Playing landlord – three questions answered when getting into the game

27 Sep 2017

Natalie Muller, Regional Head of Rentals, Jawitz Properties Western Cape

In these increasingly difficult economic times, it would be wise for landlords (or those looking to get into the game) to consider working with a managing agent. This goes a long way in protecting your property as well as your rental income.  However, some landlords choose to only use an agent to help them find a tenant, opting against full time management. Both services have common questions, and below are three that we find come up time and time again at the outset of working with a new landlord – the answers to which could help you play the game best.

What can a managing agent do for me?

A managing agent is committed to ensuring that you find a suitable tenant that has been properly vetted and has the means to pay your rental. A thorough credit check and multiple references are gathered before a tenant is placed.

The main purpose of a managing agent is to handle all correspondence between landlords and tenants, overseeing maintenance and repairs, invoicing tenants for utilities, water and electricity as well as rental received, and following up on payments. The agent does as much as possible to remind the tenant that payments are due by sending invoices, reminders and even letters of demand on behalf of the landlord. An agent’s service is also to ensure landlords adhere to the latest legislation, assisting them with compliance of lease terms, turnaround times and general notices and inspections.

A rental agent stays on top of a tenant’s creditworthiness and is an ally in a financially difficult time, where uncomfortable conversations may need to be had, or legal issues dealt with.

In terms of sourcing a tenant, most agencies differentiate clearly between a procurement or finder’s fee, to source a suitable tenant, and thereafter the further option of paying for property management.

What fees will I have to pay?

Generally, agent fees are only payable on securing a tenant when a lease is signed for your property. Fees can be deducted from rental income received by the tenant.

The procurement fee based on finding a tenant is payable upfront and calculated as a percentage of the lease value and extension or renewal thereof. The procurement service includes finding the tenant, providing credit vetting, negotiating and drafting a lease agreement between the parties.  Some landlords may then prefer to deal with tenants directly and do their own key handover and inspection of the property. Should you require an inspection to be done, this service is available through an external contractor for a fee.

Property management is an optional, though recommended service agreement, and is charged per month, as a percentage of the monthly rental due. Landlords can choose to use any company, but many prefer to use the same agency that found their suitable tenant because they may be able to secure a better service rate.

Should landlords choose not to enter into a property management agreement, all further communication between the landlord will exclude the agent. The agent’s responsibility lies with securing a willing and able tenant up to the point of occupation only. Thereafter the agent only comes in the picture when the lease agreement needs to be extended or renewed to assist with negotiations and drafting documentation required. Latest legislation requires the credit vetting process to be repeated to ensure that the current tenant is still able to afford the rental and that the financial position of the tenant hasn’t deteriorated during the year. Most landlords won’t know if a tenant’s position changes during the initial term, and entering into a renewed agreement without re-vetting could be a risk.

In the case of Jawitz, all placed tenants on our books are monitored throughout the lease term – from their financial position to payment history via TPN (Tenant Profile Network). This is in order to alert landlords to any financial changes that could impact their tenant’s affordability and allows for making an informed decision once the lease is up for renewal.

What happens if my tenant doesn’t pay on time, or at all?

We recommend using an insurance product at the outset of drawing up a lease. These can build in protection for up to three months’ rental, as well as provide cover for unpaid utilities, damages and legal issues should you need to do an eviction. The tenant usually pays 10% of the monthly rental to cover the premium and forfeits paying a deposit because of the insurance in place, which increases the pool of properties tenants could qualify for, as a deposit is a hefty element of affordability. It’s a win-win for both parties.

Insurance is not required however, but we do recommend it, particularly in these difficult economic times.

There are many factors to consider and having an agent by your side could make playing the game of landlord much easier to win.  The biggest value to consider with a managing agent is that they play facilitator in a dispute that could exist between a landlord and tenant, often coming up with a workable solution for both parties.

info@probonomatters.co.za

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