Keep your rental book healthy - despite a tough economy

Keep your rental book healthy - despite a tough economy

Tenants all over the country are facing a host of challenges, including the constantly rising cost of living, increasing interest rates, ongoing slow economic growth and unemployment. These rising costs have put rental agents under enormous pressure to ensure that their rental books remain healthy.

Tenant expenses can include debt commitments and rental payments, with the remaining disposable income having to cover everything from groceries to entertainment and school fees.

With inflation at 7% and items like private schooling, groceries and healthcare increasing even more, rental payments may be the only expense category under the tenant's control.

Most tenants simply cannot afford rental increases. Therefore, many tenants are moving to smaller properties to avoid increasing rent costs or to decrease that expense, according to Johette Smuts of PayProp, the largest processor of residential rental transactions in South Africa.

She offers some pointers for rental agents who want to help landlords and tenants - and in the process, maintain the health of their rental books.

Tenant vetting
It is well-known that many tenants left the rental market to become homeowners during the Covid-19 pandemic. Smuts says this removed many good tenants from the market. This is making it even more important to vet prospective tenants.

Rental agents need to:

Review credit check data.

Combine that information with tenant data.

Carefully review bank statements and salary slips.

Diligently follow up on references listed by prospective tenants for further invaluable insights.

Arrears
With increasing pressures on tenants, there is a higher likelihood that some might miss a payment or only pay part of their rent because they simply don't have the available funds.

PayProp data shows that the more significant the outstanding amount and the longer the situation persists, the less likely it is that the account will be settled, says Smuts.

The key to managing tenant arrears is anticipating and dealing with the issue immediately.

PropTech
Utilising PropTech should free up more of property professionals' time. This will allow them to spend more time on tasks that add value to their relationships with tenants and landlords.

Smuts says instead of balancing tenant rental accounts, professionals want the freedom to focus on people-centric activities like building relationships, keeping properties in good condition and finding new opportunities to grow their businesses.

"PropTech should automate and optimise inefficient rental payment administration processes, freeing up time and money that can be put to better use."

PropTech will also enable you to protect your landlords and your rental book from cybercrime and fraud, which typically increase during tough economic times.

"To protect your rental portfolio, for example, PayProp allows you to set permissions and to control who does what in a rental business. An audit log also tracks all transactions that anyone with access to your portfolio performs on the system, allowing you to further protect yourself," says Smuts.

Adding value
In economic downturns, some agents may feel obliged to cut their commission just to keep landlords on their books. Unfortunately, this will put your business at risk as it's very difficult to get back to the same percentage.

Smuts says a better way to approach the situation is to increase the value you add to your landlord proactively.

"The PayProp Owner app is designed to give landlords access to damage deposits, detailed portfolio payments and other useful information. This will add immediate value, which can bolster the relationship," she says.

Trends
Keeping abreast of trends in the rental market and tracking their effects on your own business will help you make sound business decisions.

"Knowing your market can help you manage expectations, especially at crucial times like the listing phase, when listing a property above market value will lead to endless vacancies," says Smuts.

An excellent place to start is checking quarterly or annual data produced by various industry leaders, like PayProp and TNP.

"Although market conditions are tough, many property professionals are adding value to their landlords and tenants and managing to navigate the pitfalls to the benefit of their agencies and clients.

"Keeping these fundamentals in mind will help keep your rental portfolio strong and healthy," says Smuts.