RentMaster CEO Shanaaz Trethewey explains how – as a landlord – you can ensure your rental rates are right on the money this year
WORDS: HELÈNE MEISSENHEIMER – PHOTOS: JORINA WOLMARANS & SHUTTERSTOCK
The pandemic has the rental industry in a particularly vulnerable state. Many landlords may find themselves hinging between being empathetic of changing economic circumstances and becoming an accidental financier of their tenants’ homes.
Know your rental bracket
To set your rent realistically, it’s important to know how the different rental price brackets were impacted last year. This will help you understand how cost-sensitive your tenants are. Data by specialist credit bureau TPN shows those in the rental bracket below R3,000 were hit hardest, indicating little or no savings to access in the hard lockdown. Similarly, those in the highest bracket, over R25,000, were also showing distress as they deal with substantial pay cuts and larger overheads.
If you’re considering buying property, the R7,000 and R12,000 bracket has proven stability in 2020 and is set to remain constant this year. Employment rates dropped by 13% in 2020 meaning many double-income households have become single-income households. Families have had to reconsider their lifestyle and rental choices to keep afloat. However, since August most tenants have found ways to catch up on arrear rental payments. It’s important to have honest discussions with tenants on how the gap can be bridged.
Vet your tenant
You cannot get payment from a tenant who simply doesn’t have the money, so it’s important to know who you’re leasing to. Review the bank statements of potential tenants to ensure they can afford your rental rate. If there’s a change in employment, your level of scrutiny should increase, and the length of time you inspect their data should be longer. This applies especially to individuals who earn income in more fluid ways such as being self-employed. It’s important to monitor changes in payment behaviour so you can address affordability issues before they become problems.
Landlords, aware of increasing vacancy levels, can feel anxious to get tenants into their properties. Trethewey warns against hasty decisions as the cost of having a property vacant while seeking a good quality tenant, far outweighs having a tenant occupy the property – only to have a loss of income because of non-payment, subsequent lease cancellation, and potential eviction.
An air-tight lease
Many landlords use their property as an investment asset to increase in value while earning additional income. As a landlord, you have to consider your property’s overheads, such as bond repayments, levies, utilities and other third-party payments like rates and taxes to set a rental price. Other factors include the changing interest rates and how to create a buffer for your own expenditure on the investment. Hidden costs, such as repairs and maintenance, should be identified, and a portion of funds set aside so you’re ready when the time comes to revamp your property.
All these costs cannot always be passed onto your tenant. Be mindful that covering your full rent is likely to be more challenging for tenants at the start of this year, so work on a solution that works for all parties. All these intricacies must be explicit, detailed and time-bound in your lease agreements to be binding and to prevent any potential conflicts.
Raising the rent
“At RentMaster, we’ve seen minimal to no rental escalations,” says Trethewey. “It’s more important now for landlords to look at what a good quality tenant can afford while still covering their overheads, than trying to increase their profit margins.”
Last year taught us that as the world changes, we must adapt. Setting a rental value is no longer a signed, sealed and once-a-year kind of activity. Landlords need to take a far more active role in managing their passive incomes than simply reviewing their lease terms every 12 months. Landlords with full-time jobs can partner with property rental specialists like RentMaster who make it their business to protect their client’s rental income with active collection.
Determining rental is not an exact science. As tenant circumstances change, landlords need to adapt their expectations and their perspective on the level of activity rental recovery requires. Often these aren’t easy conversations and come with emotional ties and stress for both parties. Making the right call – both ethically and financially – on the right rental rate, is more challenging now than ever. Property rental specialists can assist in this regard by being mindful of tenants’ problems and relieving the pressure for landlords.