Renting out a property can make good business sense and can generate considerable income, but only if handled correctly and professionally. Rent control laws that favour tenants, bad tenant behaviour and the responsibility of looking after another property may put many people off the idea of renting out their home. However, Adrian Goslett, Assistant Regional Director of RE/MAX of Southern Africa, says that if landlords are well versed in all aspects of renting out a property, it can be a money-generating experience instead of a headache. In addition, he says, making use of a professional rental agent will ensure a hassle-free experience for the landlord, with only the benefits of the rental income. Whichever way you decide to go when renting out your property, Goslett says landlords will have certain responsibilities and obligations to fulfil. These include providing a safe and well functioning home for your tenants such as making sure plumbing, wiring and appliances function and that outdoor areas and stairways are safe. “It also means quickly responding to a tenant's report of any malfunction or problem,” he says. Landlords will also need to advertise the rental, select suitable tenants and evict them if irresolvable problems arise. “The benefit when dealing with a rental agent instead of going it alone,” says Goslett, “is that they take care of the good, the bad and the ugly when it comes to tenants and have the knowledge and professional expertise to handle potentially difficult situations correctly and in accordance with rental laws.” Goslett highlights five key elements landlords need to bear in mind before renting out a property:
1. Calculate your costs Landlords need to carefully calculate the total cost of keeping the property functioning smoothly. This calculation should include bond repayments, utilities and maintenance, repairs and any professional services such as property management through a reputable rental agent, tax help and a legal consultant. Now you can estimate your rental price, but remember that it needs to be competitive, so just translating your ownership costs into a rental fee won’t work. Goslett notes that a rental agent will assist you with determining a fair rental price. “Potential landlords can also check newspapers to ascertain the price range of rentals for similar properties within the area,” he says. Before deciding whether it is worth it to rent out your property or not, Goslett advises that you compare the rent you think you can get with your costs. Casey Edwards, co-author of The Complete Idiot's Guide to Being a Smart Landlord and The Complete Idiot's Guide to Making Money with Rental Properties, suggests working up two profit-and-loss statements: a best-case list and a more conservative one that includes all the things that could go wrong. “But,” Goslett says, “even if the figures don’t show an immediate profit, there are many other good reasons to rent out a property including the long-term appreciation or holding out until you can get the asking price you want should you consider selling the property.”
2. Tenant screening “This is undoubtedly the landlord's most crucial task,” says Goslett, “and should therefore be conducted thoroughly.” Goslett says that once again, if a rental agent is used, they will endeavour to ensure that only suitable tenants are selected. Assessing a tenant’s suitability includes checking their background and financial capabilities. “This includes gathering information about the prospective tenant’s earnings to ensure they have enough to pay the rental charges regularly. A payslip can assist in assessing this, and references from the employer would also assist in checking the person’s character,” says Goslett. The rental application should include an applicant's full identity, rental history and credit picture. “If you are going to perform a credit check, this needs to be disclosed on the application and prospective tenants need to sign the form indicating they agree to this.”
3. The legal stuff A rental agent will provide all the necessary legal documentation when assisting you with a rental property. The rental contract should include the following clauses specifying what the rental charges are and what the consequences would be if the property is not vacated when the contract ends. “The rental contract should also specify that subletting is prohibited under any circumstance and clearly state the period of notice to be given when it comes to the termination of the rental agreement,” says Goslett.
4. Money matters Goslett advises that no matter who manages your rental property, you'll need to keep your rental records separate from your personal accounts. “This will allow you to see at a glance where your rental property stands financially,” says Goslett. Other advice from Goslett around handling the rental income includes putting monthly contributions into a separate, high interest bearing account that can then be drawn upon for repairs, new appliances, maintenance and taxes if and when required.
5. Evicting errant tenants If your tenants are screened properly, you should not have any problems. However if the need does arise to evict a tenant, it should be handled professionally. Goslett advises seeking the assistance of an attorney. “Landlords also need to ensure that they have followed all the correct procedures for issuing the appropriate warnings before they can proceed with an eviction,” he says. Goslett’s final word of advice is that even if you are renting out a property through an agent, you should pay your tenants an occasional visit to ensure your asset is being well looked after. “These visits however, should always be arranged with the tenants in advance.”