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Leasing/Renting

How to determine the rental price of your investment property

Buyers looking to purchase an investment property to rent out often have difficulty determining the accurate rental price. There are many factors to consider and if you don’t assess your property value correctly you could end up over- or undercharging and neither are a situation you want to be in.

 

The accepted calculation standard for a long time has been to charge up to 1.1% of the property’s value in relative terms. Take note that as the property’s value increases the percentage of rental yield decreases because of the low demand for rental in high value properties. In some cases rental price go as low as the .7% mark.

 

A lot of other variables need to be taken into account, with one of the most important external factors influencing rental price being the location of the property. Suburb, sea views, amenities, schools, business districts, transport routes all play a major part in the demand for a rental property and often we will see homes of equal value and characteristics several kilometres apart charging completely different rental prices due to their location factors. Another key variable is supply and demand and depending on the current trend this will have a definite effect on your rental price.

 

Once you’ve assessed the advantageous features of your property you need to research property comparisons in your area to get an idea of what the local standards are. Browse listings of estate agents or property portals and locate properties of similar value and features. In addition give the local estate agent a call, if they’re worth their salt they’ll be able to assist you and give you a great idea of what rental income you can expect. Consider every little detail.

 

Internal factors need to be assessed in conjunction with elements out of your hands, such as the condition of your property. In this instance you need to be very honest with yourself and identify any issues a tenant might have; cracks in the wall, paint peeling, cupboard space, kitchen size etc. You have to view your property through the eyes of somebody wanting to walk in and call your place home.

 

Calculate your bond repayments, levies and other expenses and compare them to a realistic rental income, this way you can determine what you can afford as well as decide whether you should let the tenant pay for water and electricity or if you’re able to absorb some of the costs to make the property more appealing.

 

Once you’ve evaluated all these guidelines and determined a price, gauge the ad response and demand for the property to assess whether your rental expectations are too high or too low. Demand is a great indicator of your property’s value as many tenants are knowledgeable of what realistic rent prices are. If the ad response is very bad, and you’ve ticked all the necessary marketing boxes, then maybe you’ve overestimated the rental price. Reassess and adjust your rental expectation slightly lower and then see what the response is. If on the other hand you get a huge response and are inundated with enquiries you can afford to push the price a little higher.

 

In conclusion, all of these guidelines are only a drop in the ocean in comparison to the knowledge worthy estate agents have and it is undoubtedly still the best option, to find a local estate agent to assist you in managing your property. They will not only accurately measure your rental income but ensure all the legalities are followed and tenants are manged professionally and lawfully.

What to do with your home when you have to relocate

The offer of a lucrative contract in another country or a promotion to a position in another town or city is usually cause for celebration – but can present problems if you have to move in a hurry.

“If you’re a homeowner, for example, you will need to decide whether to sell and be ‘free’, or whether to become a landlord and bank on having a home to come back to in a year or two that may also have appreciated in value,” says Richard Gray, CEO of Harcourts Real Estate.

“Our advice in such instances is that it is less risky to sell if you still have a large bond on the property. For one thing, the costs of operating a rental property are higher than you might expect if you have not been a landlord before, and between these and your bond repayment there may no profit in renting.

“Secondly, if your tenant defaults or absconds, it could put you under severe financial strain if you have to cover the bond instalment on your old home as well as paying rent or another bond instalment in your new home town.”

Gray says that if you do decide to rent out your property, you must be sure to appoint a reputable managing agent – “someone who knows the area well and can advise knowledgably on a realistic rental level, who has a good track record as regards the selection of creditworthy and reliable tenants, and who will see to it that the property is properly maintained in order to protect its value”.

Similarly if you decide to sell, he says, you will need to be very careful in your choice of estate agent, especially if you are going to have to pack up and move before your home is sold. “You will be entrusting a major asset to this person, so you need to be sure they are from an established, reputable company and will always act in your interests. He or she should also be a good communicator who stays in touch and gives you regular feedback about viewings, buyers and the progress of the transaction once the property is sold.”

In addition, there are a number of things you can and should do yourself to ensure that your property remains secure, retains its “kerb appeal” and sells as quickly as possible. These include:

  • Installing exterior sensor lights that automatically switch on when it gets dark and switch off at sunrise;
  • Leaving the windows curtained;
  • Asking a neighbour or friend to clear the mailbox regularly;
  • Leaving your security system in place until the house is transferred - although you will need to give your agent the entrance code as well as keys and remotes.
  • Arranging for someone to mow the lawn, rake up leaves, water the garden and clean the pool regularly. Your agent should be able to help with this.
  • Ensuring before you leave that all the finishes in the house, especially the paintwork, are impeccable, and that everything is spotlessly clean. Prospective buyers will understand a bit of dust in an empty home, but they won’t overlook a dirty oven or a stained carpet.

And finally, says Gray, you should review the provisions of your homeowners’ insurance (HOC). “Many HOC policies offer limited cover if a

Get Your Lease Right

Whether you’re a landlord or a tenant, you should have a written lease, and make sure it contains certain essential clauses.

That’s the advice of RentalsDOTcom, the rental property management division of Harcourts Africa, which says that although a verbal lease is legal, it is preferable to have a written agreement to avoid any misunderstandings or disputes in future.

CEO Martin Schultheiss also says both landlord and tenants should check to see that the lease contains certain clauses. These include:

* A clause clearly identifying and describing the property that is being let, and stating how many people may live there;
* A clause formally identifying the landlord and the tenant;
* A clause stating the period of the lease and if and when it can be renewed;
* A clause stating the amount of rent payable and how and when it should be paid, for example into a certain bank account on the first of every month;
* A clause detailing any other charges payable, such as municipal charges for water and electricity consumption, or perhaps a percentage of the levy if it is a sectional title property;
* A clause outlining the responsibilities of the landlord, such as maintaining the property and making sure that any essential repairs are made quickly;
* A clause outlining the responsibilities of the tenant, such as doing no damage to the property and using it only for its proper purpose – for example, not running a business from a residential property;
* A clause or two stating what the process and consequences will be if either party breaches the agreement, for example what will happen if the tenant does not pay what due is on time, or what the tenant can do if the landlord lets the property go to rack and ruin.

“And probably most importantly,” says Schultheiss, “since this issue causes more disputes between tenants and landlords than any other, there must be a clause stating what deposit is payable by the tenant, where it will be kept and in what circumstances it will be or won’t be paid back.”

He also cautions that no-one should ever sign a lease unless they are sure that they fully understand the contents, and should seek expert advice if there’s any aspect that’s unclear.

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Rental Property Inspections

The importance of conducting ingoing and outgoing inspections cannot be overemphasised. One of the most common disputes between landlords and tenants concerns the return of the deposit. The best way to avoid a dispute is to ensure that a proper ingoing and outgoing inspection is attended to.

Inspections are required by The Rental Housing Act and the following needs to be adhered to in terms thereof:

  • A landlord and tenant must jointly, before the tenant moves in, inspect the property to ascertain the existence of defects or damage to the property.
  • Three days prior to the tenant vacating the property, the landlord and tenant must again jointly inspect the property to determine whether the tenant caused any damage.
  • In practice the Estate Agent may attend the inspection on the landlord’s behalf. However an occupier cannot attend the inspection on the tenant’s behalf. The tenant that signs the lease agreement must attend the inspection.
  • It is important for Estate Agents to take notes and photographs, clearly showing the overall condition of the property and recording any defects. Every defect regardless of its size should be noted and photographed and a copy of the defects held by the owner, the estate agent and the tenant. The document, as well as the photographs, serve as a reference when the tenant moves out and the landlord calculates the costs of any additional damage.

It is important to distinguish between damages and “fair” wear and tear. A tenant cannot be held liable for “fair” wear and tear on a property. A common example is carpets. Carpets have a limited life span and although you can deduct the costs to clean the carpets when the tenant vacates, you cannot expect a tenant to replace carpets which have become old and worn out over their usual life span.

The landlord has a duty to provide the tenant with the relevant invoices as proof of the damages. A landlord cannot merely estimate the costs.

In order to navigate the practical effects RHA we recommend that you consult your attorney or a property rental agent for advice and assistance sooner rather than later.  Harcourts UD 041 922 0152.

 

 (Article Courtesy: Kaplan Blumberg)