If you’re a landlord, you’ve seen the wisdom of investing in real estate. You acquired an asset, which in many cases is partly funded by a home loan, and your tenant is paying most of your bond repayments. One day your asset will be fully paid, and you will then be in the envious position of choosing between living off the rental income or selling your asset and accessing the capital. That’s a wonderful position to be in. There are, however, risks to renting out your investment property. It’s wise to consider them and take steps to mitigate those risks.
Finding a Good Tenant
Finding a good tenant who respects and looks after your rental property is usually the primary concern. Don’t rush ahead and enter into a lease with someone who hasn’t been properly vetted. A reputable property management company can do this for you, and they should perform a full credit check, obtain positive references, and ensure the tenant has an acceptable deposit of at least 2 months’ rental. Taking your time at the beginning to secure a good tenant is your #1 move to mitigating your risk.
Proper Maintenance
It’s a reality of life that a property requires maintenance. Cutting corners will cost you later on. Whether you’re caring for this yourself of through an agency, ensure you have regular inspections and keep up with all maintenance needs, including preventative maintenance. You’re investing in your asset.
Preparing for Problems
Even good tenant may go through tough times. Losing their job, financial pressures, and unforeseen crises may result in them not being able to pay your rent. That’s not fair on you. It’s up to you whether or not you grant some leeway – but often you’re only kicking the problem down the road and it becomes even more painful later on. Be quick to address non-payment and, subject to the Consumer Protection Act, take steps quickly to discuss how to terminate the lease and find a new tenant. View any leniency as charity – and understand you may not see that arrears rental again. Whilst the law is on your side, getting it to work for you is an expensive business. For very little cost (under R200 / month) consider an insurance product like Landlord Legal that will cover your legal fees that could exceed R100 000. The peace of mind is worth it.
Annual Reviews
Your rental property is part of your investment portfolio. It deserves an annual review. A good management company should be providing this for you. It should include:
· Annual income and expenditure statement on your property
· Review of your monthly rental compared to current market rentals
· Annual property appraisal – what is your asset worth today and is it time to sell or not?
· Insurance review – are you sufficiently covered and fairly charged?
· Maintenance review – are there any issues that need to be addressed?
· Management Agency review – are you happy with the service you’re receiving. If not, discuss a resolution with them, or consider other options.
· Upgrades – are there any sensible upgrades you could make to increase your rental return and the value of your property (i.e. solar)
· If you have a home loan, is your interest rate market-related, or is it time to press your bank for a review?
Property is one of the best investment vehicles to use and can significantly increase your wealth – when correctly managed.
Take these simple steps to ensure that your asset is cared for, your risks are mitigated, and you maximize the value of your investment.
