Reports regarding the return of buy-to-let investors to the residential property market are, although in some cases a little too bullish, fundamentally correct, says Tony Clarke, MD of the Rawson Property Group.
“Some Rawson franchises 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 in without taking sufficient care on the preliminary investigations. Under these conditions the investor seldom gets the best return.”
Before buying property to rent, 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 calling a selection of rental agents in the area.
“Quite often,” said Clarke, “an estate agent will market a property by emphasising its potential to give good rental returns. But this 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.”
Tenant selection
The investor should also know that care is taken in the selection of tenants. Calling in the help of an experienced rental agent here is a precastrong textution 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.”
Tread lightly
Clarke also warned landlords 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 – TPN) 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 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 worst of the worst
TPN figures 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, TPN data indicates clearly that buy-to-let assets are a worthwhile investment.
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.”
Keep good tenants happy
Every effort, added Clarke, should be made to keep good tenants. In the current market this may well mean limiting annual rent increases to an inflation-linked maximum of 8%. “Greedy landlords often lose good tenants, who usually have no difficulty in finding alternative premises.”