Landlord's Guide
Purchasing a rental property is not a get-rich-quick scheme. There are multiple aspects to consider before going ahead with this decision. If you're looking for more information before you jump into the complex world of property rentals, then you've come to the right place!
Landlord's Guide
Purchasing a rental property is not a get-rich-quick scheme. There are multiple aspects to consider before going ahead with this decision. If you're looking for more information before you jump into the complex world of property rentals, then you've come to the right place!
Getting started
There are six factors that first-time landlords need to thoroughly research and understand before they go ahead:
- Plan for future rather than immediate returns.
- Set a realistic budget based on an achievable rental price.
- Set up an emergency fund for repairs.
- Understand the risks of late payments.
- Set up thorough lease agreements.
- Create checklists for rental inspections.
Manage
For a percentage of the rental income, a rental management agent will have the expertise and resources to ensure that the property is managed correctly. They will assist the landlord with tenant selection, reference and credit checks along with the day-to-day management of the property. If a property rental is handled correctly from the start, with ongoing professional management, many unnecessary and unpleasant situations can be avoided.
Rental deposit
A landlord is legally entitled to request a deposit from their tenants. The deposit amount will be stipulated in the lease agreement and can be anywhere from one to two or even three months’ rent. The money must be placed in an interest-bearing account and must then be refunded to the tenant at the end of their tenancy no later than 14 days.
Contract breach
A breach of contract can be defined as a legal cause of action in which a legally binding agreement (like the lease agreement) is not honoured by one or more parties who have signed the contract. A breach of contract occurs when one of the parties fails to perform or performs late on their contractual obligation.
Late payments
Landlords cannot simply evict their tenant for late payments, as they're protected by the Prevention of Illegal Eviction from Unlawful Occupation of Land Act, No. 19 of 1998 (PIE Act). If the agreed-upon payment date has come and gone, you should immediately contact your tenant to inform them of the overdue payment. Thereafter, there are several legal steps you need to action before you can evict a tenant.
Rent escalations
On the anniversary of the lease, the landlord and tenant typically decide upon two things: whether to agree to a renewal and secondly what escalation will apply. An industry standard seems to be 10% per annum, but the landlord may decide to forego the increase or to increase this more or less than 10% to ensure the rental is market-related.
Tax
As a landlord, you're required to declare the total amount of rental income received as part of your taxable income. Certain deductions can be made, such as those of a non-capital expense. If you deduct these expenses from your tax return, it'll reduce your taxable income and possibly put you in a lower tax bracket, which will be to your benefit. Reminder: tax evasion is illegal. If you're unsure, consult with a professional financial adviser or tax consultant.
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