If you are emigrating but you plan to keep property in South Africa, there is a way to make your property pay without being a hands-on landlord.
But how do you weigh up the potential earnings of holding the property against the cost of maintenance and tenant management from abroad? Paul Stevens, CEO of Just Property says the rental market is under pressure, with high levels of unemployment, job insecurity and poor tenant credit ratings and this decision needs to be made with insight into local market conditions.
“The best way to make the right decision is to ask yourself three questions” he says:
- Do you need the liquidity that could come from selling the property now or, can you afford to hold onto the property until you are sure that you will not be returning to South Africa?
- What will your expected running costs be? For example, rates and taxes, property maintenance, insurance, agent’s fees etc.
- What are your prospects for finding a reliable tenant at a rental rate that will cover your expenses and building a slush fund for maintenance and unforeseen expenses?
- What rental opportunities exist for you to tap into and who would manage your property (and tenant) in your absence?
“Properties with absent landlords and no managing agents present a higher risk than those that are more closely managed” says Stevens. “That said, appropriation of land and property has been used by politicians as a tool to win votes and to instil fear, but South Africa’s constitution is among the strongest in the world, protecting citizens and ensuring that due process is followed”.
Understanding that process, along with local government objectives and town planning initiatives, is vital if you are to understand the risk of your property being appropriated, he adds.
DIY versus a managing agent
The peace of mind you will have if your property is rental managed is something that most foreign-resident landlords appreciate. “A strong managing agent maintains positive relations with the tenant (and neighbours), serves to help maintain the property and manages financial aspects like rent collection and payment of utilities. These matters can be difficult and time-consuming to manage remotely” says Stevens.
“You might think you could save money by running your rental from afar, but it’s a false economy. An experienced management agent, who keeps close tabs on the property and the tenant, can handle small matters before they become big problems,” he warns.
Stevens notes that he has seen DIY landlords getting into hot water through mistakes like including illegal clauses in their leases; screening tenants in discriminatory ways; not doing the in-going and out-going inspections due to being abroad; evicting defaulting tenants in ways that do not align with South African law and failing to invest deposits correctly or to use these deposits in illegal ways.
Stevens advises that you weigh a prospective managing agent on their delivery in the key areas that can offer landlords peace of mind:
Tenant vetting. Do they conduct rigorous credit, employment, and affordability checks? Their process should include identity matching with a credit bureau, an identity and deceased check with Home Affairs, a fraud and criminal conviction check against the SAPS database, bank account verification, character references, and consumer and loan account checks, including judgments or defaults.
Comprehensive contracts. These should ensure that all parties are protected and contain clear and comprehensive terms and conditions. Ask your prospective agent if a legal firm has endorsed the quality of the lease contract.
Financial management. You want an agency that processes payments speedily and accurately. Ask whether you will have complete transactional control on their system and whether it complies with regulations. Do they take care of all monthly payments (utility bills, rates etc.) on your behalf? How do they deal with non-payment of rentals?
Inspections and maintenance. How will these be handled? Who do they have on call to see to maintenance operations?
Insurance against defaulting tenants. Does the agency offer this? They should.
Communication. When you are far away, you want the assurance of excellent communication, but you also do not want to be bombarded by spam. Ask what reports can be provided on request, says Stevens. “This will tell you a lot. They should generate activity reports, entry and exit inspection reports and interim inspection reports if required”.
“It is important that you cover this ground before you appoint a managing agency,” Stevens warns.
“You will be paying for this service and you need to be sure you are getting value for money and the peace of mind that your property is being looked after whilst you are away. With a strong rental agent in place, you can enjoy your new adventure overseas in the knowledge that your home is earning its keep and will be ready for you when you return – which we hope you will,” he concludes.