Real Estate Investor Magazine South Africa November 2013 | Page 28

MANAGING

BY KOOS DU TOIT

Decrease Your
Tenant Risk
And increase your success

O

ne of the biggest myths surrounding
buy-to-let property investment is
that tenants are a property owner’s
worst nightmare. While there certainly are
tenants landlords should avoid, this myth is
mainly perpetuated by a misunderstanding of the
landlord-tenant relationship, by urban legends
of malicious tenant behaviour and by overstated
statistics quoted out of context.
Firstly, tenants are not adversaries, but the
clients of the buy-to-let investor. In every business
and in every industry, business owners face a risk
of delinquent clients. But this is not a reason not
to start a business, nor is it a reason not to invest
in property. It is merely a risk that smart business
owners and investors identify and manage. In
fact, if managed correctly, and tried-and-tested
risk management strategies are implemented,
the landlord-tenant relationship can be a very
mutually rewarding one.
Secondly, it is a small percentage of tenants
that fuel the urban legends of malicious tenant
behaviour. It cannot be denied that there are
isolated incidents of malicious destruction of
a landlord’s property. However, most of us
have, at some time or another, rented someone
else’s property. Did you wilfully wreck your
rented accommodation? Do you have friends or
family who have maliciously damaged a rented
property? While urban legends of delinquent
tenants abound, experienced property investors
will confirm that they are the exception and not
the rule.
Thirdly, only a minority of tenants pay their
rentals late, or not at all. TPN’s latest Rental
Payment Monitor report shows that the
percentage of tenants in good standing with
their rental payments reached a record high of
84% in the first quarter of 2013. However, even
at the lowest point of the economic recession
in 2009, the percentage of tenants in good
standing stood at 71%. The reality, therefore, is
that the vast majority of tenants nationally are
26

November 2013 SA Real Estate Investor

paying on time and in full, even under tough
economic conditions.

Managing the risk
There is no reason for a property investor to do
business with the small percentage of tenants who
display malicious behaviour, or those that pay late
or not at all. To avoid such tenants, a property
investor simply puts systems in place to manage
the risk.
The risk can be managed efficiently with just
a few simple and affordable risk management
techniques, such as:
• Doing thorough background checks and
obtaining referrals from previous landlords;
• Signing a water tight lease and collecting a
deposit to cover potential damages;
• Collecting a separate deposit for utilities
payments or installing pre-paid electricity
and water meters;
• Doing proper inspections, including taking
photos, with the tenant before, during and
after occupation;
• Obtaining the right property insurance
specifically for buy-to-let property that
provides cover for damages caused by a tenant
and even compensates for the loss of rental
following a catastrophe such as a fire or flood;
• Taking out rental insurance such as
the comprehensive cover provided by P3
Investment Group, underwritten by Infinity
Insurance and offered in association with

Tenrisk, designed specifically to cover the
risks faced by buy-to-let property investors
to cover late or non-payment of rentals or
evictions.
Appointing a rental management agent to take
care of all these aspects is almost always the best
choice. Professional, reputable rental management
agents have the expertise, experience and
resources to deliver a professional service to both
yourself and your tenant, at a very reasonable fee –
usually 8 - 10% of the rental, which should ideally
be covered by the rental charged.
However, some property investors prefer to
manage their own tenants. It is certainly an
option, provided that you are willing to put in the
time and effort to do so professionally. A complete
and professional rental management process will
neutralise tenant risks to a large extent.
These risk management solutions have evolved
over the years as property experts identified and
refined the best ways to mitigate, manage and
even eliminate tenant risk. All that remains
for professional property investors to do, is to
implement these widely available and often
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