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Property ins and outs: FAQ

Buying costs, landlord protection and more – Herschel Jawitz, CEO – Jawitz Properties.

SIKI MGABADELI:  Today we focus on property – not just the age-old question of whether to rent or to buy, but we are looking at the frequently asked questions on both options. What are the things you need to consider when looking at property. If you are buying, how do you make sure you find the right home? What costs do you need to bear in mind? If you are getting tenants, what steps can you take to ensure that they are good tenants? And what happens if they don’t pay and you have to evict? And if you are renting, what are your options?

We are speaking to Herschel Jawitz, the CEO of Jawitz Properties. Thank you so much, Herschel, for you time today.

HERSCHEL JAWITZ:  Thanks for having me.

SIKI MGABADELI:  It’s an age-old question, isn’t it, to buy or to rent? Is there a better option?

HERSCHEL JAWITZ:  I think the option really depends on your personal circumstances. There are a whole host of criteria that would need to be thought about. Firstly, affordability. Buying a property in many respects requires a different level of affordability, especially around deposits, transfer costs, ongoing maintenance of the property. So that would be a criterion.

I think timeline is important. So any time you are buying property you need to take a longer-term view of it in order to get the return on your investment. If you are buying a property and find that you need to sell it in a very short period of time, often you are going to lose money on it.

I think your phase of life – if you need to be mobile, if you haven’t decided on a career choice or where you want to live, renting makes more sense.

There are a whole host of options but I think ultimately, in the long term, as a lot of people know and say, you’d rather be paying towards your own mortgage and buying a property than paying towards someone else’s mortgage and rent.

SIKI MGABADELI:  And I suppose your lifestyle, as you said, plays a very big role. Some people want a lock-up-and-go because they travel quite a lot, while others want to entertain and have their kids come over on weekends and have a huge a huge lawn and a swimming pool as well.

HERSCHEL JAWITZ:  You can still buy and have a lock-up-and-go. So you can buy an apartment, a small townhouse. But, for example, many people who are in their first jobs, who are just moving into a new city, for example, or haven’t decided where ultimately they want to live – not only from a city point of view but from a suburb point of view – it will probably make sense in the short term to rent.

But once you’ve established yourself, once you’ve started a family, once you understand where you are going to be over the next couple of years, then I think it’s always a good option to consider buying.

SIKI MGABADELI:  Location – let’s talk a bit about that and the actual search for the property, some tips that you can give us.

HERSCHEL JAWITZ:  The adage about property is generally location, location, location. You would rather buy a property that perhaps is not as nice as you would like it to be in a better area than a much nicer property in a lesser area, because location is going to help to a large degree to determine what kind of growth in the value of your property you are going to get over the next couple of years.

But, having said that, and especially in the market today where interest rates are what they are, with cost of living, electricity and fuel, people are looking around for value. And so, on the opposite side of that, some people are saying to themselves we’d rather look in a lesser area to get the same size house and pay a bit less than pay more in a slightly more expensive area. So it often comes down to your affordability.

But I do think that you need to look at the location because you don’t want to be in a situation where you’ve bought a house in an area that perhaps is deteriorating, that is not appreciating in value and find that when you want to sell you don’t get the return.

SIKI MGABADELI:  Absolutely. And talking about affordability, is it hard to get a bond these days?

HERSCHEL JAWITZ:  I don’t think it’s specifically difficult to get a bond. The banks are obviously quite conservative in their lending policies, and rightly so, because if interest rates continue to climb, what they want to avoid, what the client wants to avoid, is ever having to have their home repossessed. It’s not an ideal solution.

So I think it’s a matter of doing your numbers and in fact trying to get some sort of pre-qualification up front, so that when you find the right property you know what you can afford.

SIKI MGABADELI:  And what sort of costs – you’ve alluded to them already – should one consider before going the buying route?

HERSCHEL JAWITZ:  You probably need to factor in about 8 to 10% of the value of the property. So, assuming that you are going to buy a property, assuming that you are going to take a bond, there are costs associated with the transfer of the property and legal fees, and there are costs associated with registering a bond and legal fees thereto as well. So you probably need to take into account roughly between 8 and 10% of the value of the property in terms of your transfer cost, remembering that for up to R750 000 there are no transfer costs. There will be legal fees, there will be bond registration costs, but there aren’t any transfer costs.

SIKI MGABADELI:  A few years ago there was a big boom in the buy-to-let market. A lot of people were going in, saying: “I’m going to buy and make a lot of money from renting out my property.” What the current situation?

HERSCHEL JAWITZ:  The boom in the buy-to-let market was to buy, rent out a property. But when property prices were flying eight to ten years ago at 20 and 30% per year, it was more around the increase in values. So people were buying an apartment and, in fact, and virtually as they took possession or transfer of it, they were on-selling it at a massive premium. That market has come and gone, that huge property price growth, and especially in Johannesburg is no more. There is still very strong rental demand in South Africa.

There is generally a shortage of housing and especially in your urban areas. There are affordability issues, there is a large inflow of people into your major metros and especially, for example, Johannesburg, which is the financial and economic hub of the country. So generally you will find that the demand for rental properties continues to exceed the number of properties available to rent, and that’s good for investors who have bought to let out.

SIKI MGABADELI:  Is that good, then, for those who are wanting to rent? Are they able to negotiate better?

HERSCHEL JAWITZ:  It depends on the market. Everyone is always able to negotiate. But my general advice for investors who are renting out is that a good tenant is worth their weight in gold. So I would rather have a good tenant that looks after your investment and that pays their rent regularly and on time, and you sacrifice a little bit of rent. You don’t quite get the escalations you want and then have that tenant move out, and run the risk of getting a bad tenant who promises to pay you more and ends up paying you nothing.

SIKI MGABADELI:  Is there a formula [chuckling] or a profile of a good tenant?

HERSCHEL JAWITZ:  Listen, it’s difficult. I know we had a chat before the show about your experience, so the first check and balance is doing all of the right checks on the tenant. So credit checks, are there judgments, specifically previous landlord judgments, are they a late payer, previous landlord references, security of employment.

But we’ve found over the years that even the best checks can’t guarantee 100%. People’s circumstances may change, they may lose their job, there may be a divorce. And unfortunately you do get tenants who understand how the system works, and understand how long and difficult and expensive it is to evict. Unfortunately, tenants go in promising, don’t pay, and they know how to work the system. But for 99% of leases if the agency or you, if you are doing it directly, have done the right homework, you are good to go.

SIKI MGABADELI:  So would you suggest or would you advise those who want to be landlords to actually use a property management company as opposed to trying to do it yourself?

HERSCHEL JAWITZ:  Listen. It’s a loaded question, because that’s what we do as a business. We find that the people that want to use us for property management simply don’t have the time to do it themselves and don’t want the hassle.

Ultimately, if you are retired or you have the time to focus on maintenance and collecting and doing all of those things, it may well pay you to do it on your own. But for those people who don’t have the time, who don’t want to get involved in dealing with plumbers and electricians and maintenance-related issues and collection, a good property-service management company will justify the cost of management.

SIKI MGABADELI:  And what sort of services do you provide?

HERSCHEL JAWITZ:  The services generally across all property management companies more or less would obviously be to invoice the tenant for the rent, for the related utilities – electricity and water – and ensure that the rent is collected. So to manage the collection process and ensure that, for example, the utilities are paid. If it’s in a town house complex, that the levies are paid to the body corporate. And then, most importantly, which is really the biggest hassle factor for most homeowners, when the geyser bursts or the pipes break or something happens, to go and get quotes, to call in the service provider, to have it repaired, to have it signed off and to pay the service provider on behalf of the owner. That’s really where the hassle factor is. And the value lies in making sure that the unit is well maintained.

SIKI MGABADELI:  And taking away the headaches. Do we also here in South Africa have the option of renting to buy? You get a place and you can’t really afford it quite yet, and now you want to rent with the option to buy at a later stage.

HERSCHEL JAWITZ:  I think it can be structured into the deal, and we do have tenants who say: “I’d love to buy this property. I first want to find out what it’s like to live in the area, for example, with a view to buy.” So there is always an option at some point to say, “I’m loving this place, I’m loving the area,” and approach the owner through the agent or directly, I guess, and say, “listen, I’d like to buy this property”.

Many owners are reluctant to sort of just give an open-ended option to buy because it might tie them into that specific tenant who may never decide to buy. But there is nothing stopping any tenant approaching an owner through the agent who rented the property to say: “We’d now like to buy.”

SIKI MGABADELI:  We’ll leave it there. Thanks for your time today, Herschel Jawitz.

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Very insightful interview from Herschel Jawitz as usual.

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