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Thread: Rental deposits

  1. #21
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    Quote Originally Posted by Houses4Rent View Post
    What, an entire month is excess? That is insane. An eviction should in normal cases not take 6m. Is there a cap on legal costs?
    I only use guarantees (3m cover) without caps. PM me if you are interested.
    That sounds interesting. Please share more info on the guarentees you refer to.

    On eviction - it can take anything from 2 weeks to even 1 year, depending on circumstances and the legal system, but that is another discussion.

  2. #22
    Gold Member Houses4Rent's Avatar
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    Please see here:
    http://www.houses4rent.co.za/landlords.php

    We can offer our full management service only in parts of Cape Town, but if anybody just wants the secure cash flow/3m rental guarantee/free eviction cover as an add on to your own or your agents letting efforts I can help too. Just PM me or contact me via my website.
    http://www.houses4rent.co.za/landlordform.php
    Houses4Rent
    "We treat your investment as we treat our own"
    marc@houses4rent.co.za www.houses4rent.co.za
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    Global Residential Property Investor / Specialized Letting Agent & Property Manager

  3. #23
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    Another question for H4R and reuphk (others can chime too)...regarding rental deposits. Agents wants the tenant to deposit the money into their bank account to deduct fees then deposit the rest into your account, do you agree to this? Why not just have all deposits and first months rent deposited straight to the landlord and then pay fees on invoice?

    Again I can rant about agents but some years ago we had this arrangement and the tenant stuffed up and paid the 2nd months rent into the agents account by mistake and I had to jump through hoops to get the money back.

    As a landlord isn't it just easier to have the tenant pay deposit the first months rent and deposit straight to the landlord?

  4. #24
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    Deposits must be held in an interest bearing trust account if its an agent. I would not consider it overly save there as many agents have been caught using or even stealing deposits. If that happens landlord has to refund to the tenant from his own pockets. So if you have any doubt rather put into your account.

    You can also ask fro rent into your account and then pay agent his comm on invoice I guess. But aren't you paying the agent to collect your rent?
    Houses4Rent
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  6. #25
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    [QUOTE=Basment Dweller;116389]Agents wants the tenant to deposit the money into their bank account to deduct fees then deposit the rest into your account, do you agree to this? Why not just have all deposits and first months rent deposited straight to the landlord and then pay fees on invoice?


    The service the agent gives and for which you pay, in my view is the following:
    1. Find tenant via advertising (online, newspapers and whatever other means, sometimes including having a list of their current "seekers")
    2. Check (reference and credit) and select (good) tenant
    3. Engage tenant and landlord in contract, as a party to the contract
    4. Take deposit, any fees and first months' rent on successful signing of contract
    5. Inspect property with relevant parties on (1) entry; (2) interim inspections during lease period and (3) exit
    6. Collect rent promptly every month; and depending on contract; make payment for relevant fees / levies and pay landlord
    For this, they get a % of the rent collected, the landlord provides the unit, and the tenant pays as agreed.

    If this is what you pay for (another reason why you should only pay on actual monthly collection, not a year's fees in advance); then they should deliver these services. This includes collecting the rent and paying it over to you.

    In essence, there are a few risks here. The first one is that the tenant does not pay (you have this risk regardless), 2nd is that the agency does not pay you (yep, it has been known to happen, and no, the Estate Agency Board is not helpful), 3rd the tenant messes up your place (you have this risk regardless) and the agency does not even know (because they dont inspect).

    So, if you have an agency in your deal - let them collect. This way they (hopefully) remain in the loop in the event of defaults and will need to take action on this as per your agreement.
    BW, when I read your post, I immediately thought "mmmm, controlling..." . It is ok to be controlling, but since you already paid these guys, let them work for it. You build capacity for new deals and dont worry too much about this one (I know that sounds easier than it is).

    On the deposit - they should be the ones to keep that in Trust, but if you are not feeling comfortable, get them to pay it over to you, and then just make provision to pay back at end of period.
    Dont pay them on invoice. Let them just pay you the rent post their deductions, it is easier - less accounting, bank fees, and hassle.

    Now for my question - what does the agreement between you and the agency say about their mandate and their actions should tenant default? Hint: Penalty per day for paying late... and what is your agreement with them regarding date of payment to you?

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  8. #26
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    Reuphk you have some good points but I've been down this road many times with agents and tenants.

    My view is that I want the transition to get the tenant in to be as seamless as possible. When you ask the prospective tenant to make two deposits, one to the agent, and one to the landlord, you are creating more hassles for the client. He now has to create two beneficiaries and make two payments, why is this his problem?

    A few years ago I had this arrangement with an agent where they kept the deposits and 1s months rent and paid everything over to me minus his comm. On the second month, the tenant made the 2nd months rent into the wrong account (the agents account) and I was the one who had to run round to get the money back from the guy, took two months. You see the problems this can create? ( I see I already made this point above but it bears repeating)

    I see no reason for the agent to handle deposits. The only reason why they want deposits to go into their bank account is so that they can deduct their nice little comm and vanish. They are not providing any kind of service by collecting deposits from prospective tenants.

    Landlords are the ones that need protection in these deals because they are the only ones with skin in the game, the landlord has a bond to pay every month on that property, not the agent nor the tenant. The landlord is personally liable for a lot of things, tenants have the CPA and other laws protecting them.

    I have some friends in the landlording game. The one guy does cheap slum rentals in Windsor (slumlording). The returns are great but you should hear the horror stories. People don't pay and get squatting rights from a judge to live there indefinately and pay whatever they can. Constitutional rights will always be in favour of the tenant because you can't just kick people to the curb or cut their utilities.

    Some years back I rented a commercial propety to a company that went bankrupt in the second year of their lease, they removed 11 air conditioners, stole the car ports and made so much damage making the property untenantable, where was the agent then to help out? Oh and did I mention they didn't pay the last three months rent?

    I had an iron clad lease agreement with these guys, paid a lawyer R7000 to draft it, but when things went bad, the lease agreement won't physically go into the tenants bank account, remove money and pay me. Which is another reason why I draft contracts myself and bypass lawyers (thats another story).

    I once used a CNA lease with a tenant for 5 years and this guy paid on time every month.

    There's so much risk and uncertainty in this game. A good tenant can turn bad over night. A seamingly bad tenant can be good. One of my best tenants was a Nigerian guy, one of my worst was a white single male professional.

    The point I'm trying to make is that landlords have every right to be controlling about their assets given the amount of risk they have to carry. People who rent propety from landlords always play the victim card because landlords are greedy rich people and they should tow the line. And real estate agents are bunch of opportunistic parasites who want access to all the rewards with taking as little risk as possible whilst doing as little work.

    BTW I don't pay agents to collect rent for me, I do that myself and pay myself the management fee. I want to pay the agent their comm for placing the tenant then I want them to dissapear.

    As for late paying tenants, I have a late paying clause in my lease agreements that charges R500 extra for late payment. But in my experience if the tenant cant pay the tenant can't pay and there's not much you can do about it except wait for the lease to end and get them out.

  9. #27
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    I think I made my point that I agree with a lot which is why we are doing different things and remove the bulk of the risks. And its also why I would never just place a tenant and disappear.

    Don't forget the deposit and interest on same belongs to the tenant and remains the tenants property until proven otherwise. So it does not matter too much who holds it unless fraud gets committed, but I doubt that is the norm and ho[e its rather the exception. If fraud was committed by an agent there is still the Fidelity Fund, but I don't want to try its effectiveness either.

    You are not a registered debt collector, therefore you cannot collect any late payment penalties. To my knowledge you are doing this illegally.
    Last edited by Houses4Rent; 29-Sep-14 at 07:45 AM.
    Houses4Rent
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  10. #28
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    Houses4Rent I hope you're not taking this personally? You seem like a professional and knowledgable guy. I've also had a look at your website and you offer a range of services which seem above and beyond what your average real estate agent would do so I wouldn't put you in the same category as the sharks that I speak so lowly about. You even said yourself its the bad service from realtors that drove you to persue this type of service offering in the first place.

    I'm pretty sure there are decent real estate agents out there but the exceptions prove the rule based on my experience and the extensive testimonials I have from outher landlords in the business.

    I've given some thought to the type of service you offer. If I have to pay to outsource some of my risk to you then what's the point of investing money in real estate directly since my profits will be diminished? I might as well just buy shares in a REIT and not have to worry about any of this.

    For me, the fun of being a landlord is doing the work myself and watching my assets grow. My experiences have been mostly positive over the years, I've built kitchens, fixed electric fencing, painted, done refuse removal, gardening, developments etc and it's very rewarding. I'm a hands on guy and like to drive around with a bakkie and fix things and go to builders warehouse etc etc. I've had tenants that move in, pay on time, and you never hear from them. I've got plumbers, electricians, carpenters, welders...all guys I found myself that I've used many times, often I send them to fix something and don't even need to worry about being there to inspect, it's great!

    Believe it or not, there are some real estate agents who have helped me place tenants at a decent rate and I pay them with a smile on my face.

    Do yourself a favour and read a book called freakonomics, there is a chapter devoted to real estate agents. They explain how the incentive structure in the real estate industry drives agents to work against the people who are paying them i.e. the landlords. The problem isn't the agents themselves as people, it's the way the are incentivised. Also the goals of the real estate agent and landlord are conflicting, the agent will take a comm at a lower rate because they want to move on to the next deal ASAP whilst the landlord wants to get the highest price possible and is prepared to wait for it. The results are the agents advocating rubish unqualified tprospects just to get the comm and move on leaving the landlord to carry the can!

    The only drawback on my part is lack of time, since I work a full time job I have no choice but to outsource some of the work to realtors and the like which is frustrating but all part of the game!

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    Basement dweller, you and I are very similar in our views and the way we manage our property business. I agree with the sentiment, I'm just not sure why you then pay the agents to place a tenant for you, in my view that's what they stuff up to start with. Advertising is mostly free, doing the checks take all of 2 minutes, the only time consuming issue is showing the unit. It is not as if agencies keep a database of great tenants, they only get people who are looking at a particular point in time, which is the same ones who will respond to your ads.
    My points was only if you are paying them for the service already, let them work for it
    So let me share what I do. I run a small home office and have an accountant and admin person in employ (I also have a few other business interests and these two are well worth paying monthly salaries for. They do all the property stuff as well - the Way I want it done. Of course we've had our share of horror tenants and twice resorted to attorneys at huge cost to remove them, hand over to collection agencies for defaulters etc, but overall positive and great returns.

  12. #30
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    BasementDweller, no worries. I am not taking this personally. Just trying to bring my point across.

    I did same as you, but when the lack of time became a hurdle to source a new worthwhile property deal I started to outsource things and stopped doing it myself. As long you have enough time to do all yourself keep doing it.

    But as reuphk said the crux of the matter is the upfront stuff. If that is not done properly you might suffer from it for a long time. Rather do the more important things like this yourself.

    As for the REIT vs direct property investment I beg to differ. You have much more control yourself with direct property ownership. I am not sure how a REIT works, but I am sure they get paid no matter how the portfolio performs and the risk stays with you. So they do not really have your interest at heart. Same as normal (letting and estate) agents as you said for yourself where also the risk stays with you. I do not have to read a book about it as I know from first hand regular and ongoing experience. I am constant on the lookout for the next property, but in about 95% I cannot even get basic info from an agent.... With Houses4Rent its different as you get paid no matter what and the risks are removed to a large degree. If the tenant does not pay we burn first and not the owner.

    If you make an honest calculation working out all your expenses and own time into the one side (not to forget the opportunity costs) and the expenses of using other people if and when required then I doubt you will find that your NET profits are drastically diminished. Its hard to make your own time tax deductible, but once you outsource al this is tax deductible. So I don't think its that straight forward as you make it out to be. Of course the outsourced party must be reliable and not overpriced.

    Are you using insurance? I bet you do. So why outsource it if you could maybe self insure cheaper? You do it, because you do not want the risk in your shoulders.

    A simply comparison: A normal agent takes 10% plus VAT to manage a property (11.4%). We take 12.5% plus VAT to do it with value add. However, we are still not VAT registered - a long story. So for only 1.1% extra (worst case 2.85% if VATed) one gets a great deal of product more and far less risk.

    Often its down to dependency on that rental income. Most people will be in real trouble quick without getting the rental income and having to pay legal costs on top. Some even need the rent to live a basic live. So all objectives are different.


    If people are not that dependent and prefer the normal agent or do it themselves my advise would be to keep doing that. I only want people as clients who really value what we offer and are committed to it. If people are moaning and groaning about our higher fees they clearly do not understand the difference in concept and I send them to normal agents.

    I did my own letting for years when I still had my full time engineering career and it was fine until one day a good tenant turned bad over night. I lost R100k in today's value and I will never get it back as the bugger died without assets. Murphy's law as its best. That sudden change happens often without any warning and the justice system is not on the owners side. All we do is offer a solution and alternative choice.
    Houses4Rent
    "We treat your investment as we treat our own"
    marc@houses4rent.co.za www.houses4rent.co.za
    083-3115551
    Global Residential Property Investor / Specialized Letting Agent & Property Manager

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