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Tuesday Nov 20, 2012

Tenants in mid-rental properties still the best payers

The latest Rental Payment Monitor report on the second quarter of 2012 shows that an impressive 81% of tenants are in good standing when it comes to paying their rent every month.

This figure has improved over the last few years, from 74% (with only 54% paying on time) which was recorded four years ago when the residential market plummeted.

The second quarter figures show that 68% paid on time, there was 8% who made partial payments and 13% paid late (but, he commented, at least they did still pay their rent).

"The recent reduction in the second quarter of this year of 50 basis points, I believe, has contributed to the positive rent collections," said Michael Bauer, general manager of IHFM. "What many landlords forget is that tenants often have large debt to income ratios and make substitution choices when it comes to paying their bills and maintaining their lifestyles. If the interest rate drops it frees up cash to pay bills."

The National Credit Regulator has warned that the credit bubble will eventually burst, mainly in relation to unsecured personal loans, credit card debt and revolving credit from retailers, he said.

"I have always found the R3 000 to R7 000 rental bracket to be the most reliable payers but now there is an improvement in the R7 000 to R12 000 bracket as well. In fact, the figure in this bracket of people in good standing is 1% better, at 85%," he said.

The key here for landlords is proper screening of potential tenants, said Bauer. Remember that there needs to be a proper credit check and referral letters from previous landlords.

"My advice is, if you're going to invest in property to rent out, make sure you invest in the right bracket. You may have a higher turnover in tenants but the selection of tenants in R3 000 to R12 000 rental price range is bigger. The bulk of Government employees tend to be in this range of rental payable and, we all know, their salaries are reliable and they should, therefore, be reliable payers.

"Find units close to public transport and, if possible, find units that have parking bays, security and two bedrooms (this size is very popular for small, younger families). The best price range to achieve the right rental return is R400 000 to R700 000," said Bauer. "One thing to remember when buying to let is that if you buy too far from the CBD there is the likelihood that the unit will not be popular because of the higher cost of travelling to and from work and also the time and distance away from amenities needed."

IHFM Press Release

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