Although the number of buy-to-let investors in the residential property sector is well below the previous peaks, an upswing in this field is definitely on the cards because rents are rising very satisfactorily year-on-year – and this, says Tony Clarke, the Rawson Property Group’s Managing Director, makes it all the more important to ensure that tenants taken on now are very carefully selected.
“The latest TPN Credit Bureau survey (Quarter 1 of 2013),” said Clarke, “indicates that in residential property nationally 84% of tenants are ‘in good standing’ with their landlords. In ‘good standing’ includes sub-categories of 71% of tenants who paid on time, 3% of tenants who paid in the grace period and 10% who paid late. It is pleasing to point out that only 8% of tenants were recorded as being in the “did not pay” category while another 8% made a partial payment.”
Although this is not a seriously unhealthy situation (some other countries defaults are far more serious), said Clarke, it does show that South African tenants will, from time-to-time, encounter repayment difficulties and default on their rents. Partnership bust-ups, general credit card and job problems can all make it difficult to maintain payments – and the situation, all too often, is exacerbated by small rental agents not doing their essential checks thoroughly.
The first and probably the most important check, he added, is to review the applicant’s financial position. This should include a check on his salary (consulting the employer directly to confirm the salary slips) and a thorough review via the credit bureaux of all his current and previous credit accounts. Any serious defaults and non-payments here, said Clarke, should result in eight out of ten applicants being rejected.
“A fault made by many agents,” said Clarke, “is to allow the tenant to pay well above 30% of his and his spouse’s/partner’s combined salaries. Tenants signing on at recklessly high levels all too often later see rent payments as a non-priority obligation.”
When checking the applicant’s previous tenant performances, said Clarke, it is wise to be sceptical about testimonials from previous landlords.
“It is not uncommon for a landlord to lie and give his possibly irresponsible and unreliable tenant a good reference when contacted by the tenant’s new landlord, his sole aim to rid himself of the tenant.”
One tip here, said Clarke, is to ask to see the tenant’s previous landlord’s outgoing inspection list. It will show how well (or how badly) he cared for the property. If no such list is available, that in itself is grounds for serious suspicion. An applicant should also be asked to produce copies of the public utility bills that he has paid previously.
If the prospective tenant is young and shows signs of possibly being less than reliable, it is in order – and in fact advisable – to ask for sureties. These can be had either from his employer or from his parents.
With demand for rental accommodation so high, there are often four or five prospective tenants applying for a single property. It is therefore in order to ask applicants to fill in a tender document in which all of the above matters are covered.
“All in all, it cannot be stressed too often that the tenant selection process should not be hurried and those agents who, to save themselves trouble, simply select the first apparently sound applicant should not be a part of this the profession because they can cause serious problems for their landlords and lead to the whole buy-to-rent market getting a bad name.”