Beware the debt mule

 

 

At RentMaster we have seen an increase in couples living well beyond their means and duping landlords by keeping one partner’s credit rating “squeaky clean” while allowing the other’s credit rating to become besmirched. 

When applying to rent a a property, Mr Squeaky-Clean supplies his details, but it’s actually Mrs Besmirched who signs the lease agreement. If the landlord does not pick this up, she’s probably in for a very bumpy tenancy!

Of course, if you’re signed up with RentMaster, that’s not your problem, because your rent will be paid on the 1st. Guaranteed. We’ve been in this game since 2003 and we’ve learnt to spot the chancers a mile off.

Landlords, these are the best performing rental markets

While it might all seem like doom and gloom with regards to the economy, savvy property investors who target the right areas can still get excellent returns.

We all react to economic stress in a different way. Some of us avoid reality in an attempt to ride an invisible wave above what is while others feed off the fear and uncertainty that invariably exists. There is a third option, however. One that looks beyond the obvious to seek out the information needed to transcend the current climate. Michelle Dickens has access to precisely this kind of information as MD of TPN, a property specialist credit bureau, and her most recent research reveals astoundingly high performance in what she terms as ‘pockets of excellence’ in the current rental market.

Landlords should target rentals in this price range

“There are 2.1 million households in formal rental accommodation in South Africa. Of the 1.4 million lease agreements that TPN profiles, 22% pay below R3000 a month, 59% are positioned in the R3000 to R7000 rental bracket and 14% are in the R7000 to R12 000 bracket. Only half a percent are paying above R25 000 a month. So really, we are sitting with almost 80% of tenants paying below R7000 per month. The sweet spot in terms of rental collection is the R3000 – R7000 bracket with the most challenging tenants paying below R3000 a month.”

Best performing suburbs

Dickens further explains, “Besides these broad figures, it is critical to determine exactly which suburbs perform the best in terms of average yield when planning your property investment strategy. This is where the results are surprising! 9 out of the top 20 suburbs that offer the highest yield in the country for sectional title schemes are in the city of Tshwane, with the top performing suburb Philip Nel Park in the west of Pretoria averaging a yield of 20.1% over the last five years. With 92.3% of tenants currently in good-standing on their rental payments, that is a pretty impressive return on investment. In terms of full title properties, the highest yield in the country is to be found in Cosmos City in Johannesburg with a good-standing rental payment percentage of 91.2%.”

How landlords can mitigate risks

Deon Botha shares his experience in mitigating risks in the residential property market as CEO of RentMaster, a South African company specialising in guaranteeing rentals, “While there is no doubt that we are still seeing the results of the 2008/9 banking crisis adversely affecting the property sector, there is more good news than just the Western Cape bubble for those who look.

Residential property is a critical socio-economic driver and there will always be demand for housing. With so many millions living in informal settlement but starting to enjoy the benefits of economic empowerment, there will be increasing demand for incremental housing closer to the workplace.

Property as an investment has always had a broad appeal, especially to the less sophisticated investor distrustful of the intangible nature of other options. As the old people always say, “Safe as houses”. Do your research properly and residential property can be a very rewarding investment. The risks of bad tenant behaviour are easily mitigated. Proper screening, professional collections and sound overall management practices are required. Make sure you work with professional service providers and stay on top of things at all times.”

How investors can identify the best areas for rentals

Dickens reminds us that “it is easy to be caught up in the elaborate prophecies of doom in a recession. The wiser option may be to gain insight into the market on a level that allows you to hone in on the pockets of excellence that exist.

Naturally, you want to take a look at the yield in that specific area but there are other important factors to take into consideration as well. How are tenants paying their rent in that suburb? What are the vacancy rates and property expenses as well as the ratio of tenants to landlords? An area where the occupiers are mostly tenants is not always upheld as well as where a large portion of dwellers are home owners.”

While many may flounder at the ‘impending doom’ that awaits us all, the rest of us gear up for a challenge knowing that with the right support, magic is made in times of adversity.

This article was originally posted on Private Property’s Advice page on 7 August 2017.

 

How long does it take to assess prospective tenant?

Unsurprisingly, the answer to this question is: it depends.

If a landlord has provided us with the tenant’s complete and up-to-date information and we are able to contact all their references, we are usually able to conclude the profiling and vetting within 48 hours or less. Delays are most often caused by incomplete or outdated information supplied by the tenant or the landlord. Another hurdle that can add time to the vetting process is non-co-operation of the tenant’s employer. We are often unable to reach the relevant HR authority to verify employment and salary, or if we are able to contact them, they are reluctant to disclose any details due to privacy concerns.

So, if you are in a hurry to place a tenant, the good news is that there’s a lot you can do to expedite the process:

  • Check that you have supplied all the information required:
    • Certified copy of the tenant’s ID
    • Tenant’s last 3 months’ bank statements
    • Tenant’s most recent pay slip
    • Rental application form, completed and signed by the tenant.
  • Ask your tenant to inform her employer’s HR department that they will be receiving a call from RentMaster and that she gives them permission to answer any questions. If she can supply you with a contact name and number, even better.
  • Remember to send the application to applications@rentmaster.co.za to ensure prompt processing.

I already have a tenant. Can I still use your services?

RM-Q&AThis is a question we are often asked and, as is often the case, there is a short answer and a much longer one that contains a lot of “ifs”.

In short, of course we can help you…

if we have had a look at and are happy with your current lease agreement or the tenant agrees to sign a RentMaster lease agreement;

if we have drawn a credit report for the current tenant (to which she must agree) and we are satisfied that she can afford the rental amount. (We will not need a credit report if you have been maintaining your tenant’s payment history on the Tenant Profile Network (TPN) database);

if the tenant signs a debit order authority.

Since the tenant has already occupied the property and probably there is an existing agreement in place, she is under no obligation to agree to these requests so the ball is really in your court as a landlord.

Another question we often get: Where have you been all my life?!

Prescreen your tenants and save time and money

When we screen a potential tenant, our first step is to draw a TPN report to assess the tenant’s historic payment profile.

TPN is a registered credit bureau, a company that provides consumer credit information on individuals which helps you to assess a tenant’s credit worthiness.

If you’re in a hurry to place a tenant – and want to save yourself a bit of money in the process – you can prescreen your prospective tenant by drawing this report yourself.

To do this, you need get the tenant to sign the Rental Application Form, which gives you the tenant’s written permission to call up the report. Registering with TPN is a simple procedure and once you have entered the tenant’s details, you will receive a report which will offer you a lot of detail including a Credex score of between A and F. A is an excellent credit profile and F is poor. If the applicant gets a C or better, you can submit their details to RentMaster for further assessment. Anything below C will probably not get approved.

(To find out more about the basket of assessments we do at RentMaster to asses the suitability of the applicant, read this article.)

Rental guarantee vs deposit guarantee

We are often asked how RentMaster’s rental guarantee differs from a deposit guarantee, and by implication, which one is better.
deposit-guaranteeA deposit guarantee is an insurance product that makes it possible for tenants – who actually cannot afford the deposit – to take occupancy, typically at an extra 10% of the rental amount. From the landlord’s perspective, it covers damages to the property and legal expenses associated with evicting a non-paying tenant, usually capped.

A product that benefits both landlord and tenant – what’s not to love?

At RentMaster we believe the deposit is an important incentive for a tenant to look after the property. Ask yourself: who will look after your property better: a tenant who had to find the money to pay a deposit and is relying on getting her full deposit back or a tenant who knows that the insurance will pay for damages?

We are passionate about cultivating best practice from all stakeholders in the property rental market. We actively mitigate risk, manage monthly payment administration and invest time and effort into encouraging good tenant and landlord behaviour.

What’s more, when tenants pay their rent promptly and develop good financial habits, they improve their credit rating which will eventually enable them to become property owners and even landlords of the future.

A deposit guarantee may well enable a cash-strapped applicant to qualify as a tenant, but it is not necessarily of long-term benefit to the tenant. If a tenant is planning on staying in a property for a year or more, she is probably much better off getting a bank loan to pay the deposit. By paying 10% extra for a deposit guarantee product, she will have paid off the deposit in ten months. From the 11th month on, the 10% premium is only of potential benefit to the landlord, and when she moves out of the property, she doesn’t get a cent towards her next deposit.

Deposit guarantee vs rental guarantee in a nutshell

Deposit guarantee vs rental guarantee in a nutshell

Let’s talk admin

Whether you’re signing up for a deposit guarantee or RentMaster’s rental guarantee, you’re going to have to do some initial admin to get your tenant approved. But with RentMaster ALL the admin is upfront. You never have to claim because we pay your rent on the first working day of the month, no matter what. And making sure the tenant pays is our problem, not yours. With a deposit guarantee, you have all the admin associated with collecting the rent and the claims admin every time something goes wrong.

But, you may ask yourself, why are rental guarantee products so popular with agents and property managers? There are a couple of reasons. Firstly, it increases the number of potential tenants: even if an applicant can’t afford the deposit but passes the credit check, she still qualifies. Also, a deposit guarantee is an easy add-on product for agents to sell: the landlord typically pays the agent one-month’s rent as a placement fee and the tenant covers the deposit guarantee. Remember, the agent gets his placement commission – irrespective of the tenant’s future payment performance.

While the deposit guarantee insurance may help place a tenant in residential areas where there is little demand and compensate landlords for some damages after the fact, it offers no administrative support or pro-active management of non- or late-paying tenants. RentMaster’s active management will prevent the problem in the first place, saving you time and the frustration of claiming after the fact.

In short: we’re hands on and right beside you every step of the way.

The “PIE Act”: It’s all about following the procedures

landlords&Lawstamp

No property owner ever wants to evict a tenant, but if ever you find yourself in this situation, it would be wise to acquaint yourself with the The Prevention of Illegal Eviction and Unlawful Occupation of Land Act of 1998 (“PIE Act”). We asked Sonja Wijnja, RentMaster’s legal officer to break it down for us.

“Whereas the Rental Housing Act (RHA) deals with the duties and rights of both landlord and tenant, the PIE is more focused on preventing the unlawful eviction of tenants and spelling out the legal procedures that landlords should follow to remove unlawful occupant. As such, it is a much more challenging read than the RHA, and is fraught with procedural complexities.”

According to Sonja the two most important things you need to know about the PIE Act are:

  1. You cannot evict a tenant unless the tenant is he is an unlawful occupier. This is usually because the lease has been cancelled.
  2. You may not forcefully put tenants out of your property – whether by changing the locks, chasing them away or moving other people into the property. A tenant may only be evicted if a Judge has had oversight and ordered an eviction.

In Sonja’s opinion the biggest mistake landlords make is to assume that they can take the law into their own hands if the tenant did not pay. “If you remove the door; move other people into the property or forcefully evict the tenant yourself without any court action, you will not have a leg to stand on in court.”

If, for example, a tenant has not paid the rent, he must be informed in writing and must be given fair notice to remedy the matter. It is only after the tenant has failed to perform in spite of having been given fair opportunity to redress the situation that he is deemed an illegal occupant. (See our Nuts & Bolts  article on this topic.)

The landlord may now appeal to the court to evict the tenant, but the magistrate might still not rule in the landlord’s favour.  She will take factors such as whether the tenant is unemployed, a single mother, elderly or infirm or other mitigating circumstances into consideration before making a decision. She might, for example, rule that the tenant be given more time to find alternative accommodation in terms of the Act’s provision that a tenant is offered a “just and equitable time to find alternative accommodation”.

“Alternatively, you can appoint RentMaster to administer your rental collection – we collect the rent so well that we last needed to evict a tenant in 2015.”

A landlord’s view of the Consumer Protection Act (CPA)

We spoke to Sonja Wijnja, RentMaster’s legal adviser, to give us some insight into the CPA and how it affects landlords.

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The CPA regulates the marketing and provision of goods and services to consumers and protects them against unfair practices previously used by some service providers. In the context of property rental, a tenant is the consumer and a landlord is the service provider.
“It is especially with regard to the lease agreement that many landlords are misinformed and are often in breach of the CPA. One misconception that landlords often have is that they think that as long as they have their requirements stipulated in a lease agreement that has been signed by both parties, it will stand up in court. However, if the requirements are contradictory to the terms of the CPA, it won’t. The Act always trumps anything stipulated in the lease agreement.”
“For example, a landlord may include an early cancellation clause that states that if the tenant cancels early, she has to pay for the entire outstanding period. This is sharp contradiction with the provisions of the CPA, which entitles a consumer to cancel with 20 days’ notice.” (More information regarding early lease termination here)
CPA_Sonja tips

The Rental Housing Act & your rights as property owner​

The most important laws governing the relationship between landlords and tenants are:

  • The Rental Housing Act (RHA)
  • The Prevention of Illegal Eviction and Unlawful Occupation of Land Act (PIE) and
  • The Consumer Protection Act (CPA)

These three laws attempt to balance the often-conflicting interests of the property owner and the tenant and establish a legal framework for the resolution of disputes that arise during the tenant’s occupation of a property.

In this article we will focus on the RHA and how it affects you as a property owner. Please note that this information is not intended to be legal advice and you should at all times consult a qualified attorney to properly discover your rights and recourse.

Currently the RHA of 1999 is still in play although the 2014 amendments have been accepted and are awaiting promulgation by the president.

What will change?

Going forward, landlords will be obliged to reduce agreements to writing, which in the past was only necessary if the tenant requested it. Even though the 2014 amendments are not yet in force, we strongly encourage landlords to have a written and signed lease agreement that also includes all subsequent agreements. In our experience written agreements are always better than verbal ones, especially if it needs to be tested in court. Verbal agreements are open to interpretation and when disputed by the other party, the court may be required to hear oral evidence. This can lead to unnecessary delays as well as escalating legal fees. (For more information about how to draw up a good lease agreement, read our  Nuts & Bolts article on this topic.)

Chapter 3 of the RHA is the pertinent section and outlines the duties and rights of the owner and  tenant. It is worth reading these pages as this is the area where most disputes arise. In summary:

The owner:

  1. May not discriminate against applying tenants on the basis of amongst others (but not limited to) race, gender, disability, religion, age, disability, language, birth, gender;
  2. Must respect the tenant’s privacy and make proper arrangements should access to the premises be required;
  3. May terminate the lease due to material breaches of the agreement as long as this does not constitute an unfair practice (here we look to the CPA for procedural guidance and if the tenant is deemed an “unlawful occupier”, PIE action may be instituted.);
  4. Must receive the property back in the same condition at the termination of the lease, save for fair wear and tear, and recover costs associated with repairs to damage caused by the tenant (as recorded in the entry and exit inspections) from the security deposit held for this purpose.
  5. Perform structural maintenance on the property when notified of such damage by the tenant (again there are some grey areas here, specifically if the structural maintenance required resulted from damage caused by the tenant or as a result of the tenant’s failure to perform fair maintenance).

The tenant:

  1. Must make prompt and regular payment of the rent as agreed in the lease, and is entitled to receive written receipts for all payments made;
  2. May not unreasonably deny the owner his right to access the property if proper notice has been given;
  3. Adhere to the House Rules (if applicable) as attached to the lease agreement;
  4. Perform fair maintenance of the property and garden, typically explicitly specified in the agreement.

Disputes most often arise in the following broad areas:

  1. The tenant does not pay the rent in full or on time;
  2. The tenant does not adhere to house rules or specific requirements recorded in the lease agreement;
  3. The tenant does not perform regular maintenance/repairs and upkeep to the property;
  4. The owner does not perform structural repairs when requested by the tenant;
  5. The owner makes deductions from the security deposit at the end of the lease that are contested by the tenant.

While each of these actions is a direct contravention the Rental Housing Act, the CPA and PIE also come into play in terms of the procedures followed by the parties in their attempts to rectify the issue.

For more information about how RentMaster can help you manage your rental property, call us on 0861 250 250 or email us on info@rentmaster.co.za

 

What are your rights when your tenant terminates her lease agreement early?


This is one of the questions we are often asked at RentMaster. Many landlords are under the impression that if they have a signed lease agreement, their tenant can’t terminate early.

This is not the case: the Consumer Protection Act (CPA), which was promulgated to protect consumers from being exploited by suppliers, also applies to lease agreements and gives tenants the right to terminate before the end of the lease period. As a landlord, you are deemed a supplier and your tenant a consumer. It is important to note that the CPA will always trump whatever is recorded in terms of early cancellation in your lease agreement.

Torn-lease-agreementThe tenant’s rights

The tenant can terminate the lease agreement at any time and is obliged to give the landlord 20 working days’ notice. This means that she may inform the landlord on the 20th of January of her intention to move out on the 20th of February. She may not be penalised unfairly for early termination.

What about the landlord’s rights?

The landlord has the right to recover fair damages that are a direct result of the early termination. For example, many landlords contract a rental agency to find them a suitable tenant at an average cost of one month’s rent. They then pass this placement fee on to the tenant. What is more, a landlord must actually have incurred the costs before he can claim them as damages. If you claim loss of rental income as a result of vacancy you must be able to prove that the property was vacant and that you tried to fill it.

If the tenant feels that she has been unduly penalised, she can refer the matter to the rental tribunal, where the matter may take a long time to be resolved and the outcome may not be in the landlord’s favour.

Our advice to landlords whose tenant has terminated the lease agreement early:

  • Be fair
  • Don’t be greedy
  • Communicate clearly
  • Move on: recover any direct damages from the tenant but also spend your energy on finding a new tenant.