Thursday, December 30, 2010

The landlord’s Silent Risk: A complex in the red

So you own a sectional title unit which you rent out as a side investment. Your obvious risk, a delinquent tenant, no rental income leaves cash flow tight to pay the expenses; levies, mortgage or maintenance.

Unfortunately, landlords and in fact all sectional title property owners have another risk scenario which has become more prevalent in the last 18 months; non-payment of levies and municipal charges by property owners or their tenants leaving many complexes with little or no cash flow to pay the complexes’ expenses. Or worse, mismanagement or theft by the managing agent with the same result – no cash flow to pay complex expenses.

In my experience this scenario of complexes in the red occurs in both big and small complexes and may only become apparent to the property owner when the municipality cuts power to the whole complex. By this stage the arrears are enormous and usually requires a specially levy from all the owners to clear the debt.

Flags to watch as a sectional title property owner
* Who are the managing agents? A large respected managing agency should be less risky than one of the complexes’ owners doing the books internally. (Although not always the case).

* When last did you see a copy of the audited annual financial statements? If you are not able to attend the AGM ask for a copy as well as the minutes of the meeting.

* When was the last AGM? The financial statements and proposed budget are presented at the annual AGM.

* Do you know the trustees of your complex? Are playing an active role in accounting for the managing agent?

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