A small section of Q and A’s. Source, treoc.com
19 November 2007
Q: I would like to know whether a 10% increase in rent is too much for tenants that are planning to stay long term?
A: The rental housing act stipulates that the rental cannot be increased by more than 10% p/a for the first three years.
12 November 2007
Q: Do you think a prepaid meter is a good idea? What in your experience are the pros and cons of this method?
A: Pre paid meters are a very good idea. Firstly the administration of the whole situation becomes much more simple. The city council does not need to read meters, there cannot be any faults with incorrectly read meters, the body corporate does not need to employ people just to read meters and most of all the account is always for the tenant. Further this, you as the owner can still cut electricity if need be. I trust this helps.
02 May 2006
Q: My tenants have been in my property for three months and have handed in notice to leave end of May. They signed a one year lease. Who is responsible for costs of finding replacement tenants? What are they liable for since they are breaking their lease agreement? What am I liable for? Where are the conditions laid down or where can I read up concerning terms of lease agreements?
A: You can find the housing act at www.acts.co.za . Although the law always prevails, like you clearly said, you need to understand what the conditions were of your lease agreement. From what I can gather from the information you gave, you could try and get the rest of the money for the remainder of the contract from the tenant. Having said that, it is normally just easier to let the tenant leave and replace them with new tenants. Also, they did hand in notice, which tells me that these people do have some respect for the agreement and this also shows courtesy, to in fact notify you of their intentions. Remember that these tenants might well become tenants in one of your other units some day. If you treat your tenants well, they will also treat you well. Legal proceedings are not always fun and will definitely take up a lot of your time. Please read the housing act and then decide for yourself.
26 January 2006
Q: The problem I have is the management of the properties and I make use of independent agents. This is where my problem lies at the moment, because I don’t know how to identify good rental agents. Please help!
A: Good rental agents are as scarce as the proverbial hen’s teeth. Most of them want to do as little as possible for the commission that you pay them monthly. Firstly, make sure you are talking to rental agents who are prepared to do everything for no more that 10% commission. When I say everything, I mean everything, such as: sourcing of tenants, screening checks, inspections, rent collection, maintenance management and so on. I really don’t want to do anything other than receiving their statements every month and verifying these against their payments to me. Most rental agents do these things. Of course, it is easy for them to do so as long as everything is going well, but the true quality of the rental agent will come to the fore when the tenant doesn’t pay. One of the questions you should ask a rental agent before you appoint him is: What will your procedure be if the rent is not paid in by the seventh day of the month? If the answer to this is that he will begin instituting the correct legal procedures, I would look for another agent, because the correct legal procedures have little, if any, effect. I am looking for agents who are prepared to follow unorthodox methods.
22 August 2005
Q: Two questions: 1. In the George Herald of Thu 11 August there is an article warning landlords not to take the law into their own hands i.e. cutting off electricity, or removing items of the tenant in order to cover the rent. “In terms of the law, landlords are entitled to expect regular rental payments, but any unpaid amounts are only allowed to be recovered after obtaining a court order” – this includes cutting off the electricity. According to the article the tenant can also obtain a spolation order which would force the landlord to return an item (I assume turn on electricity) immidiatley. In your seminars you have advised that turning off the electricity could be a good way of getting the tenant to leave if they don’t pay, but if it is agaings the law what could we do should such a situation arrise? 2. Regarding interest rates: The oil price – some people speculate that the oil price might go up to even $120. That would make the interest rate go up drastically – and probably in a very short time-span. I know you said one has to look at the possibility of fixed interest rates. What is your opinion on when one should start looking at this and do you know if there is any extra banking charges in setting up a fixed rate?
A: 1. Cutting the electricity might not be legal, but it is effective. You will remember that I discussed the legal method and the unorthodox method. However each individual will have to decide on the method himself. Another reason why I prefer to work with Letting Agents. That leaves the decision making to other people and not me! 2. Interest rate can go anywhere, but still I will wait and see. I don’t think it is time to fix, but this is also something you will have to decide on yourself. I can only tell you about different available options and what I will do, but I always refrain from giving advice. The banks are changing their rules and rates very often. I suggest you contact them regarding cost and procedure for fixing.
13 June 2005
Q: I bought my 1st property and want to lease it out managing it myself to gain the experience as you suggest we do. I bought an ready drwn-up contract …. Please explain the rest
A: Stamp duty on a lease agreement is a revenue stamp you buy at the post office. Take note: A revenue stamp not a postal stamp. Calculation of Stamp Duty on Agreements of Lease as from 01 January 2005. • 50c for every R100 of the total contract value eg. 1) R2,000.00 rent per month over a 1-year lease period 2000×12 = R24,000×0.5 / 100 R 120.00 Please note: Should the value of the stamp duty be less than R200.00 – no stamp duty is payable. eg. 2) The value of the lease must always be rounded up to the next hundred for calculation purposes. • R3,120.00 – Monthly rental for 1st year R3,432.00 – Monthly rental for 2nd year (escalated @10%) • Total lease value for 2 years R78,624.00 (total lease value) • Rounded up to next R100 R78,624.00 to R78,700.00 • Use R78,700.00 to calculate stamp duty i.e. R78,700×0.5 / 100 = R393.50 Stamp duty Please note that the cost of stamp duty is normally for the tenant’s account if your lease makes provision for costs associated to the lease. Agreements of lease must also be stamped within 30 days of the last dated signature on the lease. (This will prevent heavy penalties from SARS.) Revenue stamps are obtainable from all major Post Offices.
10 March 2005
Q: Rent/Value Ratio. – This is a strange way of calculating a yield. The generally accepted rental yield calculation is based on annual rent divided by the market value of the property – in this case R 3,000 per month x 12 = 36,000 per year divided by a value of R 300,000 which equates to a rental yield of 12%. Everybody in Europe, the UK and the US will understand a rental yield expressed in this way. This expression of rental yield becomes even more meaningful when one can directly compare rental yields to mortgage (bond) rates, since mortgage rates are also expressed as an annual rate of interest. Thus if one’s bond cost is 9% and the rental yield is 12%, the property will generate a positive cash flow (ignoring the loan to value percentage, agent’s commissions, insurance and other costs). Why so complicated?
A: It is not the yield I am trying to calculate, it is the rent/value ratio. Yield is the profit or return on an investment.
Yield makes perfectly sense with ungeared commercial properties and, yes then it is a universal language that anyone understands, but a geared townhouse with a 12% or 30% or 40% yield won’t make sense and it is then not even a good investment! Therefore I feel Rent/Value ratio and Rate of Return is more suitable for residential properties and in South African, Rent/Value ratio is general terminology.
03 March 2005
Q: How do you rectify a deliquent Bodycorporate where the trustees see to have personal agendas and selfish actions for personal gain? especially since the rates have not been paid for 2yrs and we cannot sell due to this. unless we find a cash buyer.
A: You as an owner in such a complex can ask the court to appoint an administrator. If your application is successful I suppose the cost of the application will be for the body corporate’s account. Discuss it with an attorney.
15 February 2005
Q: I was wondering regarding article in the Businss day about rental insurance (covering void epriods in residential letting cycles) They charge a small percentage of the annual rent in order to pay out if and when the property stands empty – do you know anything about this and if so, what are the positives/ negatives?
A: There are several of these products available. They normally screen the new tenant, collect the rent, handle evictions when necessary etc. In a small portfolio it might be good idea to have it, but in a bigger portfolio the protection is in the numbers. The 4% vacancy assumption we use in the software is actually your own little insurance fund. Then, if you do your own screening properly, the risk is very low.
12 March 2004
Q: Just a quick question. Is it a good idea to collect a deposit equal to two months rent?
A: No, I suggest that the deposit should not be more than one month’s rent, but remember to collect a deposit for one month’s electricity bill also.