OK, so at 10% of the rental contract, this is hardly a cheap solution. But given horror stories of how hard it is to remove a tenant from an investment property, there is no doubt this new innovation from Rentshield will have plenty takers. As we heard during our interview on CNBC Africa’s Power Lunch today, it is now possible for landlords to be guaranteed they’ll not only get paid on the first of every month, but can avoid non-paying squatters and have sufficient deposit to fix breakages when the tenant leaves. The busienss model is based on the premise that three quarters of tenants are solid citizens. And, as you’ll read/see in the interview, no large Lebanese fellows with baseball bats need be involved. – AH
To watch this CNBC Power Lunch video click here
GUGULETHU MFUPHI: Rentshield, a new “zero deposit” solution, launched by Torus Capital takes care of all the legwork that comes with property rentals. It also protects landlords far more than a traditional deposit would. Martin Goodman, Director of Rentshield joins us now. Martin, just give us a little bit more depth about your company – Rentshield. What is it and how does it work?
MARTIN GOODMAN: In a nutshell, Rentshield is a product that alleviates the need for a tenant to put a deposit down to secure a lease, while keeping the landlord far more protected than he ordinarily would be should there have been a traditional deposit in place.
GUGULETHU MFUPHI: How does that work? Usually, with a deposit they have two or three months.
MARTIN GOODMAN: Well, we believe the fundamental problem with property rentals currently in South Africa, is that we’re still doing business the way we did 30/40 years ago, yet so much has changed. Rules have changed. Regulations have changed. Consumer Protection has been introduced. The policing of those deposits have been introduced. Rentshield is the first of its kind, a solution that alleviates and fits in with all those regulations and rules – consumer protection issues.
ALEC HOGG: Speak English. Talk straight to us here. I’ve just signed a deposit for new offices, this morning, and I had to give my new landlord three months’ rental. If I were doing the same with a flat, would I not have to do that if I were working through you?
MARTIN GOODMAN: You wouldn’t have to put a deposit down.
ALEC HOGG: What does my landlord then get as security?
MARTIN GOODMAN: There is an insurance element and an insurance component that the landlord effectively buys from Rentshield, which covers them from any wrongdoing or any erring that the tenant may do.
ALEC HOGG: Does it include my deposit, etcetera?
MARTIN GOODMAN: There’s no deposit. It’s a completely new concept. There is no deposit. I’ll give you some basic benefits: up to three months’ non-payment, up to one months’ malicious damage, up to one month’s unpaid utilities, if we need to evict we’ll pay the first R50 000.00. In terms of the Consumer Protection Act, if the tenant decides to give his 21 days’ notice we’ll cover the old ‘fair penalty’ clauses, but the deposit is no longer involved.
ALEC HOGG: The deposit is a very small part of what you’ve just said, because I know many people who have been through this situation where they’ve put savings into properties and found that in fact, the savings has become a noose around their neck because they can never evict the person who goes in. They can’t get rent out of them because of the legal structure in South Africa. Do you have some rather large Lebanese friends?
MARTIN GOODMAN: No, the Consumer Protection Act is a beautiful thing because it gives you a Rule of Law to follow and it balances what was always imbalanced – the game. The landlords and tenants are now almost on a par, so whereas in the past the landlord would dip into the deposit as almost like his piggy bank, those rules have changed. In order to eliminate the deposits, the tenant doesn’t believe that his landlord is going to steal from him; therefore, he’s less inclined to err. As a small example: not pay his last month’s rent because he knows he has a deposit that he may or may not get back and the landlord has no piggy bank to err on because it’s simply not there.
GUGULETHU MFUPHI: Why take on the risk? What’s in it for Rentshield?
MARTIN GOODMAN: Well, traditionally renters are good payers. You just don’t know which portion of the market the good payers are, so 70-odd percent of South African tenants pay well. They might pay slowly. They might not pay on time or all the time. Very small portions of those might need to be evicted but essentially, they pay well. However, for a property owner who has investments of maybe one or two properties, he cannot afford not to get his rent on time or even late. Therefore, as an example, Rentshield will pay your rent if your tenant doesn’t pay your rent on the first of the month. We will pay the landlord. No longer does the landlord wait for the rent, and we will collect from the tenant. There’s no interest that we collect from the tenant, there are no extra fees over and above the rent that is due, but this is a real solution that has been needed in the marketplace that – as I said and keep on saying – now brings balance back into the market.
ALEC HOGG: A solution without baseball bats.
MARTIN GOODMAN: Correct.
ALEC HOGG: You could have had this in the past. What does it cost?
MARTIN GOODMAN: Well, Rentshield costs ten percent of the lease, so for lease of R5000.00, the lease will be R5500, 00. We’ve done various tests in the marketplace. Tenants are happy to pay that extra R500, 00 or ten percent as long as they don’t need to put a deposit down.
ALEC HOGG: What is their security? How big are you? Where is your background?
MARTIN GOODMAN: In terms of…?
ALEC HOGG: Well, I come and sign up with you and in six months’ time, you’ve gone.
MARTIN GOODMAN: Well, we’re an insurance company that’s backed by Guard Risk Alexander Forbes. We’re underwritten. We’ve gone through, jumped through all the hoops and we’re completely above-board. We’re an insurance company, an insurance brokerage.
ALEC HOGG: Anybody can come and just pay my ten percent. I’ll give you a contract from a tenant, which says R5000, 00 per month for the next year – R60 000, 00. I will give you R6 000, 00 and you will make sure that I will get my money on the first of the month for the rest of the year.
MARTIN GOODMAN: As long as you make a claim that is exactly the way, it will be.
GUGULETHU MFUPHI: You mentioned that you’re underwritten by Guard Risk. On Monday or Tuesday…earlier this week, Alec, we had Guard Risk here. They’ve obviously recently been acquired by MMI Holdings, formerly with Alexander Forbes.
ALEC HOGG: Well, that’s where the mistake came in. The poor man was sitting there and I said to him ‘did you decide, just because you were coming on television, to sell your company to get maximum exposure?’ and he looked at me as though I was from Mars, which is hardly surprising as I got the two of you confused.
GUGULETHU MFUPHI: Looking at the rental landscape in South Africa, no doubt a product like this is needed hence it being introduced. On an international scale, has something like this been done before?
MARTIN GOODMAN: No, this is essentially the first of its kind. We’re going to entrench ourselves in the South African market first and see where that takes us. There’s huge capacity. We believe there’s at least five years; worth of growth here before we look elsewhere, so we’re firmly within South African borders.
ALEC HOGG: Have you, though, modelled it in something from abroad?
MARTIN GOODMAN: No.
ALEC HOGG: You just thought it up here.
MARTIN GOODMAN: Well, we come from a base of landlords with the same troubles that other landlords would have. We’ve received our rent late. We didn’t get our rent and there was nothing in the marketplace that took care of us. The deposit didn’t take care of us so we produced it for ourselves, built this product for ourselves, and knew that if we could build a product that serviced our needs, our issues, and solved our problems – we could then after extensive testing, take it to the marketplace and that’s exactly what we’ve done.
ALEC HOGG: I think the point Gugu was making was that this has a huge international application, particularly in emerging markets.
MARTIN GOODMAN: It certainly has and we have our eye on it. Let’s say…let’s focus at least the next five years in the local borders of South Africa.
ALEC HOGG: What has the take-up been so far?
MARTIN GOODMAN: It’s been very exciting. Initially it was very slow – changing people’s mindsets. You’re going to large landowners. You’re going to large estate agencies saying ‘the way you’re working is broken. There’s a new system. Consider it’ and obviously with a change of mindset they become barriers. They’re understanding now that it’s a well-placed product. They’re getting confidence that the product works, and with the increased confidence, so the product uptake is increasing.
ALEC HOGG: Are there any areas that you would redline?
MARTIN GOODMAN: As a landlord, make sure your estate agent is doing the basics properly, because those basics are just so powerful and alleviates almost all the risks that you would expose yourself to if they’re not doing the basics. Just two simple examples: make sure they do their vetting.
ALEC HOGG: What I meant by ‘redline’ is if I owned a flat in Hillbrow, would you take me on?
MARTIN GOODMAN: I would take you on.
ALEC HOGG: As long as I gave you a contract.
MARTIN GOODMAN: If you had a contract in place, a stable job, and if your credit-checking worked out.
ALEC HOGG: As the landlord, you would then presumable check the person who signed the contract on the other side.
MARTIN GOODMAN: Exactly
