RENOVATING IN SOUTH AFRICA

We continue our discussion with author of the Expert Landlord, David Beattie, on the current state of the residential buy-to-let sector.

[RISA] In the current climate, quite a few tenants are probably struggling to pay their rent. You suggest in the book that landlords act sooner rather than later. What is the risk in letting a situation drag on for too long?

[DAVID] Well, I mean, you're going to lose money at the end of the day. And there's a couple of points here. First of all, a leopard doesn't change his spots. If someone's in a bad financial situation, then face the music and deal with the situation right here and now, negotiate a payment plan or something or otherwise negotiate with the tenant to move out of your property. But that situation is not necessarily going to change itself. And unfortunately, in this market, I think landlords have to be quite proactive in being engaged with their property, even if they have a rental agent.

[RISA] Ok, then in the book you have a flowchart for screening tenants and then you've also got an addendum with a list of responsibilities for a landlord. The list is quite lengthy and it’s probably quite daunting for someone who's thinking of getting in to buy-to-let investing so are there any tools that you know of that can make it easier to manage a property.

[DAVID] Look, the prop-tech side of things is getting there. I mean, we've got Pocketlet, which we're developing at the moment. It still has a few months from really becoming something. But there are various little odds and ends.

I mean, the main one is the Tenant Provider Network (TPN), for the tenant screening and also providing free invoicing software. But there's not really much else, I mean, there is inspection software, but for a single landlord there aren’t a lot of solutions which are going to solve all the challenges at the moment.

[RISA] So the book has an accompanying website. What can people find on the on the website, theexpertlandlord.com?

[DAVID] They're going to find a lot of legislation which you can download, like the Rental Housing Act and that kind of thing. The Rental Housing Act, by the way, is easy to understand and quick to read. And I would highly suggest landlords read it together with the regulations which go with it, which are very easy to understand. And we give the rights of landlords and tenants as well.

 Also on the on theexpertlandlord.com, are some free procedures or step by step guides as to how to do various things and then you can also purchase certain property management documents like a lease agreement, lease addendum, etc.

 By the way, we get a number of questions on the website. People can just ask questions. If they have a question, then we'll just answer it.

[RISA] Ok, so you mentioned legislation, there is this narrative that going through the courts when you need to evict a tenant is going to take too long and some landlords - especially in Johannesburg CBD - talk about how if someone doesn't pay, they will just take matters into their own hands. What do you think are the risks with that approach?

[DAVID] Look, the legal route does eventually work, this is why you need to act early, because sometimes landlords are acting too late.

 When you say taking matters into your own hand, that's a very broad brush stroke. I've got one landlord at the moment that is literally doing that and we said to him that we have nothing to do with that, he's literally getting some guys moving into his properties to deal with tenants. And that's very much on the other side of taking matters into your own hands. Whereas what's kind of a done deal in Joburg CBD is that you just take someone's fingerprint access off the complex’s register when they don't pay.

Tenants will then often go to the Rental Housing Tribunal, say if the agent has cut off utilities, and the agent or landlord switches them back on. Our team has a mediation happening right now where a non-performing tenant has taken us to the Tribunal.  The Rental Housing Tribunal is normally quite pragmatic, they know that it's a tough market and that landlords are under pressure.

In my view, a lot of problems can be avoided with good property management upfront. If you are screening tenants, if you place good tenants, the chance of having to take matters into your own hand at the end of the day is a lot less than if you are not screening tenants properly.

 And sometimes landlords cause their own challenges because they are not giving the right customer service to the tenants and tenants act out of frustration on their non-performing landlords. So landlords need to take responsibility from that perspective when it's the so-called “taking matters into your own hands”.

[RISA] Ok, so the book's been out for about two years now, have there been changes to the legislation since then?

[DAVID] Not much to say. There have been some small changes to the Rental Housing Act, but not enough to warrant the rewrite at all. And so from a legislation perspective, the book covers 99 percent of it. We're not pretending the book is going to cover all bases, but it covers the principles and the principles themselves are pretty much the same.

[RISA] Ok, and then for those who are fortunate enough to be able to buy at the moment and are thinking of getting into the buy-to-let sector, what kind of advice would you give them? On the one hand, they might get a good deal on the purchase price of a property, but then on the other hand, vacancies are going up. Is there a specific sector or segment that they should focus on or should they not even consider investing right now?

[DAVID] I’ve seen the whole spectrum. I spoke to a landlord the other day who says it's so much hassle with the levies going up and rent coming down. He has four properties and is not sure whether he should just sell it off.

And I've got some landlords that are aggressively going into the market and they're making a killing. So I would suggest two things, firstly specialize, whether you specialize in CBD or whether you specialize in Cape Town southern suburbs, which is a middle to upper market.

There are landlords in both sectors that are doing well because they know the sector. So get a market that you like and are passionate about and get to know the market really well. And every landlord has got different appetite for different markets. As I said, I've got some professional landlords that are in all different tiers of the market and they're all doing well because they are specialists in that tier of the market. I would suggest the low end of the market is high risk at the moment because the average low-income tenant is suffering more financially than the middle-class tenants, which is just a tragedy of our times.

You know, the average middle-income person is suffering a lot, but they still can make a go of it. The average low-income tenant is suffering more. They have less leverage. And so I would suggest focusing more around the R7 000 rental mark at the moment.

The second big principle, I would say, is buy well. Knowing that you're very conservative on your vacancies, occupancy levels and collections. So I would put my occupancy levels at about 85 to 90 percent, and I would put my collections at about 90 percent. And then do your numbers with a lower rental than what you think you should be getting. So if the market is saying I'll get R8 000 rental at the moment, I would run my numbers on R7 500.

And if I can, I can purchase a property where those numbers are viable then the property will work but be a lot more aggressive your pricing. Don't buy because you hope that things are going to get better but on the harsh reality.

[RISA] OK. That makes a lot of sense. So in conclusion, the key is for landlords to do the hard work up front in getting the right tenant and then know your market well in terms of location and segment.

[DAVID] The more you know your market, the better your price, your rentals, and the more likely you are to get a tenant at that rental and then make sure when you're buying, you're buying it at the right price. You've got to buy low. 

I mean, I've got one landlord with 15 to 20 units in the Paulshof and Broadacres areas and he has a higher vacancy than you would like. But because he's quite liquid and because he knows that segment of the market he is fairly comfortable. Of course, he puts pressure on us and so forth, and he needs to do that. And he doesn't invest in any other segment of the market. But he's quite comfortable, he can ride the ups and downs because he knows what he's doing.

[RISA] Well, thank you for your time David, you've given us a lot of tips which will come in handy for landlords in the current market.

The Expert Landlord is available from leading bookstores as well as online at www.theexpertlandlord.com, Amazon, Loot and Takealot.