4 tips for first-time landlords and property investors

Investing in property for the first time can be rewarding, but it's essential for prospective landlords to enter the market with realistic expectations and thorough preparation. 

READ: Here are 3 steps to help you resolve rental disputes

RE/MAX of Southern Africa shares a few tips to help new landlords navigate through this new venture...

Tip 1: Crunch the Numbers

Affording a rental property involves more than just monthly mortgage repayments. First-time landlords must factor in additional costs such as property insurance, municipal rates, taxes, utilities, potential legal or collection fees, and the commission of a rental agent, who can assist with tenant vetting, rent collection, and property management. Regular property maintenance should also be included in budgeting calculations.

Tip 2: Plan for Long-Term Returns

Unless you pay for the property in cash upfront, purchasing a rental property is not necessarily a quick path to wealth. Instead, it should be viewed as a medium to long-term investment. Depending on how large of a bond you have on the property, the initial expenses might exceed rental returns temporarily. Ultimately, with patience, properties will pay for themselves-especially once the bond is fully paid off.

Tip 3. Establish an Emergency Fund

Unexpected expenses are inevitable. Landlords should maintain a contingency fund to cover unforeseen circumstances, including repairs not covered by insurance or legal fees arising from tenant defaults.

Tip 4: Detailed Contracts are Essential

As tempting as it is to keep things casual and simple, it is far wiser to keep everything formal and officially documented between you and your tenant. Comprehensive lease agreements clearly defining responsibilities, payment methods, acceptable behaviour, and terms for breakages will minimize misunderstandings. Likewise, landlords working with property managers must sign detailed mandates specifying commission structures and the agent's obligations so as to avoid confusion.

"By working with a reliable real estate agent, first-time landlords can approach property investment confidently, prepared to handle challenges effectively and maximize long-term returns," says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa.

READ: 5 key questions to ask before signing a lease 

"It can be an excellent all-round investment that offers consistent cash flow in the short-term, long-term appreciation, tax advantages and the potential for passive income down the line, and with the right property and management approach, landlords can see significant returns," says Lorraine Dellbridge, Rentals Manager for Lew Geffen Sotheby's International Realty in the Southern Suburbs, Noordhoek and False Bay.

"However, as with any investment, rental properties come with their share of risks and one of the biggest dangers for new and even experienced landlords is making avoidable mistakes that can cost thousands of Rands and even jeopardise the investment so understanding these pitfalls is key to protecting your bottom line and achieving long-term success."

Dellbridge shares the following common costly mistakes landlords make - and how to avoid them:

Failing to Screen Tenants Properly

Rushing to fill a vacancy without thorough screening is a recipe for disaster. Problem tenants can cause property damage, miss rent payments or even become difficult to evict and many landlords regret not conducting thorough background checks, credit history reviews and verifying employment and previous landlord references.

The best way to avoid this potentially disastrous situation is to use a reputable property management company that will have access to multiple screening channels and will also assist and manage the situation if an issue does arise. However, if you opt to manage your own property, then it's essential to use a consistent screening process for all applicants and invest in tenant screening tools or use a professional service that can check credit, criminal records and rental history. A few days of diligence can save months of stress and financial loss.

READ: Rental agreement: Here's what you need to know 

Underestimating Maintenance and Repair Costs

Many landlords forget to budget for regular maintenance or assume repairs will be minimal, but the truth of the matter is that unexpected issues are inevitable. Deferred maintenance also leads to bigger problems (and costs) down the road and can hurt your property's value and tenant satisfaction.

Furthermore, landlords also often underestimate the level of wear and tear their tenants will have on their property and, when they move out, it might take more than a coat of paint to prepare the property for the next tenant.

Set aside 1-2% of the property value annually for maintenance and schedule regular inspections so that you can address small issues before they become major expenses.

Not Understanding Local Laws and Regulations

Landlord-tenant laws are comprehensive, and by-laws vary by city and ignorance of the law isn't a valid excuse. Missteps such as illegal lease clauses, improper eviction procedures or failing to return damage deposits in time can result in lawsuits or fines.

Educate yourself on local regulations or consult a real estate attorney or property management company to ensure that you are fully au fait with the regulations. It is important to note that in South Africa one may not contract out of law, and thus knowledge of the latest updated rental laws such as the Rental Housing Amendment Act is a must.

READ: Tips to ensure a smooth and successful renting experience

Overpricing or Under-pricing Rent

Setting the wrong rent can quickly erode profits. Overpricing often leads to long vacancies, while under-pricing reduces your return on investment (ROI). Some landlords rely on gut instinct or outdated comparisons rather than accurate market data which is a recipe for disaster.

Research comparable rentals in your area and adjust for factors like amenities, condition and location or consult local property managers or rental agents to price competitively.

Poor or Incomplete Lease Agreements

A handshake or a generic lease downloaded from the internet isn't enough. A vague or poorly written lease can easily lead to legal disputes over responsibilities, rent payments or property damage, not to mention the stress of dealing with these issues.

Use a detailed, legally compliant lease tailored to the latest legislation and be sure to include all the important clauses such as rent due dates, maintenance responsibilities, pet policies and penalties for late payment. Always have tenants sign before they move in and keep copies on file.

Leases are no longer one document anymore, and landlords should ensure that related documents such as the Property Condition Report and an ingoing inspection are added to the lease agreement as addendums.

Lack of Professional Property Management (When Needed)

If you're renting out the cottage on your property, managing the rental yourself often makes sense. But some landlords try to manage everything themselves, even when they have multiple properties or live far from the rental property, and this can lead to poor tenant communication, neglected maintenance, stress and even financial loss.

If you're overwhelmed or inexperienced, consider employing the services of a professional rental agent. While it comes at a cost, it often pays off in saved time, fewer headaches and more efficient operations.

Failing to Plan for Vacancy and Turnover

Many landlords assume their property will be rented year-round, but vacancies do happen, and tenant turnover comes with cleaning, repairs and marketing expenses. If you haven't planned financially, even a month of vacancy can impact your cash flow.

Always budget for at least one month of vacancy per year. Maintain good relationships with tenants to encourage renewals and begin marketing early when a lease is ending.

"At the end of the day, owning rental property can be a powerful wealth-building tool, but it's not without its challenges," says Dellbridge, adding that the difference between a successful landlord and one who constantly struggles often comes down to preparation and attention to detail.

"By avoiding these common mistakes, you can protect your investment, keep your tenants happy and maximise your profits. Remember that rental real estate isn't just about owning property; it's about managing people, processes and expectations wisely."

READ: Landlords: A guide to finding the ideal rental candidates

Additional information: 

According to the Department of Human Settlements, a Rental Housing Tribunal has the authority to deal with disputes, complaints or problems between tenants and landlords in the rental housing dwellings:

- Non-payment of rentals
- Failure to refund the deposit
- Invasion of tenant's privacy, including family members and visitors
- Unlawful seizure of tenant's goods
- Discrimination by landlord against prospective tenants
- The changing of locks
- Lack of maintenance and repairs
- Illegal evictions
- Illegal lockout or illegal disconnection of services
- Damage to property
- Demolition and conversion
- Forced entry
- House rules
- Intimidation
- Issuing of receipts
- Municipal services
- Nuisance
- Overcrowding and health matters

In terms of section 13(13) of the Rental Housing Act 50 of 1999, a ruling of the Tribunal is deemed to be an order of a Magistrate's Court in terms of the Magistrate's Court Act, 1994.

* Disclaimer: The articles on these web pages are provided for general information purposes only. Whilst care has been taken to ensure accuracy, the content provided is not intended to stand alone as legal advice. Always consult a suitably qualified attorney on any specific legal problem or matter.

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