Renter Red Flags and How to Avoid Them
The residential real estate sector continues its upward trajectory and investors are getting in on the action. However, with the increase in the number of investors choosing to take advantage of low prices and invest in “buy-to-let” properties, there is an oversupply of rental properties in areas where supply is high and low demand.
Residential rental vacancy in Gauteng is currently at a high 11.9%, while the Western Cape is at a slightly lower vacancy rate of 11.4% according to TPN Q4 2021 data.
While landlords may be desperate, industry experts advise you to think twice before signing with the first tenant that comes your way. Placing a tenant in your vacant property can help limit your short-term losses, but putting the wrong tenant can have a lasting negative effect.
The law protects both the rights of the landlord and the tenant and therefore invites the parties to exercise due diligence before signing a rental agreement. Regarding the obligations of the tenant, the obligation to pay the rent promptly, to take care of the property and to return the property in the same condition in which it was received. Landlords, on the other hand, are required to provide the tenant with access to a working home safe. They are also required to maintain the exterior of the building and protect the tenant’s deposit.
While some properties are enjoying an influx of rental inquiries, others are desperate for tenants, both at risk. Receiving a rental request is a great relief for a landlord, so much so that he often forgets red flags.
Unfortunately, the price to pay for avoiding the warning signs and finding a problem tenant is very high for landlords. This is because tenant eviction is a lengthy and expensive process in South Africa and requires landlords to serve tenants with a “tenant’s eviction notice” before they are entitled to a court hearing.
Even if the court process decides in favor of the landlord, only a court-appointed sheriff is authorized to remove the tenant’s belongings, and this process can take weeks or even months.
While some of these red flags can be avoided by using a reputable rental agent (and agency), some red flags are often overlooked.
Obvious red flags
A bad credit rating: A credit score refers to a person’s ability to repay debt on time. The COVID-19 pandemic has further aggravated high debt levels in South Africa, and it will be a widespread problem for years to come. Before signing a tenant, a thorough credit check must be carried out. A credit score of 610 and above is acceptable.
Affordability: The general rule is that your monthly rent should not exceed 30% of your monthly salary. An assessment of a potential tenant’s affordability will give the landlord a clearer picture of their monthly income and expenses. Agents and landlords should ensure that the tenant has enough income to pay rent, electricity and water (if applicable).
The references: A tenant will need a reference from previous landlords to determine their behaviors as a tenant. A reference tells the landlord who the tenant is and whether or not they are reliable. If the potential tenant does not have a rental history, they will either need to arrange a co-signature on their lease agreement or offer to put forward another credible reference, such as an employer.
The not-so-obvious red flags
Here are potential red flags that many landlords overlook in the tenant selection process:
Employment history : Employment is hard to come by, however, the short employment history of some potential tenants may tell a different story. Job hoppers or people who encounter problems at work can sometimes display these behaviors in their home life as well.
Criminal history: Conducting a criminal background check may seem extreme, but it’s an integral part of the hiring process in many industries and rentals should be no different. Some companies such as TPN provide a SAPS criminal background check to landlords as part of their credit check offering to ensure your tenant is safe, honest and reliable.
General behavior: Very often, there are red flags from the first engagement with a tenant. In some cases they are difficult to achieve or can be extremely difficult and demanding for no apparent reason. This is another reason why it’s important to hire a rental agent whose judgment you can trust.
Ensure a good tenant-landlord relationship
Advice for those who want to ensure a harmonious relationship:
Always communicate: In cases where the tenant already occupies the property, be sure to communicate and put everything in writing. Remain calm and rational when in trouble and seek advice from estate agents and lawyers (if necessary).
Don’t be fooled by quick money: Don’t fall into the trap of accepting a large sum of money in lieu of regular rent. Just because they have the money now doesn’t mean they will have it four months from now when the next payment is due.
Do not rush : In cases where the tenant is dragging their feet to sign the rental agreement, do not lose hope just yet. Do your best to communicate clearly, do all the necessary checks, answer any questions they may have, and spend a few days thinking about your decision before jumping into a rental deal.
Trust your instincts: As in any relationship, if something goes wrong when engaging with a potential tenant, trust your instincts. Documents can be tampered with, but your intuition is rarely wrong.
Grant Smee is Managing Director of Only Realty and real estate entrepreneur.