Highlights in this issue:

*** Investing in buy-to-let doesn’t have to be an investment minefield…
*** Don’t sit idle while nightmare tenants destroy your assets – act on this advice…
*** Warning: You only have one chance to get it right…

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From Gary Booysen on the top floor…

Dear Investment Academy Reader,

The idea seems so simple: Buy-to-let. You assume the risk, secure the loan, pick out the ideal rental property and then buy it. The idea, of course, is to have a tenant pay down your bond while you sit back and wait to take delivery of your fully owned and valuable asset in 20 years or so. You then use this wealth to spend your golden years on easy street. You think to yourself, what could go wrong?

Even if you have to subsidise the repayments with a couple grand a month, you’ll still end up with a valuable asset, at a fraction of the cost. Everything’s going smoothly, till you hit that nightmare tenant.

If you’ve ever considered investing in a buy-to-let property, you’ve probably been bombarded with horror stories of tenants who didn’t pay their rent for months on end with no legal recourse. But, don’t sit idly by and watch as evil tenants tear down your house and destroy your asset.

Here are my five easy steps to total tenant piece of mind…

Step #1: Eviction begins before occupation
According to Dr Koos du Toit, CEO, P3 Investment Group, “the first thing to remember is that the procedure for evicting bad tenants begins long before the default occurs. In fact, it must start before the tenant moves in by ensuring there’s a valid lease agreement in place that has been signed by both the property owner and the tenant.” If you follow the correct procedure, explained below, you can obtain an eviction order against defaulting tenants.

The lease agreement should clearly stipulate the rights and obligations of both the property owner and the tenant. It needs to include the date the tenant will pay rent, the notice period and the deposit amount. It should also indicate all relevant particulars. (For instance, that you don’t allow pets and stipulate how many people may occupy the unit at any one time.) State clearly that it’s for residential purposes only. There’s no point complaining about the “natural” wear and tear of eight people crammed into your two bedroom Summercon if you didn’t specify it in the contract. A good agent should be able to provide you with a sound lease agreement. Now’s your chance to set the record straight, use it!

Step #2 Be an active landlord
You must, of course, be sensitive to the fact that though you might own the property, it is, for the period of the lease, the tenant’s home. However, this doesn’t stop you from inspecting the property. The lease agreement should usually specify the conditions under which the landlord may inspect the property. Exercise this right and, with appropriate notice, check your property regularly. Twice a year should be acceptable, but this depends on the type of tenant you have. Use your discretion. This’ll allow you to pick up minor problems before they turn into expensive repairs.

Step #3 WARNING: Eviction imminent
Dr du Toit says, “Should the tenant breach any of the conditions [outlined in the lease], he must be sent a letter setting this out and be given a certain number of days (usually 30 days but can vary depending on the lease agreement) to remedy the breach.

If the tenant fails to do this, the property owner may cancel the lease contract. This is done by sending a letter to the tenant and requesting him to vacate the property within 30 days.”

Step #4 What if they refuse to budge?
The property owner can approach the magistrate’s court for eviction and obtain a court order, compelling the tenant to vacate the premises. The process can take six to 12 weeks, and can be potentially expensive and time consuming. There are various forms of “property owner protection” insurance that can be bought that can alleviate the stress of dealing with the legal system. These will cover your legal fees and usually amount to around 2.5% of monthly rental. The good news is this insurance is tax efficient and it’ll be deducted before you receive your rental income.

Step #5 Prevention is better than cure
Finally, the best way to ensure a hassle-free return on your property investment is to avoid having to evict tenants at all.

Only rent your property to good tenants. Letting agents can assist you with checking a tenant’s record. Has he previously been evicted? Is he financially stable? If you’re not doing these checks yourself, make sure you have a top quality letting agent do it for you.

Until next time – keep learning!

Gary Booysen
For the Investment Academy