What do you do when the ever increasing interest rate makes your bond repayments close to unaffordable and your tenants struggle to pay their rent?

A massive 28% of tenants pay late or not at all.

Rising interest, food and fuel prices along with the approved increase in the price of electricity is making it more and more difficult for tenants to pay their rent. Figures released by the Tenant Profile Network earlier this month show that 11% of Gauteng tenants did not pay rent at all in the first quarter of 2008 as opposed to only 6% of Western Cape tenants.

Nationally, 28% of all tenants paid late or not at all. If the cost of living continues to increase, there is a strong possibility that more tenants will pay late, or not at all.

More and more people are opting to rent rather than buy their residential property, a fact illustrated by the recently released FNB Barometer. This survey shows that activity in the rental market is much stronger at the moment than in the home buyer sector.

The barometer, which rates market activity on a scale of 1 to 10, puts the home buyer market at a low 4,96 while the rental sector is at a strong 8,4.

Analysts have cited the National Credit Act (NCA) as being the driver for the strong performance in the rental market and with more interest rates expected later this year, more and more people are expected to rent rather than buy.

Lynne Kuter, marketing manager of Rentmaster Ltd cautions against viewing the deposit paid by a tenant as the best protection against defaulters; that deposit cheque is generally required to fix damages caused to the property, rather than cover for outstanding rental.

As an investor, there is a way to mitigate the risk involved with rentals. Kuter advises the following three steps approach:

- collection and verification of all relevant information pertaining to the potential tenant;
- assessment of the risk profile of the tenant; and
- ensure the application is properly completed and that the information is thereafter compared against the vetting criteria, before any contracts are signed.

Property24 30/06/2008