2015 PROJECT PLAN 1

I took a decision to document the projects I plan on undertaking in 2015 to build on my 2015 goals. The first one in my mind is the trial furnished letting.
I know a few bloggers who let small apartments or rooms in their homes and listing them at AirBNB. It is usually for short term stay from a few days to a week. I am warming up to the idea of a furnished rental. We've always loved staying in self catering apartments when we go for short holidays. However, with my lazy approach in mind, I would skip the daily rental option and go for a monthly rental. A more hands off approach suits my passive income approach more. This is my 2015 project plan 1 of probably 5. I would target to implement this particular one by mid-year.

2015 project plan 1 - the estate nature reserve

One of my properties which is a perfect fit for this kind of a project is in a gated residential estate. The picture above was taken from the exclusive nature reserve within the estate. Furnished, this unit could bring in double its current monthly rental. I would love to get a few years tenancy contract like the ones entered into with corporate clients. Especially if we assume that my tenant will be pretty decent and not break my furniture or scratch stuff. This unit pretty much ticks all the boxes for an up market furnished rental. Below is a list of what could attract my target tenant.

1. Security
The main selling point for this particular unit is security. Whilst I got over living in such an exaggerated security place, my tenants seem to love it. Security is costly but it pays you back. I've had the current family occupy the unit for more than three years. People feel safe in estates with controlled entry and exit.

2. Look and Feel
It doesn't matter how glamorous your place is, high paying tenants want to be in spectacular surroundings. Like your agent would say "LOCATION, LOCATION, LOCATION". Apart from the location, your furniture has to be of quality with a nicely landscaped garden. Most ridiculous but true is that, the neighbour has to also maintain the same look and feel standards. Everyone is forced to keep up with the Joneses in these estates. The whole estate is run like a well oiled machine. Roads for cars, walkways, bicycle and baby stroller pavements should be at their best look all the time. These are things you look for when shopping for an up market rental property.

2015 project plan 1 - the estate dam

In this particular estate, there is a nature reserve with a dam, nature breeding spots and lots of various water and land breeds of animals. This offers a tranquil walking, jogging and cycling trail. It is also a requirement that you keep your home neat and presentable at all times. Forcing your tenant's neighbours to be an ideal match for them. 

3. Lifestyle
The place is peaceful and relatively safe. One may jog, walk, cycle or picnic in the dam area with friends and family on weekends. This type of a tenant loves to have those options, even when they never use them. Noise levels are also controlled. That is a part of the controlled estate lifestyle that does not suit me and my family. Complaints I received over the past few years are that of my tenants' dog barking at night.

furnished property letting project

 4. Convenience
School buses collect school kids at the estate gate to local schools. There is a few well recommended private schools in the area. Wi-Fi is now being organised to be available throughout the estate. It is obviously cheaper to pay the telecoms service provider as a collective than as an individual.

All of the above sell a furnished property to the tenant. The subject unit is also a good size with 4 bedrooms and 3 living areas. That is a great size for an expatriate family on a contract employee with school going children. A good maintenance free garden comes with its own garden services. It is exciting just thinking about this project.

That is one of my projects for 2015. Do you have plans for the coming year?

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WHAT YOU OWN IN A SECTIONAL TITLE SCHEME

If you invest in a sectional title unit (like a flat, townhouse, etc), just educate yourself on what you own and what you can and cannot do. I got a letter on one of my rental townhouses with an invoice attached. It annoyed me so much to think that the administration company for the Home Owners Association (HOA) doesn't even know what they are doing.

Dear Sir / Madam

RE: INVOICE OWNERS RESPONSIBILITY – x BODY CORPORATE – UNIT x

We address this letter to you on instruction of the Trustees of the aforementioned Body Corporate.

Please find attached the invoice from Plumb xxx for the recent unblocking of a drain at your unit.

Kindly note the account from Plumb xxx is the owner’s responsibility.

Please take note that your levy account will be debited in the amount of R1152.68. Further note if monthly levy payments are made by debit order, this amount will be deducted in full unless instructed otherwise in writing.

Trust you find the above in order.

Yours Faithfully

Off course I didn't find the above in order. I responded immediately by email and followed up within seconds with a phone call. That's how furious I was. Bear in mind, I never even authorised this expenditure. I was never consulted prior to the appointment of the plumber.

Good Day xxx

I don't know anything about this blocked drain invoice. Was this done inside my unit or in the outside of it? Was it my unit's fault. No one informed me of this blocked drain. Receiving this bill is the first time I hear of this problem. Even my tenant was never contacted.

I would have expected to be informed to make my own arrangements if the problem was inside my unit. (Please refer to the Sectional Title Act)

The drain outside my unit, which services the whole block can get blocked for various reasons that are not necessarily my fault. This problem is not my unit's nor mine. This is the problem for the whole sectional title complex.

Regards,

Like I said, I called the lady and she said they will talk to the complex trustees. They really got back to me the following morning with:

Good day

The trustees have confirmed that they will cover the cost.
The cost will thus be reversed from your account.

Regards

What you own in a sectional title scheme

What you buy and own in a complex or sectional title scheme is:

• the mid-point of outer or dividing walls. Where bricks are double, you only own the internal brick. You don’t own the garden, the garage and parking space but you get a right to use it.
• the inside part of the ceiling and nothing above the ceiling. I heard that the amendments include the geyser or allow owners to own or partly own the geyser. Meaning the HOA can decide on this and have you liable for repairs and maintenance of the geyser.
• upper part of the floor, and not the foundation.

The driveway, garden, swimming pool, corridors, parking bay, any external structures and plumbing that is outside your unit is the HOA’s property. These are referred to as the common property. You just have to be clear on that one. If they see a plant they don’t like in your garden, they have a say.

Even if you have a property manager, its your responsibility to know what you own in the sectional title scheme and what your responsibility is. Ignorance is fatal!

All the best with your Financial Freedom search,

SISA

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LANDLORD MISTAKES I MADE

Before dwelling on a few of many landlord mistakes I made throughout my property investing journey, I want to apologise for the silence. I am so busy with the remodel/ renovations of a rental duplex. I am crazy excited about the whole renovation, like a kid in the candy store. We live on site, which MrSISA and son find to be inconvenient. Meanwhile, I feel like an adventurer in the bush. This is the closest I can get to camping. We have no kitchen and I cook with a hot plate just like I did at varsity. And we are not restaurant people because I am extremely particular with what I eat. The renovations are quite pricey but the returns are worth it in my opinion. We are re-doing both bathrooms, the kitchen, the patio and all floors. I am planning to give the staircase and all bedroom closets a facelift by a lick of paint and changing the handles.

Duplex Renovations

Back to bad landlord mistakes I made.

MISTAKE 1:
I am now busy undoing what I paid for only two years ago. I got a highly experienced guy to renovate this very duplex in my absence. I didn't know the guy but my friend did. So naturally I had my friend hire and manage the guy and the project. A lot of bad decisions were taken (not that I would have made better decisions). This guy knows how to do a great job but decided to do a VERY shady job in the place. The tiling was below mediocre. I had to chase him away with my money and a job half done. I couldn't risk having a lot more work to undo. For two years I had this duplex off the market and used it as a holiday home because we had no time to take care of it and needed the place where it is. So we decided to have a working holiday in it for two weeks to have it properly fixed. That's the reason we live with all this dust and clutter. Yes, we could have gone to live in the hotel, but I don't see any sense in that expense.

The landlord mistake I made is renovating from a distance without a proper brief, contract and plan. That cost me a lot of money and a friendship. No use crying over spilt milk, I have to fold my sleeves and work.

MISTAKE 2:
When getting a tenant for a smaller duplex, I went all emotional when a single mother was desperately in need of the place. She had a decent salary but I ignored her trail of problems. One landlord mentioned how single mothers are a huge pain. I disagreed with her and still do. I think, like the rest of us, single mothers are not the same. But unfortunately for me, this woman was in a serious financial situation. She started having excuses after excuses. Needless to say we agreed to part ways. She left with some of my money. But all I wanted at the time was my apartment back to collect rentals. This was the first ever time that I had someone miss a rental payment in my 11 or so years as a landlord.

The mistake I made was to do a rush job at screening the prospective tenants, after doing a great job of marketing the place. I sometimes forget that this is business and not an emotional venture. This tenant obviously had her priorities crooked. She had a great job and was by no means a charity case. I need to toughen up a bit.

MISTAKE 3:
My property manager has been with me from the beginning. He is OK for me. I have written about him here before. I tend to trust him to take the right decisions. My motto is that "if things break, please fix them immediately. I don't want the tenants to suffer. Don't try to get hold of me when a tenant has no stove." Indeed my property manager does just that, except, he fixed one stove 3 times. The cost of fixing this stove was close to the cost of a new one. Fortunately for me, I managed to find out that the stove broke again before he had a guy fix it. I called him and politely asked him to buy a new stove. Happy tenants stay longer.

The mistake was that I failed to micro manage my manager. It does sound odd but there is nothing passive about property investing. You will always be hands on. But my manager is great in many other ways.

MISTAKE 4:
Similar to the mistake above, I assumed that my manager understood the property laws. I am lucky in that, I decided to do a Masters in Real Estate and have a good understanding of South African property laws in general. This is definitely not necessary for one to be a property investor. I just have an interest in real estate. When stuff that belongs to the body corporate broke, my manager went ahead and fixed them. I have been pointing him to the Sectional Title Act and I must say its been a learning curve for both of us. I realise that most real estate practitioners know zilch about the SA real estate laws. Its horrifying. So a landlord has a responsibility to learn about the laws that govern his investments.

MISTAKE 5:
When I was on to buy property number 3, a charming real estate agent told me all there is to know about the property in question. It didn't hurt that she was a pretty French girl. She was climbing up and down the stairs in an impressive way. Except, most of the details were WRONG. She mentioned 160 square metres when the property was 126. She enticed me with the spot to put a swimming pool when its actually against the Sectional Title Act and the space in question has some servitude conditions. Off course I had an apartment already but knew nothing about the Act and servitude.

What gives me comfort is that I would have bought the place even if I was told the truth. Just DON'T take your estate agent's word. It may be very dangerous. Do your own research.

I can go on and on and on. These are only a few of the landlord mistakes that I made in my property investing journey. I have grown from each of them and forward I move.

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FULL TITLE VERSUS SECTIONAL TITLE

My personal preference on investing in full title versus sectional title schemes. Don't worry, this is not a long lecture on the Sectional Titles Act. Its just more and more rant by myself on how investing in a sectional title scheme can be a bummer. And the few property investments we have are townhouses and flats. Meaning, I have been in a slight irritation for a while. From other occupants blocking the garage of my tenants, to penalties for my tenant's barking dogs, to levies that are sometimes out of hand... you name it. But benefits are undoubtedly there. The huge one being pooled resources for odds and ends like security.

What irritates me the most is home owners not taking care of their investments. Some tend to just collect rental income and never participate in any of the decision making, nor monitor the dealings of their tenants. This obviously leads to various problems for other owners. Overcrowding of units is but one. In one block of flats the water usage is just beyond acceptable levels. And the trustees started panicking and throwing the decision making at us as suggested by the law.

Section 39(1) of the Sectional Titles Act, 1986:

“The functions and powers of the body corporate shall, subject to the provisions of this Act, the rules and any restriction imposed or direction given at a general meeting of the owners of sections, be performed and exercised by the trustees of the body corporate holding office in terms of the rules.” 

This Section gives the members of the Body Corporate some powers to put some restrictions on the Trustees. This is especially handy on budgetary matters. So the admin company issues an email for us to vote for or against water being a responsibility of an individual owner, instead of the HOA. I must add that I'm one of a few owners with a garden and therefore my tenants could be using a tad bit more water than the rest of the people. Here is their suggestion:

"RH BODY CORPORATE – WATER USAGE TO BE BILLED AGAINST THE OWNERS ACCOUNT

The following has reference to the above mentioned and also to the instruction in terms of Section 39(1) placed on the Trustees at the Annual General Meeting held on the 21st of February 2013. Instruction was placed on the Trustees that they must implement the payments of water usages by each unit to be paid by the owner of the unit. The owners can then keep their tenants liable for this usage of water. The main reason for this instruction placed on the Trustees was to save money on the monthly Council Water Account, combat overcrowding of units and also to have a possible decrease in monthly levies. Water meters are already installed at the units, but some meters need maintenance... With reference to the above mentioned we need to have a majority vote from the owners to proceed."

The questions I'm beginning to ask myself are:
Is this whole real estate investing business worth it?
My response is always YES because I wouldn’t have managed the little I managed without property and the power of leverage. I started with NOTHING, zilch and “nothing” wouldn’t have helped me grow any other form of investment. If I were a trust baby with some small fortune stashed away by my parents and grandparents elsewhere, I may not have started with property. But at the moment, even with all the risks and hassles, I still choose to have a bit of real estate exposure in my portfolio. I think this started as a survival technique but is now some sort of passion. With the small growth I achieved over a decade plus, I feel I can enjoy looking at shaking my property portfolio by looking at options like commercial vs residential vs industrial or full title versus sectional title properties.

Should I invest in Sectional Title Schemes or just slide towards Full Title more?
My response depends on a number of variables. For starters, buying in a sectional title scheme can be money saving. That is if everyone in the Home Owners Association is responsible and the tragedy of the commons doesn't exist. Which is impossible. People like free-riding. In a perfect world, a sectional title would mean some risk diversification as one shares the risk with fellow home owners. But it also means increased risk from the decisions taken by other investors. And I have seen over the years, investors caring less and less about their property investments. Sectional title schemes that are well run and looked after seem to be the ones with the majority of occupants being the owners themselves. When the majority is tenants, owners tend to keep their distance from taking responsibility and taking decisions.

On the  other hand a multifamily investment within a full title property can be costly to buy or develop. I am a small investor in the mercies of the banks for the most part. But I am so fed up by the way landlords in some sectional title schemes behave. Failure to attend general meetings is the biggest problem. And that leads to them not filtering the decisions taken through to their tenants and failing to follow up on critical issues. This is the reason we decided to start looking at the multiple family properties that we can afford. We are looking at the student accommodation or accommodation for young professionals as investments of choice. I have identified a few possibilities already. We will also consider selling a couple of problematic townhouses/ flats soon.

That way we'll carry the full risk and deal with stuff as it happens. Its not going to be easy but life is never easy. Even with a property manager, I imagine that I will still stress. Theres security, dealing with the municipality, setting and implementing tenant rules, etc.

 Full title versus sectional title - Where would you rather invest?

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MY LEVY INCREASES

Before I dwell on my increasing levies and property cost inflation, let me be a bit personal. My decision to keep track of both my and Mr’s financial comings and goings is proving to be a pain. That’s the reason my reports are almost always late. We have a very different way of handling administrative stuff. We never do the joint accounts and things like that that other couples do. But we know exactly where each other’s income goes, and it works like a dream. Except for when I have to track his transactions, like I do mine. In time I will get an easier way to do all this.

I’ve also been a bit scarce because of the plans I am working on for the medium term. An expansion of my tiny online business is in the cards. So is student or young professional accommodation. I just don’t have much to say about the latter, as it’s still early days. I will draft a separate blog post later today on these.

Today is a small rant day. Prices of everything are just climbing up high all of a sudden. I am in shock at how property costs are climbing up. And, especially because I can’t inflate the rental at the same pace percentage-wise. I take pride in charging slightly below going rates in rentals to retain my great tenants. So these hikes in property costs are pinching a bit deeper than the surface for me. But I’m not complaining, I have it far easier than most people. And I am grateful and try to pay it forward in many ways by making someone’s life easier through setting my tiny scholarship programme and charity work.

February seemed to be the month full of such bad news. This is one of the letters I received:

“LEVIES
The Directors discussed the budget of the HOA in detail and presented it to the Annual General Meeting on 14 November 2012. The budget was approved by the meeting.
The levies as from 1 March 2013 will increase from R650.00 per month to R765.00 per month”

Did you notice that the levies increased by 18%. I just stopped myself from making a big fool of myself by complaining because in July last year we had the most exciting letter that:
“During the recent meeting of the Trustees, the budget of the HOA was discussed in detail. It gives great pleasure to announce that the Trustees resolved to decrease the levies from 1 July 2012 as follows… “ 

I went ahead and wrote about my shock here... Its true that what goes down will eventually go up. In real terms we had a reduction in levies as the current increase is a mere R115 in comparison to the R136 drop we enjoyed in the large part of the past financial year. Sometimes I feel these decisions are taken by people looking at their personal pockets…JOKING.

My point with all this yada-yada is that, when your property costs go down, don’t be short sighted about rental rates. Continue to evaluate the market to see the reasonable rental rates and increase (reduce) rentals accordingly. Don’t be like me and be merry, and think you will just look at it the following year. Then you get slapped by 18% increase in costs, which you can’t share with your tenant. In my defense though, my tenant agreed to pay a little more with the costly security measures I put in place last year. I wouldn’t increase again, even though my neighbours’ tenants pay a lot more. I like to retain a happy tenant and avoid a costly high tenant turnover.

Hope your passive income from investments is going great, or your debts are dying a fast death.

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THE MUNICIPALITY IS STEALING FROM ME

Only the other day I wrote about the possible effects of rising petrol and diesel prices on household income and expense. I was giving it a week or two for the food prices to follow suite. It turns out my property investor self is feeling the pinch even earlier. One of the units is in the complex where they outsource the municipal services. Its the most efficient service ever, I must add. This morning I woke up to the contracted company's communiqué through our complex managing agent. Here goes:

"Dear Customer
Yearly Price Increase

Please note that due to increase in labour, Municipal dumping cost and the drastic increase of fuel, our monthly service fee will be increased with 20% from 1st October 2012.

You are currently paying R43.56 (excluding VAT) per dustbin, and will be paying R52.27 (excluding VAT) per dustbin as from the 1st October 2012.

Be assured that our prices are always market related. (Municipal increase in 2011 was 17% and our's 10%. In 2012 Municipal increase was 25% and our's 20%).

Municipal Dumping costs: 39% increase
Diesel: 15%
Lone: 10% increase
New Municipal bylaw to Global Waste: 200% increase
Please contact us for any questions at XXXXX

Thank you"

Notice how the government, though the municipality is stealing from me. My initial thought was OMG, I don't want to be this company, R52!!! I then quickly did my sum. The company takes minutes to go through close to 100 dustbins in our complex. That's close to R5 227. Only a few minutes because a few units may be vacant, our neighbours use their unit as a holiday home and every week one occupant may be away for one reason or another. When I lived in this unit, I saw the guys going through the whole complex in an amazing speed. Lets assume that they do 10 complexes per truck per day...that sounds optimistic, I know. Thats about R52 270. And then make it 5 days per week ...R261 350 per week. That translates to R1 045 400 per month and finally R12 544 800 per year, per truck. I know, I'm crazy. I do this all the time. In case you needed some convincing to get in that kind of business. Although one needs a truck and lots of hands, then some computer to send emails similar to the one above, LOL. This business is still not my cup of tea though.

Back to the dent in my income. It may look like a tiny increase at a glance. However every Rand adds up. I already received the levy increase for another unit yesterday. Definitely due to fuel price increase. The tricky part is that, you don't necessarily increase the tenants' rental with every increase in costs. You take some of the fall "like a man", re-adjust your life and move on. You look at the market trends to see if its feasible to build the increase costs into the next increase. Its sometimes not. Rental prices rise and fall with the economic trends. Its not as easy as people assume it to be. At least not anymore.

Its actually tougher when one owes too much on their mortgages. Interest rates are at their 40 year lowest, but that can change. If you are an investor and feel the relief from the low interest rates, it could be time you visit your bank to fix your rates or re-finance at a lower interest rates.

On another note, my current transaction in progress is looking OK. The lawyers/ conveyancer contacted me. I will keep you on the loop. I also wanted to tell you about my experience with the personal advisor consultation I had years back. My first and only time I hired one. I never followed the advise but it helped me think differently about my finances. That's my next post. Come back.

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OUTSOURCING IN REAL ESTATE

In my last job we had some training. The room was full of economists, maybe international relations specialists, legal brains, and other learned intellectuals. The presenter gave us some branded pens with a small bulb which gives a nice light when clicked. The boardroom lights were dimmed leading to our pens lighting even brighter. All men, and I mean ALL MEN in the room started dismantling their pens to get to the source of the light. They seemed to have lost all interest in the presentation. Yet all of us ladies were being supportive to the presenter, looking at the slides and nodding a bit to assure her that we were listening.

Outsourcing in Real Estate

Thanks to this bunch of men, that day I got a better understanding of my husband. Every time he wants to do some technical DIY home repairs without required skills, I let him. I never try to talk sense to him anymore because I know he will never be happy until he tries. And in some cases he succeeds, but mostly we spend on DIY supplies, then fail, then spend on outsourcing. At the end of it all, I maintain my nice wife status, smile and say "I'm so proud of you for trying honey".

The latest of our DIY then outsourcing dance happened last weekend. A few months ago a toilet mechanism of the second bathroom in our holiday home failed. (Apart from the repairs I wrote about yesterday). We decided to have the whole bathroom renovated and fixed all at once because we had planned on the renovation anyway. We actually tried to get builders to work on it without any luck. We got builders but they failed to supply quotes. Its tricky when you repair a home you don't live in. We never had enough time to beg the builders, contact new contractors, etc. So the bathroom was just not used for months. This weekend whilst visiting the place, we got a breakthrough. Our friend, who is constructing his own home agreed to have his plumber come fix our toilet for a few hours. Its at this point that it dawned on the Mr that he hasnt tried to fix the toilet first. There we were herding for Builder's Warehouse to get the toilet mechanism supplies. We got it and he failed at it, but we remained proud "we" tried.

The plumber came the next day only to tell us we bought wrong supplies. Another trip to the hardware and in less than an hour our toilet was as good as new. The morale of the story: somethings are better left at the capable hands of experts. When you are in doubt OUTSOURCE or CONTRACT the service.

As a property investor or homeowner you have to know how valuable your time is. You may be wearing yourself too thin doing what someone else can do for you in far less time. I love renovating but I do it without ruining my manicure. I’d rather be here writing this blog post than collecting my rentals. Hence I hire the property manager. I also hire freelancers here and there to help me out of sticky situations. I am trying to make use of more resources to free some of my valuable time. Many small investors like myself overwork themselves to a heart attack. Some don't think its wise outsourcing in real estate when you are starting out.

My Take on Outsourcing in Real Estate and what I personally Outsource:

• Property management (but I help with marketing because I love doing that.)
• Work on my bigger website
• Graphic designing
• Property refurbishing (I hire a project manager to get contractors). It took me too long to realise that I cannot deal with builders. I keep trying but it never works.

 My decision is sticking with the core business (investing) and stuff I love doing. If I don't enjoy doing something, and I'm not convinced I'll need that skill ever again, I just get someone who does it for a living. When done well, contracting can save money and time. Some of the real estate investors outsource pretty much everything, from negotiations to the resale of the property.
Like Tom Peters rightly puts it: 'Contract out everything except your soul'

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Cost of Security in a Property Investment in South Africa

Cost of Security in a Property Investment

I live in South Africa, OK! I invest in property and I sometimes feel that my investments are under threat. Whilst I am very positive about the future, I am definitely not in denial.

In my previous post I wrote about how my levy dropped a whooping R130+. But today is another day and I am writing about how my net income went down due to high security costs. It’s like a rolling wheel. You get one step forward and two steps backwards. But the long term the graph is moving upwards.

A while back I decided to get rental property in the security/ residential/ gated estate. I still think it’s a wise move because many South Africans like the idea of living inside an estate. I never have vacancies in the unit but the returns on my investment are horrid. The truth is… I bought this property as my own home. It became a rental unit when I moved out. I doubt if I would buy it for rental purposes. I have owned this unit for 6 years now. In the 6 years I haven’t heard of an attempted break in into the said estate until May. After that I got an email on break ins in 2 houses in the estate. Scary right???

There are a number of factors that put us at risk at the moment...
There are a lot of commercial developments in the area, making the estate very vulnerable to opportunists. It’s easy for criminals to hide in empty buildings and construction sites, etc.

Being an estate proves to make it easier for criminals to do their business. They may have inside help or worse, buy property to be part of the community. That way they can learn the ins and outs. Actually, even before they learn ins and outs, it may be far easy for them to get assets without breaking in. My friend, for instance, has a tendency of sleeping with first floor doors open in summer. We’ve always believed that we are far safer than we actually are. And yes, criminals don’t struggle to break into estate houses because of this relaxed attitude to security by the residents. We put too much trust on the manmade systems.

Safety Doors
You would think that we are relaxed because we have trellis and security bars in our doors and windows…NOOOO we don’t. In my case, that’s about to change. I am going through my security door quotes for the ground floor. My tenants are very happy to pay more for extra security. But I must say, my income will be hammered by the +/-R15000 this will cost. Why does everything have to cost this much?

More Estate Costs
The estate is also taking this matter seriously, as it should. And their seriousness costs a lot. We had emergency levy of about R1000 when we had an attempted break in. When the actual break ins occurred, the paranoia grew stronger and fast. I’m scared of what will be required now. Worse, guests may be required to strip naked when they visit residents.

Alarm Systems
It looks like we are back where we started. When we lived in a stand-alone house we had burglar proofed our home to a point of feeling imprisoned. Burglar bars, alarm systems and locked doors 24/7. We paid premium with the hope of feeling a little free, and now, we are back where we started. We need alarm systems. How sweet. And we still pay premium for “safety”.

As if this is not enough, a couple of months ago we had a few break ins in the complex where I have duplex. Tenants and owners who live there were in such a panic that we had to get security guards immediately. We later had to formalize this and increase the levies by about R500. That’s a lot of money. It’s a low income area. I raised the rental by R300 for this unit, meaning that I have a R200 decline in net income, plus inflation. 2012/13 will be a lower income year in this unit in real terms.

Whats your experience on the cost of security in a Property Investment in South Africa? Is property investing still worth it?

photo by: Christopher Barnatt

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MY LEVY DROPPED

Residential Estate Entrance

Shocking, I know, my levy dropped by R136 for real. I was in shock. I have bought into the sectional title schemes from the year 2001 and I never got a letter that I received last month. At the best, my levy remained the same.

In reality, no favour was done for me and other homeowners. We paid more last year, thats all. The units are relatively new, and therefore require minimal maintenance. Most units are still owner occupied, which helps with the damage to the property. Owners take care of their investments than tenants in most cases. Knowing that its my money coming back didn't stop me from jumping with joy as I read-

During the recent meeting of the Trustees, the budget of the HOA was discussed in detail. It gives great pleasure to announce that the Trustees resolved to decrease the levies from 1 July 2012 as follows…

As usual I was scanning through the letter rushing to the bottom line. How much more will I have to part with exactly??? Geez, a decrease in levies, of more than R100 nogal. My guess is that we had excess in our savings/ scheme funds. These can’t be refunded to the owners according to the law, but can serve as a subsidy for future levies. And YES, I didn't attend the meeting, I was traveling.

Not to dampen this moment of excitement, but I have to mention that my security costs are shooting way up in two of my units. I’m installing trellis in one and paying about R500 extra levies for security guards in the other. When will this craziness end good Lord?
 
More on Levies or Homeowners Association Fee
A levy is an amount of money paid monthly by owners of sectional title residential property to themselves as a collection/ organisation. The levies are used to maintain and improve on the property. In South Africa the HOA fees or Levies, as we commonly refer to them, are quoted calculated in accordance with the participation quota for their unit which is usually according to the size of the property. Levies used to pay for Municipal rates and taxes among other things. Each owner pays the municipal rates with the municipality and pays the levies for the management of the sectional title scheme and:

• Water and electricity used on the Common Property
• Waste and Sewerage
• Insurance premiums
• Repairs and maintenance of the Common Property
• Wages and salaries of the cleaners and other staff
• Security
• Savings fund for unexpected expenses

Levies can be required for Free Standing properties in gated communities and boomed off areas. That is for security and we know we need a lot of that. In my next post I will write about the cost of security for property investors in SA today.

With the new comfortable lifestyle, our levies also cover:

• Swimming pools,
• Tennis courts,
• Community clubhouse
• Neighbourhood parks and water features
• Children play areas
• Garages, gardens and parking areas 

It is possible for Home Owners Associations to actually go bankrupt. In that case, it may be liquidated. This is a reason prospective home buyers should always investigate prior to buying into the sectional title scheme. Whether it’s a rental unit or for their own use.

You should also investigate the levies to determine the affordability. The levies are just very high these days. That’s due to the cost of security. I pay up to R2500 for some units. This is inflated by security and the municipal rates and taxes.

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Hiring a Property Manager

my very first investment property

I remember beginning real estate investing with no knowledge of what I was doing at all. The first thing I did was hiring a property manager to take care of my properties. This may have been the wisest decision I took at the time. 

To me, hiring a property manager didn’t mean laying back and getting my income at the end of each month. I felt that I had neither time nor energy to be running after tenants, fixing stoves, dealing with the tenants’ minor issues, etc. I wanted to have someone who makes a living from taking care of tenants. I had a full time job and it sure took a good 70% of my time. Then came promotions, followed with HR managerial tasks, added responsibility and compulsory travel. Apart from the fact that I’m a firm believer in specialization, I had limited time to squeeze in real estate management in that equation. 

Getting a skilled and well experienced manager who specializes in the area is an investment in itself. My property manager was/ is not that efficient though. Nothing is ever urgent to him. You may wonder why I keep him. What comes to my mind is honesty and lack of greed. This industry is full of “skelms”.

Reasons for my property manager’s inefficiency, in my opinion, vary from the long term nature of our relationship. People get to the comfort zone when they have had the same client/job for a long time. We have a long term client-service provider relationship. He has no insecurities. He expects me to hang around forever. I like my manager and I would hate starting with a new greedy property manager. I sometimes email him more than once on one small issue. But I guess, I ‘m more comfortable with that than a new dishonest guy.  

He also charges me 7% of rentals or less instead of the 10% norm. This is also due to the great relationship we have built over the years. I appreciate this discounted commission, but I prefer to pay more for great service. Who knows if paying more will get me better service in my case though. Estate agents are not always trust worthy.

The properties that he works with are in the lower cost part of the city. I think agents tend to treat tenants according to the area they live in. Reasons being that most also don’t necessarily treat the space they occupy with dignity. They even overcrowd the place if they can get away with that.

Three years ago, I started managing a three of my properties. I realized how hectic property management is. As it is, real estate investing and my online business are more than a full time job. Adding management responsibilities to that was pushing it. In that two and half years I dealt with complaints about noise, then tenant's children playing with stones and breaking windows, then evicting tenants in my townhouse, then vacancies and late rental payments, and the list goes on. These issues put things into perspective for me. I choose to be a property investor and not a property manager. I hate dealing with small issues and I think hiring a manager is worth the few thousands of rands I part with.

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How Much Rent to Charge

Determining how much rent to charge does seem easy, I know. Just survey a few comparables, look at what a neighbor charges and what the other landlord in the similar property gets...that easy. NO, in my 10 years as a small real estate investor, I find determining rental levels quite complex. Even when the property has been occupied by a tenant before, one cannot just assume that the last rental paid by the previous tenant, is the one to be asked from the next. The landlord may have to reduce the rent he/she charges because of the changes in the economic conditions, changes in the property and neighborhood, etc. Similarly, he/she can increase because of those changes or because when those changes occurred, he/she couldn't change the rent high enough for the tenant. (You may also be interested in my article on things to consider when buying a rental property)

Every time you have a vacancy, you go back to research on the "going" rental rates. Firstly, if you haven't already read our articles on preparing the property for rent and one on how to market a property, you may like them. Pointers to How Much Rent to Charge: 

Property Appearance from the Outside

1. How the garden, paint, windows (and window treatments), design, driveways, etc, are, play a role in how much of the tenant's hard earned cash he is willing to part with. 
2. Clutter in your driveway, porches or garden will cost you a lot in rental you charge. The house has to be de-cluttered to be shown to potential clients.
3. The whole character of the building, even in multifamily dwellings will affect the rental rate.You will need to bring out the curb appeal of the property.
4. Preparations for the show-house involve some work on the whole "look and feel" of the place. That's what prospective tenants see first, and we know how powerful the first impress ions are. 

Property Appearance from the Inside

1. The layout of the rental unit may be outdated. One may think of changing the internal plan, if the rental increase justifies the cost. In some cases, a few dollars difference in rental doesn't justify the thousands of dollars to be spent on breaking walls.
2. The piping and fixtures also have an effect on how much rent a landlord can charge. A house with outdated lamps is expected to bring in lower income than the one with modern chandeliers. A landlord has to keep updating the fixtures with modern and more economic ones. Older technology costs a lot more to use in electric bills, etc.
3. Finishes are probably the most influential in the tenant's decision to take the place or "pass". Cracked tiles, missing wooden floor pieces, broken blinds, stiff door knobs, and hanging closet doors are not going to get you the best tenant, let alone your landlord neighbor's rent.
4. The best views will earn you slightly more than your neighbor facing the cemetery. Pair that with a balcony with appropriate seating, and you score a great tenant and a few hundreds of dollars.
5. De-clutter again. Nothing is as costly as clutter. Unlike buyers, prospective tenants wont look at the potential. Why should they look beyond clutter, when they have a few options?

More for Multifamily Dwellings
Some of the factors that affect multifamily units are not in the landlord's control. This is more so when the landlord doesn't own the whole building. The landlord should try to be active in the homeowner association (HOA) to have an influence in how the place is run and managed. The following are a few factors that determine "how much rent to charge":

1. Cleanliness and appearance of lobbies and corridors
2. Lifts, doors, stairs, floors
3. storerooms, gardens, garages
4. Employees and their attitude
5. Noise, etc

As a landlord, you should keep up with the trends in the rental rates in the area where you have invested. I do that all the time. Even when I have appointed a property manager. As an investor, its in my best interest to keep with trends and changes that affect my investment. Now, let me go email the photos of the duplex that I have available from 1 October. It has to get a tenant for me to keep on building that emergency fund. The place was remodeled just over a year ago in preparation for the tenant who is leaving end of September. All I need is a reliable handyman to fix the tiny issues like window rails. And then the screening of prospective tenants begins.

Wishing you a great week ahead. Let me know how you also determine "How Much Rent to Charge" in your own properties.

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Tenants' Rights and Landlord Obligations

Tenants' Rights and Landlord Obligations

Over and above the tenants' rights and entitlement to certain minimum standards of accommodation, I would love to think that I go an extra mile to provide my tenants with comfort. I have never rented a unit I wouldn't occupy myself. I pride myself in that. I believe its for that reason that I received an email more than twice from my new tenant declaring her love for her new home... makes me happy. 

*to your left is the image of when this property was being remodeled in 2010. It was really bad*

Off course my tenant has filled my move in move out checklist and identified the following to be faulty.  

Tenant’s checklist

1. Kitchen stove’s plug came off the wall
2. Bathroom sink is cracked. It may start leaking.
3. There is a problem with the bath drainage system. It is quite urgent.
4. Guest toilet sink is coming off the wall and needs to be attached.
5. All bedroom cupboard doors need to be replaced or re-attached. They are loose at the hinges.
6. 1 bedroom cupboard shelves need to be replaced.
7. The balcony door doesn’t close properly.
8. Geyser (water heating) cupboard needs to be closed 
9. The toilet seats in both toilets are broken
10.  The bathroom mirror is broken

I may have missed on telling you that this property was completely remodeled just over a year ago to prepare it for rental. Why does stuff have so much short shelf life when it comes to rental property and tenants? I am happy that there is no major project, but the small repairs do add up and can become too costly.
Having a tenant who seems to be reliable helps though. I hope she keeps being that way. And a huge bonus is that I got me a handyman again. He came highly recommended. I don't think I will easily bounce back if he disappoints me. I trust the property manager who recommended him.

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Evicting my Tenant

the most popular of my rental properties

When I started investing in real estate, I hired a property manager. The whole rent and property management was too overwhelming. I had a full time job and thought its impossible to juggle my job, a small family and a real estate business. Besides, my property manager did get me my first rental apartment, then got me the one I was then renting out. He was and still is pretty easy to work with.

But what made me think he was the best manager I could get? I have no idea. It could be the instant client-service provider chemistry. Or the fact that I was young and naive and my apartment is low maintenance. I later learned that I have to do a bit of managing him, which I never found strange. I followed the trends in the market and informed him when there needed to be changes in my property. Even when the tenant sublet the property, I knew first and he didn't. I came with the solution to it, worked it with the new tenant and informed him to draw contracts. But still, I didn't feel like he is not doing a proper job. We flipped the second property we got and I bought my first 3 bedroom duplex.

Naturally, I gave my property manager a call. He worked on it, got tenants, etc. I got to know the tenants because they came in whilst we were doing finishing touches. They were two local, young professionals and an international student, sharing. These youngsters were great, and they kept in touch. Their relationship went sour and they left the duplex in great shape and my property manager got a new tenant. This tenant never complained at all, not about the place, breaking stuff, parking problems, nothing. It was such a breeze having her. I thought "having a property manager is the best investment of all", because obviously, he was handling everything with the tenant.

Evicting my Tenant
Whilst doing a routine property view for maintenance purposes, I visited the property by an appointment with the manager. The message never reached the tenant, and I was there with the maintenance company. The living area looked great I was so impressed. We then moved to the kitchen, which was in a bad state, the sink area was totally unhygienic, the bedroom carpets were worn out and so was the TV room, the bathrooms were a health hazard, the staircase was full of DIY awkward nails, the study room was turned fourth bedroom and I saw seven of them. The main tenant was still at work. We walked into the garden, it was so bad, never maintained, overgrown, the front porch looked bad. I couldn't wait to call the property manager. I wrote him to immediately evict his tenants as the place is "not suitable for occupancy". I gave them 1 month to be out of the place. That was it.

Remodeling the Property
Seeing that the property was vandalized by tenants, I had to remodel it immediately. I got a company to work on it and that was my worst nightmare. My contractors were worse than my tenants and I had to fire them with some of my money. I soon forgot about the tenant nightmare. Its now a year later, the place is looking better, and we kept it vacant as a holiday home for our family and our siblings. We do spoil our siblings. But we won't keep it vacant forever. But it suits us having it open for our personal use at the moment.

I learned a lot about property managers, contractors and myself in this process. And NO, I didn't fire my property manager because I left the city and didn't want to work with a new person. He manages 2 of my properties. Could this be separation anxiety? I really take better care of my units now whether I have a property manager or not. 

Did you ever have to evict your tenant? How did you do it? How easy was it?

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Preparing a Property for Rent

A lot of planning goes into preparing a property for rent. You can’t cut corners and get it right. This is how I do it with my own properties in my real estate investment venture: 

1.      Setting a Target Market

    I actually set a target market before even investing in that particular property. Everything else is done according to the set target market. Do I want to attract students, single parent families, young couple, etc? Once I know the target market, everything falls in place nicely. 

My two bedroom duplex is just perfect for a single parent. It’s close to every facility that one can think of. You can walk your child to school, walk to your work, pass by the supermarket to grab dinner on your way back and still make it on time to pick your child up from school back home. It’s also big enough for an arrangement like that and has a small cute, low maintenance garden for a great playtime. My preparations for renting this place out includes child proofing the garden.

2.      Budgeting

The target market will determine the budget for you. High end market tenants demand the highest quality finishes and facilities. Easy as that. With my diversified tenancy, I know how much I will spend on a stove for one property and not on the other. 

The location of the property will also assist you in taking that decision. Think of the returns on your investment. It is a waste of money over-investing in finishes in an area where the rentals collected are the lowest in the city. Renters pay extra for comfort, and it’s only fair for landlords to ensure that tenants get what they paid for. A $7000 may prepare the rental unit fully in one neighborhood and not even scratch the surface in the similar unit based in another neighborhood. Stick to as low a budget as you can to get the best quality space possible. Your contractor will definitely help on the estimates.

3.      Specifics on Preparing the Property for Rent

The house has to be deserving of a prospective tenant. The exterior has to be welcoming and neat. The paint has to be fresh, garden and lawn has to look alive and flowers not in slumber. I usually get a garden service guy to freshen everything up. Trimming the edges is essential. 

The walkways, porches and verandas are to be cleaned and completely de-cluttered. Window treatments should look pleasant from the outside too. Everything has to be cleaned and hanging and loose odds and pieces removed or replaced. The house has to look picture perfect. Better than you would wish your home looked after spring cleaning it. In my case, because I am hopelessly lazy, and always long nailed, I get a cleaning team to help me out. I outsource any kind of cleaning in general, so that decision is quite easy. 

Enhance your home’s interior by: The interior has to be as spotless as the exterior. I cannot emphasize the hiring of a cleaning service company enough. It helps. I say this from experience.

Kitchen counter-tops are usually victims of clutter. Make sure your granite tops shine with only the essential appliances. Check the window tracks for broken and falling parts. Appliances should be in working order and so should the plumbing, heating, cooling, alarm systems, etc.  Do it all whilst trying to save on costs where you can. You may need to invest in new cupboard doors for instance, instance of changing the whole kitchen.

Please read the article on how much rent to charge for more tips.

Done Preparing a Property for Rent?Head to our latest article.

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