Letting Residential Real Estate

Before you become a landlord and let out your rental property to a tenant, there are a few things you should know. Yes, you need to decide how much rent to charge for your property, and decide if you will be managing the rental property yourself, or employ an estate agent to manage it on your behalf. But there are a few other important things to keep in mind as well!

How much rent to charge

Unless your property is rent-controlled (which very few are nowadays), you may charge any rent you wish. But in the same token, tenants are free to decide if they want to rent your property or not! So, be realistic and charge a reasonable rent, which a tenant would be willing to pay.

A little market research might be necessary to determine what would be considered a reasonable rent. In the case of residential real estate (a house or apartment), rentals are usually influenced by rents being charged for other comparable properties in the neighbourhood, as well as the condition and features of the specific property.

The simplest way to determine a reasonable rent for your property is to ask a real estate agency with rental experience in your area for advice. Real estate agents tend to be helpful people by nature, and you might be able to get reliable rental advice for free, or at a low cost.

Use an estate agency or not?

The decision to make use of the services of a real estate agent or not is not really a black or white question. You have a variety of choices, including the following options:

Find a tenant and manage the rental property totally by yourself.
Use an estate agency to find a suitable tenant, and then manage the property yourself.
Use an estate agency to find a tenant and manage the property for you.

Your decision should be based of your experience in letting rental property, as well as the amount of time and effort you are willing to invest in the managing of your rental property. It is up to you to decide how involved you want to be in managing the property.

Real estate agents will be happy to take almost all of the hassle off your hands, and surprisingly, the more real estate agents do for you, the less they tend to charge! For instance, real estate agencies might be willing to negotiate a lower commission rate if you have a number of properties that needs managing, rather than a single rental property.

Real Estate Agency Commission

When using a real estate agency, a commission will become payable. There is no fixed commission rate in South Africa, so every commission must be negotiated between yourself and the real estate agency. The real estate agency might have fixed commission rates for various services, and if this seems unreasonable to you, and they won't negotiate, you are free to shop around for a better deal. But remember the old saying: "You tend to get what you pay for"

Finding A Tenant

The usual methods for finding tenants include advertising in local newspaper and/or on the Internet and displaying "To Let" signs on, or in front of vacant rental properties.

Real estate agents have one valuable extra tool for finding tenants. They usually have a register of tenants that have enquired about rental properties. This means that a real estate agent might be able to find your tenant before the daily newspaper hits the streets in the morning!

Qualifying Potential Tenants

If a tenant wants to rent your property, he or she should make a written offer to rent, just like an offer to purchase a property. The offer to rent should be in the form of a lease agreement, which you should have approved beforehand. You should ask for credit references and for proof of the applicant's income, to make sure that the tenant is a good risk. A good lease agreement usually contains a clause giving you permission to request a credit report from the credit bureaus.

If an estate agent is handling the transaction, he or she will probably draw up the document for the applicant to sign, after making sure that the tenant is creditworthy.

If you accept the offer by signing it, you have a binding lease contract with the tenant.

Terms Of Lease

Since August 2000, the Rental Housing Act has governed residential leases. The Rental Housing Act requires that every a lease agreement contain the following minimum information:

The landlord 's name and address
The tenant 's name and address
A description of the property (its address)
How much rent the tenant must pay and details of any rent escalation (increases in rent)
Any other moneys payable by the tenant
The date for payment of the rent (usually at the beginning of each calendar month)
The deposit amount payable by the tenant as security for any damage he or she might cause
The period of the lease. If there is no specific period, the lease must state the notice period to end it the lease.
The landlord and tenant's obligations to each other
A list of existing defects to the property
Any house rules that the tenant will have to obey
A list of furniture and fittings included in the lease (if the property is being let as a furnished unit).

A lease doesn't have to be in writing, but if the tenant requests that the lease be put in writing, the landlord must oblige.

It is good practice to have written lease agreements, and most good leases include a clause that states that any amendments to the contract must be in writing and signed by both parties. This protects both the tenant and the landlord from disputes regarding the terms of the lease.

Landlord And Tenant's Obligations

Even if not expressly stated in the contract, the law imposes the following obligations on landlords and tenants:

The landlord must issue a detailed written receipt for every payment received from the tenant
If the tenant pays a security deposit, the landlord must invest it in an interest-bearing bank account for the benefit of the tenant. The landlord is also obliged to provide a written statement of the interest earned whenever the tenant asks for one.
Before the moving into the property, the tenant and the landlord must inspect the property and compile a list of defects, which must be attached to the lease.
When the moving out, the tenant and the landlord must inspect the property again for any damage or lost any keys or other items that might be deducted from the security deposit. This inspection should be done within three days before the tenant moves out. If the tenant does not agree to such inspection, or if the tenant fails to keep the inspection appointments, then the landlord must inspect the premises within seven days after the tenant has vacated the property.
If the inspection shows that the tenant has not caused any damage or lost any keys, the landlord must refund the full deposit plus interest earned, within seven days.
If the inspection shows that the tenant did cause damage or lost any keys, the landlord may pay for repairs and replacements out of the deposit, and must refund the balance plus interest within fourteen days.
If the tenant owes any outstanding monies to the landlord, the landlord is entitled to deduct it from the deposit before refunding it.

If the landlord employs an estate agency to manage the rental property on his/her behalf, the estate agency is responsible for meeting the landlord's obligations.

Rent And Rights

The landlord is entitled to receive the rent from the tenant on the due date. If the landlord does not receive the rent on time, you have the right to seek a judgement against the tenant for the outstanding debt, or to obtain a court order to evict the tenant from the property.

Landlords are not allowed to lock tenants out, take possession of a tenant's assets without a court order, or evict a tenant without a court order, or without the help of the sheriff of the court.

Landlords are also not allowed to charge a late payment penalty. But landlords are allowed to offer rental discounts on the provision that payment is received on time. A tenant, who pays late, therefore chooses to forego the discount and pay the full rental.

Landlord-Tenant Disputes

If there is a dispute arises between a tenant and a landlord, either or both of them can refer the dispute to the Rental Housing Tribunal for the province in which the rental property is located.

The Rental Housing Tribunal has the power to take evidence, hold hearings, make decisions, and issue legally enforceable orders.

Landlords and tenants can contact the local provincial government for details about the Rental Housing Tribunal for the province.