Renting

Property Investors: Are You Renting Securely?

Renting is a risk that landlords undertake and unfortunately, it does not always play out the way they want it to.

However, recent statistics do provide for a somewhat-positive spin on an otherwise negative economic situation: even though as a percentage of total home buying is lower in recent years, research shows that buy-to-let investors (and its tenants) are still playing an important role in stabilizing the rental market as a medium to long-term investment.

Economic impact…

The data that were collected showed that there was a decline from 72% to 65% (Q3 2014 to Q2 2018 respectively) of tenants paying on time. These figures indicated the impact that the ‘technical recession’ is having on tenants and in turn investors who didn’t receive their rental payment consistently and/or on time.

To add on to that, landlords also had to deal with the trouble of removing tenants who refused to move out of their rental units. In a situation like this, legal assistance is almost always required and it can turn into a long and expensive process. The landlords might even lose more during the laborious legal battle than missing a number of rent payments that are owed to them.

Legal action required…

South African landlords cannot evict tenants themselves but would need to seek a court order to evict a tenant if the tenant has breached the contract. The landlord is then forced to take legal steps to strongly urge tenants to rectify their breach as soon as possible.

If this is not done, then the next step is to take legal action. This starts with a formal complaint with the Rental Housing Tribunal or simply seeking an attorney’s assistance. All of these elements require time and money with legal fees that have to be paid upfront. Eventually, these could possibly be recovered from the tenant along with the rental arrears and interest incurred. Unfortunately, in the meanwhile, tenants are pretty much squatting in the rental unit.

Option of rental protection…

Some real estate agencies in South Africa have products that guarantee buy-to-let investors their monthly rental in full, even if the tenants default their rental agreement, only pay a portion of what they owe, or refuse to move out. Even if eviction is initiated, tenants still live on the property during the process. The products might cover rental and legal fees up to a maximum of R100,000 during the period of lease and occupancy.

What a clever product for landlords, no?

Even though location was and always will be one of the most important aspects of buying any type of property, when it comes to rental units, there is one more vital element: a good tenant.

Sort out your credit record…

A tenant with good standing and an excellent financial record has always been the very tool landlords used to build their wealth from that asset.

From a tenant’s point of view, this is the image that you should aspire to achieve if you want any landlord to take you seriously.

Anyone seeking to boost their credit score should consider their personal debt. The NCA takes into account all lines of credit despite an active or inactive status.

This means that the maximum amount on store cards, credit card limits, and overdraft facilities were all taken into account when applying for a credit rating.

For example, if you have 5 store cards each with a limit of R3,000, a credit card limit of R15,000 and a R100,000 overdraft limit, the NCA amounts that you have R130,000 worth of debt even if you did not activate any of these debt levels. Add to that, various payments such as student loans and car payments, and the opportunity to secure the desired rental disappears in a cloud of debt-laden ether.

What’s the lesson out of all of this? Avoid this dilemma completely by canceling unused store cards and reducing the limit on your credit cards and overdraft accounts.

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