Huge problems for DIY landlords

Huge problems lie in wait for the entrepreneurial landlord who likes to “do his own thing” when it comes to selecting and signing up tenants, says Michael Bauer, General Manager of IHFM, one of the Cape’s leading property management companies.

“No matter how often we advise against this,” said Bauer, “we still regularly come across landlords who make all the most common fundamental mistakes which cause the majority of problems when renting/letting properties to tenants.”

These, he said, are failing to recognise that tenant selection is the most important step in approving potential tenants and failing to carry out thorough background, employment, landlord, credit and debt payment checks.

Bauer said that all good property management companies have access to a range of credit data which is available to those who subscribe to the Credit Bureau – but the average landlord does not have access to this information.

Customer accounts, returned debit orders and bounced cheques, he said, will always give a good indication of just how reliable a payer the potential tenant is.

“In some cases,” said Bauer, “he may be a reasonably good payer – but he will often pay late. That is not the sort of person that you want as a tenant.”

Similarly, he said, while a move-on-fast employment record may be a sign of ambition, any person who has changed jobs often might be a risk. If possible, the employer should verify that the tenant’s current employment arrangement is on a permanent basis or a contractual basis.

Landlords who do insist on being fully in control, said Bauer, should be aware that a recommendation or reference from the tenant’s current or previous landlord cannot always be taken at face value. He may be prepared to resort to a deliberate fudging of the facts in order to get rid of a bad tenant or he might be related to or a friend of the tenant.

“In practice,” says Bauer, “landlords are often under pressure to re-let the property on a new month cycle and want to avoid a vacancy. However, cutting short the tenant selection process can be costly in the long run. Do not be pressurised.”

Another common mistake, said Bauer, is, once the tenant’s record is checked and approved, to fail to ask for a deposit. This, he said, should be at least one and a half or two months rental. Sometimes the landlord also neglects to demand one month’s rental paid upfront.

“These payments may seem tough but they are essential for financial peace of mind.”

“If they are made in full and in time,” he said, “the landlord will know that his tenant has an 80% chance of being a reliable payer – even then, however, this cannot be guaranteed.”

A further common mistake is in issuing lease agreements. Although, it is not required by law, it is advisable to have a written lease agreement spelling out each party’s rights and obligations under the lease.

Experience, Bauer said, shows that standard lease agreements are often inadequate and need amplification and additions.

“It is therefore advisable to use a professional property management company like IHFM to avoid these mistakes and ensure that your property is managed properly.”

Those who object to paying a commission involved in appointing a property management company to manage their property should calculate (a) how much this is actually costing them in time, money and frustration and (b) what any other professional (e.g. an attorney) would charge for services if things should go wrong.

“Taking into account that the agent is an experienced administrator and has staff and systems in place to fulfil his role the standard commissions are not at all excessive,” said Bauer. “More importantly, the commission is tax deductible, but your time is not.”

For further information visit IHFM have a weekly online newsletter covering sectional title and property matters that will be supplied on request.

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