Buy to Let Investments – Property Rental in South Africa
When buying a property with a view to renting it out, it is important to know the market and the mortgage that you’re going for. It may be worth getting help from an estate agent that knows the area you’d like to buy into, and it’s definitely worth your while getting the right mortgage originator. Check what is in demand and by planning carefully and purchasing wisely, you should be able to get a property that requires very little maintenance and that will be an attractive option to tenants. The buy-to-let market has also become increasingly popular particularly in the larger cities. Renting out the property assists you in paying off the mortgage, while the property steadily increases in value.
What is so great about it?
· The mortgage pays for itself (rental from the tenant);
· Investment grows at the current property growth rate;
· It is an investment that takes care of itself providing it is maintained;
· Once paid off it is a consistent monthly income;
· It is a good tax write off.
For many investors who bought in recent years and perhaps struggled as mortgage rates rose, they should be starting to benefit again from the lower rates and the more recent base rate cut, and the buy-to-let option continues to be a good long-term investment. However, like any investment, the buy-to-let does not come with any guarantees and there are a number of things that need to be considered.
· Research the market;
· Research the area where you would like to purchase a property;
· Ask others who have entered into the same market about their experiences;
· Choose a promising area, this does not mean the most expensive or the cheapest, but rather where people would like to live;
· Check the commuter routes;
· Where are the schools situated.
Whether rental is the only option that you may have, if you are able to become either a short-term or long-term landlord, rental can be a profitable business providing that you establish the rules and protect yourself against any unforeseen losses that could occur. You need to find the right tenants, control the security deposit and collect the monthly rent. It is imperative to lay down responsibilities between landlord and tenant regarding the maintenance of the property, pet owners and many other issues.
Finding and screening the right tenant is essential, however, thorough screening could involve a number of processes such as confirming stable employment, checking with previous landlords, and doing a credit check. Estate Agents are in a far better position to be able to manage this process for you and they also have a number of potential tenants looking for suitable accommodation on hand.
They can advertise your property through the correct channels and assist you with drawing up a written standard lease agreement. Certain information is required in the agreement and the Estate Agent needs to be advised on anything that you wish to include in the agreement.
It is usual practice to request a deposit which, is equal to one calendar month’s rent which needs to be kept in an interest bearing trust account according to the law. The interest that accumulates from this deposit is for the tenant, and not the landlord or the estate agent. Upon termination of the lease, and after a thorough inspection of the property, the deposit plus interest must be paid back to the tenant. However, should the rent be in arrears at the time of termination, and/or damage has been made to the property beyond normal wear and tear, the landlord is entitled to use the deposit to rectify the damage or to cover what is still owed in rent.
Monthly Rental Structure
It is imperative that the monthly rental amount is stipulated in the lease agreement and the date payable each month. You need to include where the monies should be paid i.e. bank account, estate agent. In terms of the Rental Housing Act you must issue your tenant with a receipt for any rental amount paid; on the other hand – to show proof of payment is the tenant’s responsibility. Any annual increase percentage in the rental should be included in the rental agreement.
The period of the lease and how cancellation or notice can be given on both sides should also be clearly stipulated in the lease agreement. Should a tenant no pay the rent you have the right to sue the tenant and obtain a court order for eviction.
In order to avoid dispute between the landlord and the tenant, you need to also include the following stipulations in the lease agreement:
· Keeping of pets;
· Changing the décor’
· Who is liable for maintenance of the property – usually the landlord is liable for maintenance on the outside of the property and the tenant for the inside of the property?
· Tenants running a business from your home – should this happen it could turn into a nightmare, so clearly stipulate what can and cannot be done should a tenant work from home – you do not want your property turned into a car-repair workshop!
Using an Managing Estate Agent
If you are renting out a flat on your residential property, and providing you have the time, it makes sense that you could take care of the management yourself. However, if the property is not in close vicinity; or if you own a number of rental properties; you could make use of managing agent. This is usually an estate agency that will find a tenant and manage the property for you in return for a management fee. Ensure that you choose your management agent wisely and you can enjoy the income from your property without the stress. In times of economic turmoil more tenants fall behind in paying their rent. A reliable rental agent will take care of these problems for you.
However, it is important that you establish whether the estate agent and agency that you wish to use is registered with the Estate Agency that you wish to use is registered with the Estate Agency Affairs Board (EAAB). This simply means that they need to be in possession of a valid Fidelity Fund Certificate (FFC) and the validation date will be for the current year that you are in. You can contact the EAAB to ascertain whether the estate agent has renewed their FFC for the current year.
Inspection of the property before the tenant takes occupancy
Inspect the property when a new tenant moves in and provide him with a copy of the inspection. During the rental period the landlord has the right to ask the tenant if he can inspect the property at a time convenient to the tenant. The tenant cannot deny reasonable access. The Estate Agent can assist you with this and provide feedback.
Is renting property in South Africa regulated?
The Rental Housing Act (Act 50 of 1999) lays down the stipulations to be followed by both landlord and tenant. The law of Contracts, Common Law and the Constitution also governs rental agreements.
Ins and outs of leasing residential property
Residential property landlords should be aware that they need to draw up the leases and deal with their tenants in terms of the National Rental Housing Act. However, in the Western Cape it is not sufficient to be familiar with the clauses of the Rental Housing Act, as this Act is coupled with the Unfair Practices Regulations when dealing with residential property. These regulations provide practical explanations about the manner in which the demands of the act should be carried out.
The aim of the Rental Housing Act is to facilitate a fair deal for landlords and tenants. The Rental Housing Tribunal’s function is to ensure that unfair practices between landlords and tenants are eliminated, so it interprets the act and the regulations in its deliberations.
Download the rental housing act: www.info.gov.za
Download Unfair Practices Regulations Act: www.capegateway.gov.za
Homeowners’ association rules still have effect
Even when it becomes law in October, the new Consumer Protection Act will not give homeowners in residential estates unlimited rights to do as they please, without regard to the management and conduct rules of their Homeowners Associations (HOA’s). Even in traditional suburbs, homeowners have to follow local authority regulations and by-laws that restrict the type and height of buildings that may be constructed, for example, or provide for noise limitations, or, for that matter, control the display of estate agents’ advertising boards.
It is important to note that HOA’s are not voluntary or informal bodies. Most HOA’s are registered Section 21 companies, of which, every homeowner in that estate is automatically a member, and has a very clear say in what rules are made and how the estate is run.
Courtesy: The Agent – The Official Publication of the Estate Agency Affairs Board
“Redressing the Past, Building the Future and Guiding the Real Estate Business towards Professionalism”