 Good evening and welcome to episode 372 of the Private Property Podcast. I'm your host, Uzaman Dunwoa Pomalo. It is the Thursday edition of the Private Property Podcast and for join us for the first time, where have you been? Welcome to the family. You're tuned into the only daily property show in South Africa catering to your property needs. And it doesn't matter where you are on your property journey. You're certainly here to make sure that you have a pleasant ride along the way. And all our regular viewers on Facebook and Instagram, as well as on YouTube, welcome to it. You, of course, you and I have an appointment every single weekday at 7pm, where I'm always in conversation with a property expert who helps us make better property decisions. And talking about better property decisions, you know that we have a whole host of other shows across private properties, social media pages that you can look forward to every single weekday at 8pm. And it is a Thursday, but Linoaga will be bringing you the farming podcast later on this evening. And she's on your screens every Tuesdays and Thursdays. And Wednesday's Istiklalsum takes you through the first time home buyer show and Mondays and Fridays. Chad takes you through the home buyer show where he takes you through exquisite properties that you can find on www.privateproperty.com.za. And as we wrap up the week tomorrow, of course, you can look forward to the real estate industry summit that is a great, great virtual event that you can tune into. That is happening from now. I'll talk in the morning until 1pm, and you'll have a whole host of different guests that you'll be able to hear all about. In fact, I'm actually speaking to one of the guests that will be participating in tomorrow's session. And it's somebody that we have right here on the show very regularly. And of course, something else that's happening on the show is that we are running that great competition. But we want to find out from you some of the great advice that you've picked up on the show, and perhaps even advice that you've already implemented on your property journey. And I wanted to share that on the pinned post on our Facebook page. I'm using a chance of walking away with $500 in cash. And all you have to do to claim that prize is to make sure that you are watching us live. Because when we call your name, or if we call your name, you have to drop us a message and claim your price. And if the winner doesn't do so, then the money rolls over in the money bag and it just keeps on piling up. It's that easy to walk away with cash prizes here on the Private Property Podcast with myself. So do make sure that you enter as many times as you can. And of course, that certainly ups the odds of you walking away with the prize. This evening we've got $500 in the money bag and I'm very excited to see who the potential lucky winner is. But we'll find out more about that later on on the show. But as I said, we are speaking this evening to somebody who you can also hear tomorrow on the Real Estate Industry Summit. And to find out more about it, of course, do go to realestateindustriessummit.co.com today and get all the details on that half-day event. We're talking about to let property investment. I think so many people who are getting into property investment used by to let us as a strategy, not many people go the flipping route, for instance. Many people are saying, I'm going to buy, I'm going to hold and I'm letting it out. And we're going to be looking at just that. We're looking at what the data is showing us when it comes to buy till it has a property investment. What are some areas that have really good occupancy rates, or areas that have high vacancy rates, low vacancy rates, and really understanding what you can do with good data? Because I think this is one of those things that I always hop on about that. Data for the sake of data is not good enough. You need to understand the various data points as a property investor or somebody who's interested in property and what you can do with that to help you make better property decisions and to help us make sense of all of this. I am joined by Michelle Dickens, who's the co-founder and CEO at TPN Credit Bureau. Michelle, good evening, and thank you so much for joining us on the show. Awesome. Always a great pleasure to be here. It's always so great having you, Michelle. I think every time I have a conversation with you and even when I go to the TPN YouTube page and I watch the different videos you put up, and I even use TPN myself, I always just think this is such a great resource because this is the kind of resource that certainly is property investors, or even when you're a property manager, you're able to use along your property journey and really make sense of what is happening in the market. If anything could probably use that as one of the data sets that help inform what your next move is potentially going to be. I think before we look at the nitty-gritty, perhaps at a national level, when we look at buy-to-lay property investments, perhaps just go through what the numbers are telling us when it comes to buy-to-lay, what is it looking like right now because I think some landlords, especially the more DIY landlords, don't quite have a sense of what is happening. I mean, they know their landlords, they may know a few landlords that they are acquainted with, or sometimes they can do business with, but they don't necessarily have a picture of what is happening from a national perspective. So what are the numbers in the data that TPN has say when it comes to buy-to-lay from a national perspective? So I think from a national perspective, the data is starting to show some signs of recovery and that's quite pleasing. There are a couple of key metrics that we look at. The first key metric would be how our tenants pay their rent because ultimately this is what we want. We want a tenant in our property and we want to know that we can collect rent. So the first key metric is tenants in good standing and this signifies tenants that are paid up by the end of the month. So yes, some of them are paid late, but ultimately by the end of the month there's no reason our account is fully settled. And prior to lockdown, we were sitting with 81% of tenants in good standing and that had been deteriorating from 2013 where we're sitting at 86%. So we're not as good as what we were. But you know, the economy has been weak since 2013 and this has had an effect on tenants in good standing. We were sitting at 81%. We hit the lockdown and it dropped all the way to 73.5%. So that's not great. Seven out of 10 tenants are paid up, but we've improved and every quarter that we report on the data, it improves slightly and in quarter two, we had gotten ourselves back up to 80%. And I'm pleased to report that as we stand at the moment, we're over 81% summer. So we are back in the 81% and that's obviously pleasing for landlords. But where does the risk lie? So if we've got a tenant, we back to 18, 10 tenants paying. Where is the risk then? Well, the risk is in the vacancies because prior to lockdown, we had a seven and a half percent vacancies. Now, during the hard lockdown quarters and when things got really bad, it got all the way to 30% so it nearly doubled. It's slowly starting to come down again and in quarter three, we're in 10.66%. So still double figures, but absolutely the numbers are going in the right directions. So if landlords are now getting tenants paying and they have less vacancies, what is the risk? The risk continues to be escalation because we were in negative escalation territory. And what does that mean? Well, that means we're not able to get the same amount of rent that we were getting a year ago. You know, rental prices are less than what they were. And so for a landlord, when your property expenses are increasing, but your rent is decreasing, that makes cash flow a problem. It makes managing the payment of your expense is a problem. What would be pleasing for landlords or what would have supported landlords in this period is that interest rates were really low. So at a seven and a half percent or seven percent primary interest rate where we add at the moment, that adds a lot of support to landlords in terms of mortgage repayments. Of course, the concern is interest rates are going to start going up. When do they start going up and how do landlords protect themselves against against these, you know, increases? That's going to be that's going to be the fundamental choice that landlords are going to need to make in terms of protecting their assets. And that's such an important one that I think landlords always need to be mindful of because and especially the landlords who are or had started their investment journey during covid or during these low interest rate periods and had used that perhaps as one of the drivers for going into interest rates just in yesterday's conversation with Miguel. We're even saying that low interest rates are fantastic. But they cannot be the the primary and only driver that dictates whether or not you invest in property because it's a terrible matrix if you're going to use only that, you know, there's so many other factors you consider we know interest rates are going to go up as a standard. We know this, right? And if anything, it's just a matter of how how quickly they will increase. I mean, different economists have kind of weighed in on how they see the potential increase kind of going up and at which point will return to, for example, last year, January's rates. I think some were even saying that it may take given up to three years for us to go to the race that we enjoyed back then. And as much as that three year period can seem like a really great period. One of the things that I always keep saying to people is almost look at whether you'd still be able to afford the property that you want to buy given last year's January's rates. So before we enjoyed, you know, all these consecutive cuts, are you able to still comfortably enjoy everything? And if you are almost take that excess money, put it into the emergency fund. So keep building up the emergency fund for your respective portfolios because we know that that's also something that landlords typically tend to avoid quite a bit. And I see some of the love that we're already getting on our social media pages of Glacier in the same good evening fam. And of course, Glad won that thousand rounds that was in the money bag yesterday in our competition. And the team also tells me it's Glad's birthday this evening. So happy birthday to you, Glad. I hope that you've had an incredible, incredible day. I feel as though yesterday's win was almost an early birthday present for you. So I do hope that you're going to enjoy it. We wish you all the best for the year ahead as a private property podcast family and, of course, a private property family, because you've one of the people who comments a lot, watches the various shows. And I know that many people in the comments section also know you very well. So happy birthday, wishing you all the best for the year ahead. Now, Michelle, I think one of the things that you've mentioned that is, of course, and which is very, very important, right? Is you've painted a really great picture of what it looks like nationally. We know that during the early days of lockdown, you know, raids or rather the percentage ended up being quite alarming. We're now looking relatively decent, which is which I'm happy about because I mean, I speak to quite a number of tenants and kind of a number of landlords, rather, who also said they felt the pinch and some of their tenants had to, you know, change location because they could no longer afford to. They were able to make some kind of arrangements with some of the tenants. But we're now over a year into covid and we've had to sort of make long standing decisions because we also know that this is now our stage of squab. I'm interested to find out from you before we go on this break. Firstly, let's start with the areas that have enjoyed really good areas of good standing, right? So where we know that, you know, tenants are paying in those areas and are paying fairly well and and that's been relatively constant as an average. So it doesn't even have to be a pre covid during covid, but just as a general average, which areas, you know, generally enjoying tenants that pay and pay on time at whatever the price point of that. OK, so if it's over 50 percent of the number of tenants in South Africa reside in the Kharting province, so if we were to look at Kharting as an average, 76.7 percent of tenants are good standing, which is nowhere near where we where we are in an area like the Western Cape, where it's closer to 86 percent. So that's a whole 10 percent shift. So Kharting as an average doesn't look great. But if we look where the top performing areas are, we're looking at an area like Madrid, where we've got 85.4 percent of the tenants in good standing or Stanton with 85 percent of the tenants in good standing. That sounds great, but what are your risks? Well, in Madrid, your vacancy rates are sitting at 16 percent. And remember, I said that the national average had come down to 10.6 percent. So you're a whole 6 percent higher than the national average. And areas like Soweto only have a 44 percent good standing ratio. So much harder to collect rent, but the vacancy sitting at 10.4 percent. What does Soweto have? Soweto has the yield. So Soweto is an area and Kharting is the best performing from a yield perspective at 13 percent. So if you can collect your rent, you're going to get a good yield. And for me, it's not, you know, you don't go into a party and go, if I can collect my rent, no, you have the opportunity to select quality tenants. So so long as you're selecting a quality tenants, you're able then to collect the rent. So that's from a from a Kharting basis. If we were to look at the Western Cape, which, as I said, I mean, from a from an average, they're the best performing province. But if we were to pop into an area like the Southern suburbs in the Western Cape, then you have 90.4 percent of the tenants mean good standing. And what you don't have, though, is you don't have great, great yield. So remember, Soweto had a yield of 13 percent. And Kharting as a whole has a yield of nearly 11 percent. Southern suburbs in the Western Cape have a yield of 6.8 percent. And this is because the market value of the properties are so high. I mean, I'm just looking at all the different areas in the Western Cape. Atlantic Seaboard, 89 percent that's standing Cape Town, 82 percent. More than the suburbs, 84 percent. Wildlands, 87 percent. So you're able to collect your rent there, but the yields are much 8.6 percent for the Western Cape as a whole. And then, obviously, Quasulina Toll, I know you there at the moment. So down in Quasulina Toll, the good standing rate also really, really difficult. 77 percent. But an area like Peter Merrittsburg is sitting at 87 percent. So it all depends. I mean, it's a queenie sitting at a 73 percent good standing, but the vacancy rates are 14 percent. It's a queenie, really, really a challenging area from both the good standing as well as a vacancy as a vacancy rate. And I guess the story is about each area has its own nuances and it has its own pros and cons. And it's about looking at each area individually and identifying what are the pros, what are the cons and how do I mitigate some of those risks? Because some of the risks can be mitigated. You just have to understand what they are in order to plan properly. And we'll talk a little bit more about those risks. I wanted to go for a quick break and see who the potential lucky winner is for that 500 round side that is in the money bag this evening. And that is, of course, the competition that we're running on our Facebook page. All you have to do to enter is to go to the pin post to make sure you comment as many times as you would like. That, of course, up to your odds of winning. Yesterday's lecture in there, the birthday woman won that thousand rounds that was in the money bag. Let's see who this evening's lucky winner is. And that lucky winner this evening is Sanit Pala. Sanit Pala, I hope that you're watching. Do make sure that you drop us a text down here below. And of course, you're going to walk away with the 500 rounds that is in the money bag. Sanit Pala, that 500 rounds is up for grabs. And all you have to do is to drop us a message down here below. This evening, I'm in conversation with Michelle Dickens, who is the co-founder and CEO at TP in Credit Bureau, and we're looking at how to let property investments and understanding what the data is saying first thing, how to make sense of it, which areas are really good performers, which areas are not so great performers, understanding the risk and unpacking that risk. Because I think one of the big things as a property investor is you really have to get clear at understanding your risk, understanding the data, making sense of the data. And of course, that's going to help you make better and certainly more informed property decisions when it comes to your property portfolio. And we are taking more of your questions and comments. I want to find out from you at home, if you're a property investor and you're buying too late, is your strategy? What are some of the risks that you've identified? And I know we spoke risk, even with Miguel yesterday, and how have you gone about making sure that you mitigate them as best as possible? And Michelle, I want us to look at just some of the key risks that perhaps people at home or that the data is pointing to. Because I think if anything, TPN is able to to see some data very close up. So what are some of the risks that you've essentially been able to identify that investors who use a bike to let strategy in particular need to be aware of? There are a few risks and let's run through a couple of them. One of the first risks is obviously the increasing municipal charges. We've spoken about the fact that rental escalation is negative or at the very least flat. But not your profit is based on your revenue, less your expenses and expenses are increasing and they're increasing higher than inflation and not just for your rates and taxes and municipal charges, but also for your water, your sewage and your electricity charges, which charges that the tenant has to pay. And if the tenant's budget is increasing in terms of the spend on utilities, it gives very little room for increase in basic rental. So landlords will fill the pinch in terms of their municipal charges and it's difficult because you can't offset those. You can't reduce those. Those are what they are. Of course, in times of property valuations, property valuation cycles, landlords need to take notes of what the valuations, what the municipal valuation is and put in a valuation. What's the word? If you want to get it reviewed, a valuation review. So if you are in that period with your municipality, then you want to put in your valuation review because the value of your property determines what the value of your rates and taxes are going to be. And then, of course, we've got areas where there could be a lot of new birth level to happening in a particular area. And so this we're going to see on TPN's Investor Report when you have a look at what are the number of transactions that are transacting at the moment. Typically, what's happening now is we have a lot of institutional landlords coming in, either private or public funds that are purchasing big portfolios and bringing on 500,000 leases in a property at a time, in an area at a time. And so as a Bartlett microland wall, when you're competing against a private or public fund that's bringing on 500 to 1,000 properties at a time in an area, what they're going to do is they're going to drop rental prices. They're going to have incentives to encourage tenants into their portfolio, things like free Wi-Fi, Zoom rooms, free electricity or water for zero deposits. They're going to have these types of incentives. And so as a microland wall, you're going to be competing against that type of property, that type of investor. And of course, the quality and maintenance of your property. So what does the quality of your property look like against the other properties within, not just the complex, but the area itself? So as an investor, this is the type of data you want to be looking at. Not only that, but when you're exiting your portfolio, because you always got to have an exit strategy as an investor. So if I'm buying a Bartlett property and I intend exiting it, what does that strategy look like? So if I'm buying in an area that has too much new investments, I'm going to compete in terms of the tenant take-on and the incentives. But if I buy in an area that has too little transactions, then when it comes to selling my property, I'm not going to have a lot of demand. So it's about understanding that type of data to assess your future exit strategy. And we are taking your questions and comments at home. And I want to pick up, Michelle, on the comment around the municipal charges, because I think this is one of those that, and I was even commenting to a tweet earlier this afternoon, somebody tweeted about growth point and what they said around this. I think that the chairman of growth point had said that the excessive increases in the municipal rates and taxes in recent years, despite a deterioration in municipal service delivery, has reached the stage where it poses a threat to the future profitability of our South African business. I mean, my comment was that we're also just seeing this in our own residential units, whereas a DIY landlord, when you look at the escalation in municipal rates and taxes versus what you're able to escalate in rental, for instance, you find that it's chipping into your bottom line, and increasingly, your profits are just getting less and less and less to the point where even other entrants into the market may perhaps price themselves slightly lower. They still just want to get a tenant and get things going and probably thinking, look, I just want somebody who will be able to pay the bond. It doesn't matter if I'm topping up these other expenses, whereas you've been in this for quite a number of years. You know that you're not running a business where you're wanting to have to supplement other expenses that go with that particular property. And so it becomes just such an important thing to observe, especially in the area that you're in. And of course, as Michelle has even recommended, in the event where you feel as though your property is overvalued, because we've also seen that when the evaluation role was redone, I think it was what, two years ago, many people had contention, wanted to follow up and say, no, I think that you have overvalued my property. And I know I'm not going to be able to pay the new rate. I know one of the issues that I had was just in our building, one of the buildings where I own a few of us, our properties were mislabeled commercial. And all this time they were residential, then they got mislabeled commercial. And then the one month, we get a bill and it's a commercial bill. And a lot of us were shocked. Luckily, because it had happened to the building, it was able to be resolved fairly quickly, as opposed to, of course, if you have a freestanding, freehold house and you have to follow up on your own. And I want to actually speak into this as a question coming through from Facebook and it is from Teppo Mokhubudi. And it's Teppo Mokhubudi's following anniversary this evening. I see that there's a note there. So happy anniversary to you. You have quite a number of milestones these days. Absolutely enjoying that. And Teppo is saying good evening, private property family. How do you determine a rental price that will be profitable for you? Considering that there's no guarantee tenants will pay rent month to month. And you're still liable for paying the bond and all levies. So, Michelle, how do we get that sweet spot where you're still making a profit and all the expenses are paying for themselves? Well, it's not retrospective that much, I can tell you. So if you already have the property and you haven't done the numbers, the numbers are what the numbers are going to be. You cannot take a property and retrospectively, if you've paid too much for it and your bond repayments and your levies and your rates and taxes and everything else, the value of your expenses exceed the value of what a tenant is going to pay. We're in a very difficult situation now because tenants aren't going to overpay for property. We know this because right now, we've got a market that's oversupplied. And an oversupply industry makes it a tenant's market and tenants can negotiate the best rental. And where you have vacancies of 10%, well, the tenant's just going to move to a property where the value is better. So what does TPN do? Let me tell you what TPN does. TPN and I invest reports. We look at a per area basis. And per area, we say, what is the average rental price for a less than two-bedroom property, a two-bedroom property and a more than two-bedroom property? So what is the average rental price? What is the high and what is the low? And that gives you the range that the properties of a two-bedroom, less than two-bedroom and more than two-bedroom are transacting in. We take it one step further and we say, what is the rent per square meter in an area? So the rent per square meter is going to be more in the Western Cape than it is in Harte. So now we can say, okay, well, how big is my property? And what is the rent per square meter that I can achieve for that size property? You know, property valuation report. So, for example, if you wanted to go in and look for your exact property on our property valuation report, we would say, this is your property. This is how much you bought it for. And this is what we think the market value is of your property right now. And then we say, if you have a 0 to 60 square meter property, this is the average rental price in your area for 0 to 60 square meter properties. This is the average rental price for 60 to 80 square meters and more than 80 because guess what? The smaller the size, the higher the rent per square meter is. The bigger the size, the less per rent per square meter is. So that then gives you this wonderful tool that says, for my property, which is an 80 square meter property, I can get a 70-year rent per square meter price. And I made that up. I said, well, I don't know where your property is. And that will then allow you to say, I can work out what the average rent is in my area for this size property at a rent per square meter price. And more of your questions and comments on our social media platforms this evening on the private property podcast with myself is Amadouma Kumalo. As I'm in conversation with Michelle Dickens from TPN Credit Bureau looking at buy-to-let property investments. On our YouTube page, we've got Stacey, Tracy Stanley, rather saying greetings from Cape Town. And we've also got, like me, saying, I finally found a community on social media that I can relate to. I'm happy here. I'm learning a lot, especially as a junior property investor. We absolutely, absolutely love that. And of course, hope that you're going to grow from being a baby property investor to being a more seasoned property investor, not just by watching the show, but of course, by also using the various tools that we share, the various insights that we share on the show. Michelle, before we wrap up the show, as we wrap up the show, any final tips? Firstly, for the buy-to-let investors who are already in it, right? They're already in it. They already have, whether it's one or more properties and are just trying to make sense of whether they should stay being property investors and grow their portfolio, whether it's time to actually just cut their losses. And secondly, any insight for those who are looking to get in? So perhaps they are just slightly more optimistic and want to add a few properties to their portfolios. What kind of insights can you give for these two sets of people as they navigate whether to stay and grow or whether to get in? So I guess it's about revaluing your portfolio. Your portfolio, you don't buy your first property and your second property or third property. You bought your portfolio and you just keep it the way it is. It's about reassessing your portfolio. Is my portfolio performing optimally? Am I getting the right rental price? Or do I have room to negotiate? Am I, do my expenses look manageable? Is this property becoming, is this area of this property becoming an expensive aerial property? And that could be because there's not only are the municipal charges increasing but the levy charges are also increasing. And I'm involved in a complex that is no longer profitable. The complex itself has deteriorated to a point where it's not an ideal investment. So it's about reassessing each property and then your portfolio as a whole and rebalancing it. If it's not working, don't be scared to sell off one and buy into another. You may be an investor with luxury properties. These are difficult properties at the best of times. So you may want to offload the luxury and buy in more affordable properties. So it's about rebalancing what you've got. If you're a newbie investor or you're getting involved as an investor, it's about understanding the data first. Once you understand the data and it's not difficult data, it's simply understanding what does my risk look like and what am I prepared to negotiate on. Interest rates are going to go up. They're not going to stay at this level forever and I doubt that they're going to go down. So if I'm looking to buy now and I'm looking to leverage finance, if I was getting into property now, I would want to know that if interest rates go up by 3% that I have the means to be able to cover my bond on a monthly basis because I want to plan for my worst case scenario. And I think that's actually such a great note to leave it on that. You want to be able to plan for the worst case scenario because in as much as you can be an optimist, the trip to being an optimist is that you've adequately planned for the worst case. And so you can actually enjoy the optimism and that's really an important aspect to being an optimist as much as possible. Michelle, we're going to leave it there this evening. Thank you so much for joining us on the show. It's always such a pleasure to have you with us. Such a pleasure. Thank you for having me. And that is Michelle Dickens as a co-founder and CEO at TPN Credit Bureau wrapping up the Thursday edition of the Private Property Podcast with myself Osamando Mwakumalo. The team has let me know that Sinead Parla is indeed was indeed watching, dropped us a text and gets to walk away with that fiber that drains in cash. So congratulations to you Sinead. It is certainly a pleasure to make to give you this money because one of the things that many of you at home have grown to know about me is that I absolutely love giving away money. I think it's such a great thing for us to be able to spread the love and certainly make sure that more and more of you can share in the winnings. Well, that's it for myself, Osamando Mwakumalo. On this Thursday evening, I'll be back on your screens tomorrow evening at 7 p.m. Remember to tune in to the Red Estate Industry Summage tomorrow at 9 a.m. until 1 p.m. Umbalinoa Google will be on your screens from 8 p.m. But until then, hope you're staying home and staying safe.