Many first-generation yuppies have come to realise that they need to enter the property market. However, most of them find that getting a home-loan of between R1 500 000 and R2 000 000 is not always possible.
The creative ones usually find a way around this dilemma by purchasing a home in the R300 000 to R700 000 price range. The home is then used to generate a rental income. The rental is often sufficient to cover their bond repayments. This leaves many of them happy landlords.
However, I have some serious reservations with the tenant vetting process they use, given the costs involved. Appointing a professional property manager to take care of your investment is not always realistic. But, buying a standardised contract from CNA leaves you vulnerable to a host of problems a lay-person might not foresee. What do you do if the “nice” tenant you placed in your home turns out to be a squatter?
Before placing a tenant in your property, you should complete the following checks:
- Get a copy of their pay-slip. You will need to verify that this is not a homemade, cut-and paste job.
- Get a copy of their ID. You need to be sure that they are who they say they are.
- Complete a credit check on the proposed tenant. You will need their permission to do so.
- Complete an accommodation check. Preferably going back five years. This will verify that your tenant behaves and has a good rental history. There are databases that will provide you with this information for a fee.
- Take comprehensive photos before your tenant occupies your property.
- Never buy an instant rental agreement.
There are property managers who will sell you a package to help you get set up, without charging you a monthly management fee. At Northwood, we refer our clients to Ken Bluff of The Bluffs, Re/Max Elite in Plumstead. They offer a package that costs just 8% of the annual rental amount, plus VAT. Once Ken has found a fully-vetted, creditworthy tenant, the tenant will sign the lease agreement. The landlord then needs to accept the tenant’s request to occupy the property.
Once this paperwork has been completed, the once-off fee, known as a Finder’s Fee, becomes payable. For example, if you opt to manage a property with a monthly rental amount of R4 000. The fee would be R3 840.00 plus VAT of R 537.60. (R4 000 x 12 months = R48 000, x 8%).
A tenant who ends up costing you R20 000 in legal fees and the loss of six months’ worth of rental, will help you realize that care in the beginning saves money in the long-term.