Michelle Dickens, managing director of TPN Credit Bureau gives us the lowdown on letting property in an estate.
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Presenter: Welcome back to the Trendy Winter Home on Afternoon Express, only on SABC3. Now, Private Property has teamed up with Afternoon Express to provide you with advice on the different aspects of property and estates. Now, if you are a landlord perhaps, or an investor who wants to invest in property and particularly to rent out that property, today's segment will be of great interest to you. We have Michelle Dickens, managing director of TPN Credit Bureau in studio to give us the lowdown on letting property in an estate. Welcome to our loft.
Michelle Dickens: Good afternoon, Dan.
Presenter: So Michelle, let's talk about what your company does because numbers seem to be the most important thing when it comes to looking at buying.
Michelle Dickens: So what TPN does is we are a credit bureau, and we collect rental data on tenants around South Africa. And the idea is to understand where people rent, how much they rent for, and most importantly how they're paying their rents on a monthly basis. Coupled with that rental data, we overlay the deed status, so we've got a market value for the property. We've got a rental value for the property. And we can then determine the gross yield on a per-property basis.
Presenter: So if I rub the genie's lamp I can get all this information out which will help me make a wise decision when it comes to buying to let. So what is your data showing?
Q: Where are people buying? Where are people renting? Where should we buy and where should we rent?
Michelle Dickens: So there's different things that a landlord or an investor's going to look for. He's either going to look for capital appreciation or he's going to look for yield appreciation. And the yield appreciation takes into account data factors or factors such as my delinquency ratios, my vacancy ratios, and how much rent I'm actually able to achieve. We look at that and we say, "Well, what are the different areas performing?" I can tell you down in the Western Cape that's one of our best performing areas in terms of rent collection. So our tenants pay incredibly well down in the Western Cape. But as we know, property's at a premium, and so our yields are not nearly as high in the Western Cape as they are in say, Johannesburg. Johannesburg, and Tshwane, and [inaudible] I get my best gross yields, but unfortunately, my tenants are a little bit more challenging to collect rent from, and so I might have a little bit more of a delinquency rate.
Presenter: Okay. You mentioned delinquency.
Q: Sorry to interrupt you there, but delinquency itself, is that basically a tenant who doesn't pay on time or doesn't pay at all?
Michelle Dickens: Correct. So we look at the data as a good standing tenant is a tenant who's paid on time, paid late either in the grace or later in the month, but by the end of the month, he's paid up. Our delinquencies then, are tenants who either partially paid or not paid.
Presenter: We don't want those.
Michelle Dickens: No, we don't. And nationally, we have about 6% of tenants who are in the delinquency--
Presenter: Which is quite a lot.
Michelle Dickens: --non-payment.
Presenter: Which is quite a lot.
Michelle Dickens: Or you could go to below 3,000 rand rentals and there your tenants are 13% in the did not pay category.
Presenter: Pay your rent, people. Pay it. Obviously, the landlords, the guys who are making these investments don't get to make their money back. And it's quite a legal nightmare to be able to fight those sort of battles and to eject people from property because of what our constitution does try and protect.
Q: But what about estates? I mean, where are estates on your map at the moment? Are estates a good place to invest?
Michelle Dickens: So estates are a fantastic place to rent in terms of location, location, location. Typically, what you're buying into there is a premium. You're buying into a lifestyle estate. And buy to rent, even a buy to invest is not a short-term decision. It's a long-term decision. And so over a 10, or 15, or 20-year period, one expects there to be a change in the cycle and for capital appreciation to start delivering in our estate market.
Presenter: Okay. So estates are a good place to start looking into. But in terms of the rules and responsibilities, you're kind of liable as the owner of the property if your tenant starts to behave terribly on the estates, starts to play loud music. You're quite responsible as the owner.
Q: So first of all, how do we go about choosing the right tenants to put into an estate house that we're renting out?
Michelle Dickens: So tenant selection is one of your key critical areas in terms of your placements. What you want to look at there is their previous rental experience, how they've paid their rent, their previous credit behavior, judgments, and defaults.
Presenter: Can we ask for that information--
Michelle Dickens: Absolutely.
Presenter: --from them? Okay.
Michelle Dickens: We need the consent of the tenant. So effectively, what the investor or the agent on their behalf does, ask for consent and then perform the relevant credit checks to ensure that the tenant that we're placing has the right history and therefore is going to be a good tenant going forward. So one of the key elements of your lease is signing a lease agreement at the beginning of the lease and making the rules of the lease, the homeowner's rules, materially part of that lease agreement. So annexing it to the actual lease agreement. That's important because if your tenant is non-compliant in terms of those rules, the investor can then pass a fine onto the tenant in terms of any fines that he might've received. If the tenant is breaching the rules in such a way that it's a material breach of the lease agreement, the landlord can then start the process of evicting the tenant. And it's the same process in terms of whether the material breach is non-compliance of rules versus non-payment. The challenge with the lease agreement is it can be either verbal or written. So simply because you've got a verbal rental agreement or lease agreement, you're not going to attach rules to a verbal lease agreement. But the Rental Housing Act has got some amendments at play. Potentially that means that the lease will have to be in writing. And it's a good idea then to annex those [inaudible] rules or homeowners rules as part of that lease agreement.
Presenter: Stunning. So there you guys have it. Renting out a property on an estate can be a very good investment. But as with most rental investments, conducting research beforehand and screening your tenant thoroughly is absolutely needed.
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