a bond on the property and an immediate satisfactory cash flow is important to him.”
Then, too, said Clarke, the investor should know that care is taken in the selection of tenants. Calling in the help of an experienced rental agent here is a precaution every landlord should take. Although it may cause the loss of one or two months rental while the unit stands empty, the selection process should never be hurried.
“In today’s market,” he said, “the landlord and/or his rental agent may find themselves with four or five prospective applicants to choose from. The credit, previous rental and employment records of these should all be checked and good agents will always have access to the credit bureaux.”
Clarke warned landlords also to be cautious in dealing with those tenants who offer to pay well above the rent asked or to sign a longer lease.
“Our experience has been that such people often turn out to be would-be high flyers who are not particularly good at handling their money and possibly not even their careers. They then have a bad tendency to become part of the 28% (according to the Tenant Profile Network) who pay late, pay partially or do not pay at all.”
The tenant who says that he is renting now in the hope of buying that property at a later date, said Clarke, should also be treated with caution. While this claim may be true, it should never influence the landlord’s choice in any way, even if he does plan on selling his unit at some stage.
The Tenant Profile Network figures, commented Clarke, indicate that the most unreliable payers are those paying rents below R3,000 per month and over R25,000 per month. A staggering 16% in the latter category are actually not paying at all. Nevertheless, overall, the Tenant Profile Network data, said Clarke, indicate very clearly that buy-to-let assets are a worthwhile investment at this time.
Once a good tenant has been found, said Clarke, the landlord and/or his agent should get to know him personally and keep in touch.
“In the ideal relationship, the tenant will be able to discuss any financial or other problems he might be experiencing and possibly work out a solution with his landlord.”
Every effort, added Clarke, should also be made to keep good tenants. In the current market this may well mean limiting annual rent increases to 6% to 8%, i.e. so that they simply keep pace with inflation.
“This is definitely the right way to go if your tenant is a good one. Supposing he is paying R5,000 per month and you increase it by 10%, that will bring you in another R500. An 8% increase on the other hand would give an additional R400 per month. It is certainly not worth losing a tenant for such limited increases in the monthly rental.”
“Greedy landlords, added Clarke, often lose good tenants who usually have no difficulty in finding alternative premises.”
Drawing up leases and liaising with tenants, said Clarke, call for specialist knowledge and personal skills – which many landlords do not have.
“For the majority of landlords the right road to go is, I believe, to appoint an agent. The 10 or 12% commission that the landlord may then have to pay will in most cases often save a great deal of emotional strain and many administrative headaches.”
