Those who cannot buy, rent

The tough economic conditions in South Africa mean that property management companies and landlords are now being forced to scrutinise the business plans and finances of new tenants.

 Viewed in perspective with the current global economic slump and double-dip worries, the decline in rental payments raises a flag for investors to tighten their controls in respect of new tenant acquisitions and ongoing rent collection.  Unfortunately there still appear to be many property managers and landlords looking to secure their commission or first month’s rent, who take an irresponsible short-term approach to the detriment of the long-term prospect of the tenant’s ability to make monthly repayments. Risk management has become an imperative part of the Rental Market. Preventative Risk can be managed in 2 ways. Tenant screening and innovative payment methods.  Realty 1 uses the most comprehensive tenant feasibility analysis and a ground breaking electronic payment collection methods insuring that Landlords receive their rent before the 1^st of every month.

The lack of new stock coming onto the market is a result of developers being unable to get finance and this has steadily increased the stock shortages. Stock shortages is reportedly driving growth and pushing rentals up in the residential market. This include the fact that in the post-National Credit Act and recession era, mortgage bond finance has been cut by over 45 percent, making the purchase of a new home difficult for many people. Currently, unsold development stock is still coming onto the rental market but this source of rental accommodation will also run dry exacerbating the current shortages of accommodation. Quality rental stock in the affordable and mid- price brackets below R3 000 and R3 000 to R7 000 per month remains undersupplied. FNB’s Property Barometer indicates only 8% of properties purchased at present are for rental stock. 

In addition to the investor’s financial ability to secure further funding from wary banks, new and proposed legislation adds further fear, discouraging many would-be investors from acquiring new rental properties. For instance, the Consumer Protection Act allows tenants to arbitrarily cancel a lease agreement on 20-business days notice albeit with a reasonable penalty.  Preventative risk management has become imperative in this economic climate and uncertain rental environment

 Catch the Realt1 team at Illanga mall on Saturday, 15 October for more details on the Realty 1 Rental Revolution. You can also visit www.realty1lowveld.com or visit the Realty1 blog at www.realty1rentalrevolution.wordpress.com.You can also call White River office: 013 751 3841, Nelspruit: 013 752 7135 or the Barberton office: 013 712 4534, to speak to any of the rental agents.

Electronic collection method gives Landlords the edge

The Purpose of property investment is to make profit and generate wealth. This is made possible throughthe escalation in property values over time and the leveraging effect created by using the banks money through a bond where the monthly payment is financed (partially or completely) by the tenants rent. 

Stabilis Incorporated conducted a survey of property rental companies to assess the extent of poor tenant payments in the local residential and commercial marketsand to assess the impact of the economic downturn on local rentals.

The general response on commercial rent payments was that there were very few problems especially with national groups who were considered the best and most reliable tenants. It was also noted that in established “older” commercial properties, especially shopping centers where successful businesses have established themselves, the poor-payment rates were lower than in “newer” properties.

We believe the economic conditions havehad a negative impact on property rentals in the commercial and residential property sector, which have been made worse with electricity price increases and by the high failure rates of start up businesses.  A number of key trends were identified in our residential survey:upmarket properties (3 or more bedroom) showed lower non-payment rates, while smaller properties (2 bedrooms and flats) showed higher non-payment rates.

Realty 1 confirmed that Landlords are faced with financial pressure when monthly rent is received late. Using the example of a bond of R500 000 at current interest rates results in a bond repayment of R4990 pm.  The amortised interest after 4 year comprises R4600 of the payment portion. The interest cost per day is R153. A tenant who habitually pays late by 3 days costs the landlord an additional R460. The additional interest cost per year is R5520.  A tenant, who believes that he has 7 days to pay his rent and habitually does this, costs the landlord R1071 in interest per month and R12 852 per annum.It usually takes 9 days to address a habitual payment defaulter and receive the rent into the landlords account.The impact of non-payment of rent is further evinced by the Banks consistent report of an increase in bonds,which are more than 3 months in arrears.  Properties repossessed by banks are also on the increase.  A tenant profile analysis prior to placing a tenant in a property is essential to risk management.  A stringent tenant payment monitoring process will identify late payments earlier so that landlords can be informed about any problematic situation. Realty 1 uses themost comprehensive tenant feasibility analysis and aground breaking electronic payment collection methods insuring that Landlords receive their rent before the 1^st of every month. This breakthrough is good news to property investors who need greater peace of mind to lure them back to the traditionally lucrative property market and with banks more careful in granting loans, many people are now unable to buy houses, and therefore the residential property rental market has generally been positively influenced by the current economic conditions. Lower prices and interest rates have also allowed those with the ability to access finance to purchase multiple properties at reduced prices.

In conclusion, Stabilis incorporated would propose that in the current climate, the best investment might be in smaller residential properties and flats. Their reasoning is, that in spite of non-payment being higher in this sector, this risk can be reduced through stringent tenant selection and with ground breaking electronic payment collection methods. The big potential gain for an investor would be that when the market turns, the first properties that will appreciate in value would be the smaller ones, as these will be the first to be affordable to new market entrants.

For more information on the Realty 1 Rental Revolution please visit www.realtylowveld.co.za. You can also call White River office: 013 751 3841, Nelspruit: 013 752 7135 or theBarberton office: 013 712 4534, to speak to any of the rental agents

Prevention is better than cure

Like a marriage, a lease agreement is always entered into with the best of intention. Unfortunately intentions aren’t always honorable. Even the best landlords have to deal with late or unpaid rent, and even good tenants may sometimes be late with rent payment

An example of good intention not being honored would be a tenant whose personal circumstances necessitate him wanting to vacate the property before the contract allows him/her to do so. The Tenant is protected by the Consumer Protection Act, which allows him/her to give cancellation notice, prior to the lease expiring even though he signed a lease agreement for a fixed period. Another is rent that is paid late by the tenant because they forgot to pay or because of a busy schedule. In another scenario the Landlord’s positive intention to renovate and attend to necessary repairs as agreed upon in the lease may be hampered by insufficient funds.

The best way to deal with rental issues is to prevent them from happening in the first place. Through the combination of Realty1’s ground breaking electronic payment collection system developed in conjunction with one of South Africa’s leading banks and using the most comprehensive tenant feasibility analysis the landlord’s and tenant’s risk is managed through the most revolutionary systems to date.  The Realty1 payment systems provide risk management and peace of mind to landlords while tenants save time, money and protect their credit profile.

With all the horror rental stories you have to ask yourself the question: “If both the landlord and the tenant both enter the contract with the intention of honoring their rights and responsibilities in terms of the contract, what is there that can go wrong? Collaboration between Landlord and Tenant can exist where both parties derive mutual benefit and satisfaction.

Eunanda Fourie is an attorney, notary and conveyance with the firm EUNANDA FOURIE INC, and is involved with properties and related industries on a daily basis.

The Realt1 team will be at Riverside mall on Saturday, 8 October to give

the public more details in regards with the Realty 1 Rental Revolution.

For more information on the Realty 1 Rental Revolution

please visit www.realtylowveld.co.za

You can also call White River office: 013 751 3841,

Nelspruit: 013 752 7135 or the

Barberton office: 013 712 4534,

to speak to any of the rental agents

R1RR has been Launched…

RISK MANAGEMENT IN PROPERTY INVESTMENT

 

Surely owning properties are the way to long term wealth creation?  Unfortunately, it does not always turn out that way.

When buying property for investment purposes, it is important to determine whether your can really afford the property. Generally, investors will have to apply for mortgage bonds with banks in order to finance the property investment.  As the bank will provide the financing, the property purchased will be the bank’s security. In reality it is a very easy concept, if you pay your bond as it is due, a beautifull relationship can be created with the bank, however, should you fall in arrears with your monthly bond instalments, your investment can turn into your worst nightmare.

The process of evicting a tenant, claiming payment of arrear rentals, damages and breach of contract is a lengthy and expensive process.  To add to insult to injury, if the Landlord only relied upon rental income to cover his monthly bond instalment, the Landlord will not be able to service his monthly bond instalments.   This of course, can eventually lead to the Landlord’s property being sold on Auction. Nationally, current statistics from TPN show that 60% of tenants are late or non-payers..

The solution to this incessant problem is to change the payment system. Realty1 has created a new Rental Product to demolish the 60% late and non-payment problem. As soon as the rent is collected, the rental agency is notified and the landlord is paid within 2 days.

A further benefit is that non-paying tenants are identified and addressed sooner with remedial or legal action, minimizing unnecessary further income losses to the landlord. Realty1 believes this service will be a substantial leap forward in rental risk management and should make buy-to-let investments once again attractive for property investors.

The easiest way to manage your risk is to know the risks involved and plan accordingly. 

Eunanda Fourie is an attorney, notary and conveyancer with the firm EUNANDA FOURIE INC, and is involved with properties and related industries on a daily basis.