How this landlord lost R50,000 in rental per month
This is the story of a man who owned a few properties all across the land: two-bedroom cottages, three-bedroom homes and large, old four-bedroom homes with garden flats. This man had been the lord of these homes for many years, which meant he thought he knew everything and was always right; he rejected all offers for help and didn’t consider different views.
The lawmakers of the land had certain rules and laws in place to protect lords like the man of this story and his properties, but also, because the lawmakers always strived to be fair, they had rules and laws in place to protect the tenants too. The lawmakers, however, relied on supply and demand in the market and relationships between the man and his tenants to determine what the price would be that the tenants paid the man to live in his homes.
The man loved these rules and laws and, because it was his right to increase the rental on the homes of which he was the lord, he forgot to pay attention to market forces or relationships with his tenants, and insisted on increasing the rent every six months by 5%.
Meanwhile, his tenants were living in the real world, where economic growth is forecast to stay at 2% until the end of 2022 and inflation is at 4%; his tenants were, essentially, getting poorer by the day.
This is evident in the fact that South Africans’ disposable income per capita is growing at only 1% and 1.2% respectively for the first and second quarter of 2017 (according to the FNB Property Barometer) while Eskom is asking for a tariff increase of 18% in 2018. With the decision made on 21 October by the Monetary Policy Committee to keep the Repo Rate stable at 6.75% (Prime at 10.25%), South Africans would have to tighten their belts even more, especially if the expected 25 basis point drop does not materialise at the November meeting.
What could the tenants do? Luckily South African law provides for this, and in most provinces (Cape Town is a different animal and is still recording double-digit rental growth rates) tenants have options; the tenants could give notice and vacate the premises to find more affordable accommodation with rental in line with prevailing market conditions.
And that’s exactly what Graham Prinsloo (not his real name) did. He gave notice and found a comfortable property with all the features his family required at R2,250 less per month. The man in our story is Graham’s landlord, and this is the account of how the landlord, let’s call him Mr Misinformed, soon found himself losing close to R50,000 a month.
Prinsloo and his wife are educated, middle-income individuals with squeaky clean credit records who never once paid their rental late in the two years they occupied Mr Misinformed’s home. In the two years they lived in this rental home the monthly rental increased from R8,000 per month to R9,261 (a 15.76% increase in just 18 months). What’s more, the home’s utilities usage was being metered by the City of Tshwane so bills were unpredictable, ranging from R900 one month to a whopping R3,200 the next for a three-bedroom, 120m2 home with two adults and a toddler.
“We maintained the home and garden perfectly, whenever anything was broken we fixed it. We value our privacy so were definitely not the kind of tenants who constantly contact our landlord with complaints or issues. What could be fixed was fixed. We are property owners ourselves so I understand the importance of regular upkeep and when my family and I are paying to live in a home I treat it as if it’s my own since I value our comfort,” says Prinsloo. “But eventually, with the next bi-annual 5% increase coming up our rental would have been R9,745. Add to that the average R2,000 cost of our utilities and it was just no longer a comfortable fit for us.”
Sound like the perfect tenant right? One any landlord or agent should want to keep in a property to ensure a constant, stable rental income.
Prinsloo says that if they were able to more comfortably afford it they might have stayed on. They even tried to negotiate with their landlord, asking him to not increase the rental at all, but their request fell on deaf ears.
However, looking at the area in which the property is located, we believe it actually no longer represents reasonable value for money. Based on the total monthly cost of this property the family could comfortably live in an access-controlled complex with a swimming pool, tennis court and play areas for their child, with prepaid electricity. All features Mr Misinformed’s home does not offer.
Mr Misinformed and the Prinsloos never had a “friendly” relationship but Graham says he suspects that his landlord earns a sizeable portion of his monthly income from his portfolio of rental properties scattered across the country – a portfolio he manages himself. Graham’s ex-neighbours’ large, four-bedroom home with garden flat is also Mr Misinformed’s property.
“We like the area so when my wife was searching for a new home she came across our neighbour’s home up for rent, becoming available the very same month we were vacating our home,” tells Prinsloo. “So now he was more than R25,000 in rental out of pocket from the next month. Our home had been listed for some time for him to find a replacement tenant but only a handful had come to view, or some curious drive-bys but no commitments, or as far as I know at least.”
Prinsloo doesn’t know the size of his landlord’s property portfolio but out of curiosity he did a search and found one more property for rent in Gauteng and another in KZN, all set to be vacant from the very same month unless suitable tenants were found.
“I obviously don’t know what the monthly rates and taxes are for each of these properties, but based on conservative calculations I think my ex-landlord is short about R50,000 a month while these four properties lie vacant – financially devastating for anyone. What’s more, the homes are all freestanding and he lives in another part of the country so I’d be worried about security with no tenants. Probably an extra cost he’s going to have to take on unless he finds tenants soon.”
Granted, Mr Misinformed is living in the same world as his tenants: the proposed 18% electricity tariff hike is also his reality. However, experts agree that right now tenants in Gauteng (75% of Mr Misinformed’s known portfolio) can afford to be picky when it comes to rentals. TPN in its latest Rental Monitor Report states that tenant performance has been “gradually deteriorating since 2014 with the percentage of tenants in good standing with their landlords decreasing to 82,77% by the first quarter of 2017 (from 85.95% in Q3 2014)”.
We would have built a mutual relationship of trust and respect with the Prinsloo family, thanked them for looking after our property so respectfully and always paying on time. Then we would have asked what level of rental the Prinsloo family could comfortably afford – based on mutually beneficial negotiations. It’s really pretty simple: having a hole in your pocket of R40,739 per month is better than one amounting to R50,000 per month.