Jan 27 2009 Jade Menezies and Marc Ashton
The buy-to-let market sounds lucrative on paper and is often advertised as a sure way to wealth, but with retrenchments beginning to bite, owners are finding it increasingly difficult to collect rent.
Michelle Dickens, MD of Tenant Profile Network (TPN), told Fin24.com: “Homeowners need to act quickly before the problem festers and develops into a major obstacle for tenants to overcome.”
The credit crunch has taken its toll on all areas of the economy, including the property sector.
As a result, credit checks and effective communication have become more important than ever before when leasing property. With a few simple steps, landlords and homeowners can be assured that tenants will never leave them empty-handed.
“Effective screening methods need to be put in place to ensure that homeowners are not left with tenants defaulting on rental payments,” said Andrew Schaefer, MD of property firm Trafalgar.
These include doing a budget review with potential tenants to ensure that affordability parameters are correct, cross-checking past references and verifying employment references, said Schaefer. By doing this, homeowners can guarantee that possible tenants will be able to afford monthly rental fees.
Most importantly, there needs to be effective communication between homeowners and those who rent. “If tenants do have a problem, this should be discussed with the homeowner and perhaps a solution can be reached. It is better for homeowners and tenants to work together than to allow the problem to escalate,” said Schaefer.
Follow up without delay
Rental insurance is another way to guard against rental defaults. Homeowners can include rental insurance in the tenant’s monthly payments; should the tenant default, the homeowner will continue to receive rental income for a specific period, depending on the policy.
“If homeowners do have someone who has defaulted on rent, it is better to re-let the property as quickly as possible rather than fall into further arrears,” said Schaefer.
Landlords must follow up immediately on late payments. Should payments still not occur after the landlord has notified the tenant of the outstanding money, the landlord must begin to enforce the contract, said Dickens.
“Landlords must look at their specific contract and ask themselves what their next step should be. Can they send a letter of demand? Must they provide notice before a letter of demand has been sent? Can the contract be cancelled?” said Dickens.
However, property owners in South Africa are finding that the law isn’t necessarily on their side when it comes to protecting their legal rights.
Getting creative
As a result, they are looking at a variety of strategies to drive home the point that paying is part of the deal when you rent a property.
Some landlords have attempted to lock out tenants or employ the services of unsavoury-looking debt collectors, only to find themselves on the receiving end of lawyer’s letters from the same tenants they were pushing for rent!
A local property owner with several buy-to-let properties, who has seen delinquent tenants on the increase, told Fin24.com that he had enjoyed little success going the legal route. He decided to get creative by removing the front gate, a door or even a portion of the roof for “maintenance” in an attempt to encourage tenants to pay.
He said: “People tend to make a plan when they contemplate sleeping with no front door on their house.”
One of his key sources of information on the South African property market and ways to deal with difficult tenants was the website http://www.propertyinvestornetwork.co.za