Tenants

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feo

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Need some advice and urgently.

So there's this place that's for sale, a nice 3 bed, 2 floor place for about R700k that I want to buy as an investment property. The bond payments will be about R5k or so.

What I want to do is put down a small deposit to reduce the bond repayment a bit and then start letting it out to tenants and let the rental income offset the bond. Now the property agent said it can fetch R5-6k. Now I'm young and haven't bought investment property before, so I'd like to know from you guys that have tenants what it's like.

My main questions are:

1. Is it difficult to find tenants that actually pay on time?

2. Do tenants generally leave the place in a wreck?

3. Is there any way to guarantee that you have "good quality" tenants and ensure you get paid every month?

4. Is the agent just telling me I can get that amount of rent to get me to buy the place?

Basically I just want to know if the tenant thing is one big headache (like some people tell me) or is it relatively pain free if you do it the right way?

Any advice or words of wisdom will help.

I basically have a day to make this decision.

Thanks peeps
 
Why do you have a day? Lemme guess, "another buyer is like, super interested but I'm giving you priority"?
 
If you have only 1 day to make this R700k decision, then don't make it.

Do your research, never believe anything an estate agent tells you, EVER!

But, there is no "right" way to do the tenant thing. Some tenants will be awesome, some will be crap no matter how much background checking on references etc you do.

Also understand the tax implications of investment property before you jump in.
 
On point no 4: yes. Agents are *******s that way.

Some people work through a rental agent. It may cost a bit more but you the owner only has to deal with the agent. The agent manages the rent, repairs, deposit, bc issues etc etc. Worth it if you ask me (unless you find a useless agent)
 
1) yes. Credit Check the mother ****er
2) not always, but most of the time, references from previous places rented would be required
3) See (1) and (2), plus think about asking them to consider a debit order and ask for 2 months rent in advance as deposit (the 2 months usually weeds out people who move around because they don't pay rent and disappear or leave the place in a wreck)
4) yes. What I'd do is check what rent is going for in the area for the same type of unit (privateproperty.co.za etc). Remember you'd most probably be paying utilities/property tax or a levy (if it's in an estate or complex). People forget that is excluded from the bond repayment initially and the costs aren't made clear until you're actually knee deep into the thing

Took me 3 months to get a tenant and then they started paying later and later and later.

My advice here is, if you can afford to pay for the place by yourself without having to break the bank (ie, you have 5-6k lying around anyway doing nothing), then go for it. Buy the place (make sure you inspect it VERY thoroughly, not with the estate agent) and then get a tenant in there.

But if you need to make the decision within a day and you can't afford to let it stand empty for-EVER then you might not want to consider buying just now. There's always a good deal somewhere.
 
R700k isn't a small amount of money, so I guess i shouldn't be doing this if I only have one day.

But what I'm trying to figure out is how safe this is. In my mind, it's as simple as rental income completely offsetting the bond payment, no risk.

But in reality, there is obviously risk but why? With tenants, can you not just have the rent come off their account as a debit order? Does the lease agreement not protect you if something goes wrong?

The impression I get is that the person receiving rental income is not protected at all, whereas the tenant is almost given free reign to do what they please.

Am I wrong?
 
TL;DR - See AcidRaZors advice.

From my experience (I rented out my house while staying at my parents a while back):

1. Finding tenants via an agency helped me out somewhat, the agency collect on your behalf and make sure that you get your rental. Comes at a small fee though, usually a percentage. Negotiate on this and make sure they aren't taking a 10% cut for example. Also have a look at their template lease agreement and add specific clauses if you need to.

2. I had to repaint the walls, wash carpets and general cleaning after they moved out (came in at about 2k). The damage\wear and tear was not bad enough to have it taken from the deposit, but I am a neat freak so I felt uncomfortable leaving the place like that for the next tenant. They did however wreck the garden, had to replant most of the lawn, but recovered all the cost from the deposit.

3. No guarantee, so make sure you can afford the place on your own for at least a couple of months in the worst case. Also consider the legal fees\implication of getting rid of a tenant, add a couple of grand for that to the rainy day fund.

4. Most likely the figure is inflated somewhat, I never trust agents :whistle:. Best is to call a rental agency and say you are looking to rent in that area and find out a ball park figure for your type of property in THAT AREA.

Also remember you will be paying rates and a levy (if complex) as well. So add that into your calculations. Also keep in mind the tax implication when your rental income starts to exceed the (interest cost + rates) of the property, usually only an issue after a couple of years if you invest aggressively.

My experience was relatively pain free except the maintenance. My dad on the other hand had a tenant that stopped paying one month, the next he paid R500, the next month half of what he owed and a week later he was gone. Place stood empty for another 2 months during repairs and finding a new tenant. What I am getting at is make sure you can afford the place on your own (at least of 6 months).
 
I have wanted to do similar as the op.

Please can you guys go into more detail about the tax implications.
 
Ecco said:
I have wanted to do similar as the op.

Please can you guys go into more detail about the tax implications.
Click to expand...

To summarize:

You take your rental income and deduct all relevant and allowed expenses (interest on the bond, rates, levy) from that. If the expense is more than the income, you made a loss, which can be deducted from your taxable income (might even score you a nice rebate). If you however made a profit, the profit gets added to your regular income and gets taxed at your tax bracket. Worst case scenario you get pushed into a higher tax bracket by the additional income.

Thing with the bond repayment is as time goes by, you are paying less and less interest and more principal debt. Thus slowly reducing the interest deduction from your income. As soon as you reach the point of income = expenses you start making a profit on the property, thus paying taxes. If you invest aggressively (eg a couple of grand a month extra) into the property you will reach that point much sooner. I reached that point in about two years, as most months I paid double the required bond repayment.
 
heartbroken said:
... I reached that point in about two years, as most months I paid double the required bond repayment.
Click to expand...

I make sure not to pay extra into a property I rent out, in order to minimize the profit on the place. Rather pay off all your other debit first. Make the tax work for you, rather than against you. Just make sure to stay within the law.
 
When I look for a tennant I tell everyone they're the third person to want the place. Then I pick the person I feel most comfortable with.

Credit checks are very important, don't neglect them!
 
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