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Being a landlord is a great way to generate extra cash through a steady stream of rental income, but not everyone is cut out for the job.
Money/people matters
Novice landlords are often overwhelmed by the extent of both upfront and ongoing costs involved in managing a property.
Similarly, even old hands at the game can be flummoxed by the actions of tenants – challenges that include everything from late or non-payment to annoying the neighbours and riding roughshod over estate rules.
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Nutshell pros and cons
Lorraine-Marie Dellbridge manages rentals for Lew Geffen Sotheby’s International Realty in Cape Town’s Southern Suburbs and False Bay. She says one glaring advantage is that estates are sought-after due to the security and lifestyle offered, especially those with amenities like golf courses and sporting facilities.
‘These estates are usually well maintained and have that high-quality look. But be aware that rules are strict, and sometimes tenants find them constraining. So landlords have to become involved when tenants are not complying.
‘Also know that although each estate is different, some are not negotiable about aesthetics, down to colour of paint, types of plants and landscaping.’
Total cost calculations
Landsdowne Property Group CEO Jonathan Kohler points out the importance of understanding the costs and risks of owning property, especially in the buy-to-let market.
‘Too often, potential buyers work out the bond repayment at prime lending rate, take off the levy amount, and then believe they have pegged their total cost, but this is simply not the case.
‘They haven’t taken into account that the levy amount is included in the rent they will receive, the monthly rates amount, estate agents’ commission, and the possibility of vacancies – not to mention tenants failing to pay from month two onwards, and squatting in the apartment.’
Understanding true rental yield is essential before making a decision, he says, using this example to demonstrate yield for a one-bedroom, one-bathroom apartment:
Price: R680,000
Rent: R6,500/month
Levy: R899/month
Rates: R389/month
Agency Commission (@ 8%): R520/month
Net Rental Amount: R4,692/month or R56,304/year
Net Rental Yield: 8.28%/year
‘Knowing the net rental yield, you can estimate capital appreciation using historical data. Also consult with your area-specific estate agent. You will only realise the capital appreciation when selling, and if the property value has increased.
‘Then combine both rental yield and capital appreciation to calculate total return on investment,’ Kohler advises.
Who foots the bill?
Traditionally, landlords are responsible for paying levies, and tenants pay for consumption of water and electricity.
‘Ground maintenance, specifically in a sectional-title scheme, is covered by the payment of levies,’ says Kohler, adding that in estates registered as HOAs, garden maintenance is for owners’ accounts.
‘Make this clear to tenants responsible for maintaining the garden, as lack of upkeep will result in costs for their account.’
Priced right?
Dellbridge says estate properties are popular, so it’s not difficult to attract tenants. ‘The rental market has stabilised this year, but prices are still lower than a few years ago. Properties admittedly are rare and when they do come onto the market, tend to go quickly if priced correctly.’
Managed… right!
‘If an estate is managed efficiently, the necessary checks and balances should be in place to protect residents,’ says Kohler.
Key is an agent accreditation process, whereby estate managers ensure that agents are registered with the Property Practitioners Regulatory Authority (former Estate Agency Affairs Board) and hold valid fidelity fund certificates for both company and agent.
Having a registered, accredited, estate-specific agent on hand effectively screens the type of tenants placed. Good estate managers should ensure all registered agents submit signed copies of lease agreements and approved body corporate or estate rules.
‘Only then can they can be held accountable for their actions,’ he cautions.
Ja well no fine
‘Importantly, fines for tenant transgressions are added to owners’ levy accounts, making them legally responsible to pay these penalties. Some owners try recovering these costs from tenants; however, payment is for the owner’s pocket, not the tenant’s.
‘Well-run estates should have quality tenants because of procedures put in place by the estate manager,’ adds Kohler.
