The latest FNB Buy-to-let Estate Agent Survey shows that property buying for the purpose of renting it out has reached a new low of 7% of all property purchases.

Although this is far below the robust 25% of property sales it represented in 2004 - partly due to factors such as the difficulty in obtaining finance and the general economic conditions - buy-to-let property investment continues to be an important component of well-diversified investment portfolios. In fact, the 2010 World Wealth Report recently released by Capgemini Global Wealth Management and Merrill Lynch showed that the world’s population of wealthy people hold as much as 48% of their wealth in residential property.

“Owning rental properties can certainly play an important role in securing financial independence, but prospective landlords should be aware that owning rental properties entails more responsibility than simply collecting the rent,” says Adrian Goslett, chief executive of RE/MAX of Southern Africa.

“Renting out a property is a business, and should be managed like one. Being a successful landlord requires a professional approach to managing the property, the tenant, the administration and the financial side of the business.”

As with any other business activity, rental properties are regulated by law and it is crucial that landlords understand the legislation applicable, which sets out the rights and obligations of landlords and tenants.

Two pieces of legislation are of particular importance to residential landlords: the Prevention of Illegal Eviction Act (PIE) and the Rental Housing Act 50 of 1999 (RHA).

The PIE Act protects tenants from unlawful eviction, but also details procedures for landlords in dealing with errant tenants and for evicting unlawful occupiers. The RHA regulates the rights and obligations of landlords and tenants, details how disputes between tenants and landlords must be legally dealt with and provides general requirements for lease agreements. It further makes provision for rental housing tribunals in each province, which offer a free dispute settlement service for tenants and landlords, as well as advice on residential leases and rental issues.

“Within this legal framework, a proper lease agreement is a crucial component of managing a tenant,” says Goslett. “However, before such an agreement is signed, the landlord must thoroughly screen and carefully select the tenant for the property. This screening includes background and credit checks as well as confirming employment and checking references.

“Once a tenant has been selected, both parties must agree on the terms and conditions of the lease agreement. It should detail the issues stipulated by the legislation, such as the deposit amount, the monthly rental amount, the due date for payment and how it will be paid as well as the duration of the lease and renewal terms, among others.

“The contract must be correctly signed by both parties and two witnesses. The landlord should ensure that the tenant has read and understood the lease agreement and give the tenant a copy. It is recommended that landlords keep in regular contact with tenants and inspect the properties regularly to ensure any potential problems are resolved immediately.”

“In addition to managing their tenants, landlords are also responsible for the upkeep of the property. This requires ongoing repairs and proactive maintenance following regular inspections of the property. Using only professional service providers who can provide warranties and guarantees for any maintenance and repairs will always be the most cost-effective option in the long run,” says Goslett.

The financial and administration side of the business must also be managed. The rental and other charges, such as levies and water and electricity charges must be collected, any discounts for early payment and penalties for late payments must be applied, accounts for property related expenses must be paid on time and records of all transactions must be kept for tax purposes. Landlords are also advised to accumulate a cash reserve for unforeseen repairs and maintenance as well as for a potential vacancy at the property.

Good systems and discipline will assist in managing the paperwork. However, if all these responsibilities seem somewhat overwhelming, it does not mean that owning a rental property is beyond your reach. “Using a rental management service may be the answer. For a monthly fee, the agency can take care of all property rental responsibilities, including non-payment of rental and evictions. A rental management company can also advise landlords on products such as rental income insurance and insurance that will cover the costs of evicting a tenant,” says Goslett.

“The real secret to being a successful landlord is to approach it with the professionalism and discipline required from any business owner, including outsourcing certain functions to the experts as and when their services are required.”