Landlords: reduce your investment risk

Private Property South Africa
Anna-Marie Smith

Up-skilling and insurance are helping small buy-to-let investors to expand their knowledge and offset associated risks. Industry professionals say that, by exploring these areas, property investors can avoid throwing good money after bad.

This is assuming that, as a buy-to-let investor, you consider every related risk prior to putting money on the table. Be it on your own, or via a mortgage lender, you share the vested interest of making a profit. The marked difference, however, depends on the length of the investment period. While business models of mortgage lenders rely on interest earned over the long-term, indebted buy-to-let landlords may increase their risk exposure to poor tenancy due to a greater need for short-term returns.

But, sound advice from the gurus reiterates the long term view – which also applies to property investments in the listed sector, which is increasingly offering pickings from a growing number of residential funds. They say that cautious landlords may gain by taking advice from letting specialists in the fields of insurance, training, and law.

Losses incurred on buy-to-let properties escalate for various reasons, from property bubbles followed by market crunches, and consumer indebtedness exacerbated by high utility costs. The worst case scenario would be the event of negative equity incurred by an outstanding mortgage loan that exceeds the value of your property, as opposed to owning an asset.

The depth of essential rental- and consumer-related knowledge that is required by a newly-operating landlord depends on the size of the rental book, as well as funds available to train management, staff and property owners. While various industry associations offer training courses, private landlords have access to information on the sites of any number of tertiary institutions, online service providers, and dedicated advice centres of legal firms.

This information facilitates small business operators with readily available summaries of general letting requirements, as well as action and recourse applicable to lease agreements, tenant selection processes, best rental income finance practise, and more. Accredited recognition in the letting profession is increasingly becoming available through any number of part-time online and distant learning courses.

Content material for certificate and diploma courses offered by the majority of South African colleges and universities is freely accessible. A newly launched seven-week short course at the University of Cape Town is an example of practical knowledge and skills, obtainable to manage a residential letting business with confidence and professionalism.

However, insurance also forms a vital part of educated choices when it comes to a knowledgeable business approach. Most landlords, who pay monthly premiums for building and content insurance, are only covered against damages to their property and content, which may be caused by weather, accidents, theft or tenants.

Whereas coverage to insure against the risks associated with defaulting tenants can avoid, and possibly eradicate the event of outstanding bond re-payments, piling into heaps up interest earning debt. Products such as MiRent protect small landlords who, due to outstanding mortgage loans, are exposed to additional risk from tenants in poor standing. This coverage will not only avoid monetary losses, but also the consequences of outstanding mortgage payments escalating into tarnished credit records.

Coverage of up to R100 000 ensures timely rental collections, irrespective of late payments. Added benefits comprise tenant verification, credit checks, compliant leases in respect of the new Consumer Protection Act, plus interest-bearing tenant deposit accounts.

Buy-to-let landlords are now assured of all round coverage within the industry.

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