With financial experts still concerned about the threat of a global double dip recession landlords should be extra vigilant about keeping a handle on bad debt.

Collecting incoming payments should always be at the top of any landlord’s agenda, but with the risk of there still being a fall-out from last year’s economic downturn, landlords need to be even more proactive about debt collection.

Landlords and their property managers need to get their hands dirty. First and foremost is accurate and timely reporting that will flag problems early on, giving landlords a chance to take action before the debt starts to gather.

Once landlords or property managers have spotted a problem, it’s vital that they act quickly. This generally involves a few tough decisions on whether or not it makes sense to keep the tenant or not.

If the tenant is an attractive one, that complements the property’s tenant mix, and runs a generally sound and sustainable business it is most likely worth nursing them through the tough times to benefit from a longer term gain.

Put a manageable payment plan in place, or be creative about extracting value from the tenant. For instance, retail tenants might be behind in their rent, but will still be marketing their business. Landlords should strike a deal to ensure that their property features prominently in the tenant’s marketing campaign. Another good option is to agree that the tenant arranges a promotional event in the shopping centre to help attract new shoppers.

On the other hand, if the tenant is not a particularly desirable one and/or appears to be suffering from deep-rooted and systemic financial woes, it may be better to cut for a landlord to cut their losses before they escalate – within the confines of the lease agreement with that tenant, of course.

Other tips include:

- Maintain good communication on both sides of the food chain. If your tenants are struggling to pay their rent, you might find yourself in a position where you can’t pay suppliers or your bank. Know who is likely to default so you don’t get caught by surprise, and keep your debtors informed of your position so that they remain favourable to you.

- Do take judgement against defaulters, even if they have absconded and it seems highly unlikely you will receive any money in the short term. You may at least recoup your losses in the long-term when the tenant wants to clear their black-listing.

A double dip recession refers to second recession that kicks in after short period of economic growth following an initial recession. At the Fortune-Time-CNN Global Forum held in Cape Town at the end of June, both Trade and Industry Minister Rob Davies and Absa CEO Maria Ramos warned about the risk of debt-laden developed economies slumping again.

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“Property, like any investment is not risk-free, but with careful planning and preparation the right kind of property investment will show great returns for investors.”

So says Michelle Dickens, managing director of TPN, a registered credit bureau, who adds that aspirant landlords should consider their affordability and factor in an increase in interest rates, property maintenance cost and the possibility of non-collection of rent.

“Property management requires ongoing supervision, even if the rent collection and management has been outsourced to a letting agent. Landlords still need to ensure they actively monitor their investment and have capacity to liaise with their tenant or letting agent regarding property maintenance issues,” she says.

“Over time property is an appreciating asset and right now is a buyer’s market, and interest rates have dropped. Currently TPN has seen great investment potential for properties in the Western Cape and in the R3k to R7k rental bracket. “Properties within the R7k to R12k and upwards rental bracket are higher risk. It is important to make sure that as a potential investor you have disposable income available and do not be afraid to bargain over the asking price,” says Dickens.

Mike Thorn, principle owner of landlords, which provides online services to help landlords and agents manage rental property, has some useful tips when it comes to sourcing the right property for your investment:

- When buying property with a tenant still present, always make sure that the lease agreement is current and up-to-date. Also make sure the deposit has been paid in full and rent is up-to-date. An incoming inspection is critical to make sure there are no severe damages, etc.

- Location is key! Buy properties in high demand areas to get the most out of your investment. The property should also be in close proximity to hospitals, schools and main roads. If you are buying in a complex or with a body corporate, make sure that they are competent.

- A good buying agent will know exactly what to look for and will make the buying process a lot easier, but make sure that before you choose your agent, they have an existing agreement with a property management agency that subscribes to TPN to ensure that quality tenants are placed, thus further protecting your investment.

- Be wary of “rent guaranteed” properties that offer a cash back reward. This is often a trap as the true price of the property is clouded and the cost of the rent is padded into the selling price, which means you will pay more than the property is actually worth. Sophia Baspellides, rental agent for Just Letting in Honeydew on the West Rand, says there is currently a big demand for townhouses in the price range between R4,500 and R6,500. “Young families with kids comprise a large part of the tenant profile and they are generally looking for units with three bedrooms and two bathrooms. The demand is so robust that if I had 20 units available in a month, I could let them all.

” She would advise buy-to-let investors to purchase units with at least two bedrooms and two bathrooms. “Two bathrooms seem to be the primary prerequisite these days as tenants often have guests over and families also prefer to have the extra one.

“They also seem to like lock-up garages and gardens and potential landlords should keep this in mind when they buy a unit. She says the default percentage of tenants is very small at the moment and these cases are usually circumstantial. “It is mainly due to couples getting divorced or separating or people losing their jobs. We do strict screening of potential tenants, but there’s always the risk of a tenant defaulting for whatever reason.”

Lisa Pasporino, rental agent for Just Letting in Faerie Glen in the east of Pretoria, says townhouses are always a good buy for buy-to-let investors. “The demand up to R7k is very strong and anything below R5k is snapped up as soon as it becomes available.

His advice to investors is to always look at the financial history of a townhouse complex before willy-nilly buying into it. “Don’t take its appearance at face value. Do your homework thoroughly and look at the books to see whether or not it’s a well-managed complex. This could make a big difference to the returns on your investment in the long-run.” – Eugene Brink

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