Entering the rental market can be an excellent investment, offering rental returns in the short term and capital gains in the long term. It’s also a great way to get one’s foot on the property ladder as the rental income will often cover a large portion of the mortgage repayments in the case of bonded purchases.
However, Lorraine Dellbridge, a Rentals Manager for Lew Geffen Sotheby’s International Realty, says many an investor has come unstuck by miscalculating the costs and required cash flow of owning rental property, which can quickly cause a sound investment to become a financial burden, or even result in the loss of the property.
Dellbridge says one of the expenses most often overlooked and not budgeted for is maintenance, which not only affects the monthly rental that owners can achieve, but also the property’s value in the long term.
“Landlords should afford their properties the same level of diligence as they would their vehicles, but many baulk at all but the most essential repairs which can prove very costly in the long term, if not sooner,” she says.
“Maintenance and repairs are not only for the benefit of the tenant, but are crucial to prevent problems from escalating and resulting in expensive outlays in the future.”
Dellbridge says it also protects an owner’s investment, and ensures they will realise maximum returns when they decide to sell the property.
“Commonly ignored problems we see that have the potential to escalate include plumbing, guttering and drainage issues, which are usually minor initially but can often end up costing a small fortune.”
Dellbridge says the best way for landlords to avoid being caught on the back foot is to save a portion of the rental income each month so that they build up a maintenance fund, and therefore have the money on hand when needed.
However, unlike fixed costs like rates and levies which are easily included in a budget, future maintenance costs cannot be foreseen, only estimated, and Dellbridge says that many landlords tend to exclude them from the budget and hope for the best, especially when the economy slows and belts need to be tightened.
“It’s in times like these that is especially important to continue to contribute towards a maintenance fund as the cost of unanticipated major repairs could quite literally break the bank.”
Arnold Maritz, Southern Suburbs Co-Principal for Lew Geffen Sotheby’s International Realty says it is also critical for owners to take out the best insurance policy they can afford, and to take the time to research which company offers the most comprehensive coverage.
“Emergency repairs like burst geysers are not uncommon and can wreak havoc on one’s cash flow as they require an immediate outlay of up to R10 000, which few people have to spare,” he says.
Maritz says disregarding or overlooking the maintenance of rental properties is not only a mistake made by investors who are new to the game.
“Landlords who have never lived in the properties they are letting are often unaware of potential issues that may require a watchful eye, and this ignorance is easily exacerbated when they have long-term tenants who pay their rent on time and only ever communicate with the owners about major problems,” he says.
“Is it therefore advisable for landlords or their appointed agent to check on the properties a least once a year to see what maintenance needs to be done. They cannot just assume that the tenant is doing their part in the upkeep of their property, or that they will notify the owner about potential problems as they arise.”
Lew Geffen, Chairman of Lew Geffen Sotheby’s International Realty, says it is essential that both the tenant and landlord have a clear understanding about who is responsible for which repairs, and this should be fully covered in the lease document.
“Landlords or their appointed agent must always conduct documented incoming and outgoing inspections to keep track of damage to the property and also to catch and repair any budding issues before they become real problems,” he says.
Geffen says landlords must also bear in mind that the tenant is a key factor in the upkeep of their investment, and that their impact is two-fold.
“The better the tenants take care of a home and the more a landlord keeps tabs on their property, the less maintenance there will be. Landlords should work with their tenants, as happy lessees are more likely to look after the home,” says Geffen.
“And, generally, the better the condition of the property, the higher the quality of tenants it will attract. This benefits the landlord in both the short and long term and averts myriad potential problems.”
Dellbridge says these days it is advisable to use an experienced agent who not only has a thorough knowledge of the area, but also because the current Rental Housing Act has changed considerably in recent years, and most tenants are now far more aware of their rights.
“Even if landlords prefer to handle their own rental properties, they should always seek the advice of an expert when drawing up the lease to ensure it is compliant with the rental legislation, and that the lease covers all their responsibilities, as well as those of the tenant.
So what is for the landlords account and what are the tenant’s responsibilities when it comes to maintenance and repairs?
Dellbridge says the rule of thumb is that the landlord is responsible for the general maintenance of the property, while the tenant is liable for any damage which is not caused by reasonable wear and tear – this is where a thorough incoming inspection is invaluable to determining culpability.
“Tenants are also responsible for the replacement of items like light bulbs, fuses and tap washers, and they are obliged to take care of the property and notify the landlord of any repairs that are needed.”
Maritz says investors who are thinking of entering the rental market should always ensure that they have done their homework.
“They need to invest in an area where they will see a maximum return on investment, and minimise the risk of unforeseen financial pitfalls which could not only cost them their investment, but also cause untold stress.”