The easiest way to make money on your real estate investment is to rent out your home to pay off the mortgage.
But being a landlord means taking care of a lot of things. So, if you want to be a good landlord, you need to know what your responsibilities are and what the details are.
Wong Zhi Cheng and Chen Peng Tian of the property management company PropropManagement Pte Ltd shared with StarProperty.
my about the know-how of rental property, not only to find out what the landlord’s and the renter’s responsibilities are, but also to avoid future conflicts and disagreements.
Management and maintenance of the property
The tenancy agreement is a legal contract between the tenant and the landlord. It says what each party has to do and what rights they have in the property.
It should say what can and can’t be done in the unit, as well as what your responsibilities are as the landlord and what you expect from the tenant.
In Malaysia, it was easy to find an online template for a standard residency rental agreement. It has the same terms for things like the monthly rent, the security deposit, the length of the tenancy, the tenant’s and landlord’s responsibilities, activities that aren’t allowed, and more.
Most of the time, the landlord pays for property maintenance fees and repairs and upkeep of the amenities, while the tenant pays for water and electricity.
But there are some grey areas, like the Indah Water sewerage service, that are not clear. In this case, a written agreement could have an extra clause that spells out the payment obligations in enough detail to avoid disagreements.
Wong and Chen also said that the landlord could make a rule about how the appliances should be used. For example, the landlord will pay for all repairs that happen in the first 14 days after the renter moves in. But the renter will have to pay for the damage after that.
“For example, if the tenant uses the air conditioner for long hours every day, the regular service cost should be counted toward the tenant,” said Wong, adding that it should be written in the Tenancy Agreement.
He also suggested that the landlord put a clause in the lease about what would happen if the keys and access card were lost.
“I will make it clear in the agreement that if keys and access cards are lost, there will be a fine of RM200.
Wong said, “It’s not about punishing the tenant. It’s about making sure they are careful and responsible with the property.”
Rental agreement with an option to renew
Most tenancy agreements in Malaysia are signed for a period of one year plus one. This is done to make it harder to end the tenancy.
The first year of the lease is for a set amount of time. Neither the landlord nor the tenant could break the contract by ending the lease early. Also, to protect both parties’ interests, the Tenancy Agreement should include a clause that spells out the penalties for ending the lease early.
But the next 12 months are not enforceable, and both the owner and the renter can choose not to keep the lease. It lets both sides get out of the contract without breaking it or paying a fine. Two months before the end of a fixed-term tenancy, it is common for the owner and the renter to talk about the renewal terms.
Even though the 1+1 year tenancy is common in Malaysia, the tenant and landlord could work out a different length of time based on what they need.
Hire a real estate agent
A professional real estate agent can help you find a good tenant and make the renting process easier.
But a first-time landlord may wonder if they should hire more than one agent to help them rent out their property.
“In fact, if we’re experienced investors, we’ll hire up to 30 agents for a single listing to get the most attention for the unit.
Chen said, “If you’re a landlord, the more agents you hire, the more likely it is that you’ll be able to rent out the unit.”
He also told the owner to watch out for dishonest agents who do things that aren’t right. “There are times when the agent tricks first-time landlords who don’t know what they’re doing into signing the Exclusive Agreement.
“The contract says that the exclusive rights to list and sell the property are limited.
“Even if the owner finally finds a tenant on his own, he still has to pay the agent a commission of one month’s rent,” said Chen.
Wong also said that the real estate agent would usually get a commission of one month’s rent for finding a tenant.
“Because the agent is so good, it is unlikely that the price will go up, unless the owner is willing to pay more for priority service.
“However, if the agent is selling services for much less than the market price, it could mean that he doesn’t have a strong network connection,” said Wong.
Understanding the market
Also, a real estate investor should do a lot of research before deciding to buy a house.
“If you want to invest in real estate, you don’t have to follow the hotspots. What’s more important is to understand the market in the area.”
“I would suggest that you start your first investment in a place you know well, like where you grew up,” said Chen.
Also, he said that the landlord could give a discount to tenants who pay their annual rent in advance. This would save the landlord the trouble of having to knock on tenants’ doors to collect rent.
Chen also said that after the first year of a fixed-term lease, he would usually keep the same rent to keep a good tenant.
“If there is a need to raise the rent, the rate of increase will also be less than 10%, since the market for residential rentals isn’t growing very quickly,” he said.
*Read Part 2 to find out more about the Letter of Intent (LoI), screening tenants, and getting rid of tenants.
There are a lot of responsibilities that come with being a landlord. If a landlord wants to invest in property with a high rental yield, he or she needs to know the rules and details of the renting process.
In the first part of this article, the Tenancy Agreement, the additional clause, and fixed-term tenancy were all explained. The article also gave advice on how to find a good real estate agent.
Wong Zhi Cheng and Chen Peng Tian, who work for the real estate management company PropropManagement Pte Ltd, will continue to talk about their experiences as landlords and renters.
Tenancy Agreement and Letter of Intent (LoI)
After the potential renter has seen the property and said he wants to rent it, the next step is for him to sign the Letter of Intent (LoI) and pay a booking deposit.
In short, the LoI is a letter that says the potential renter wants to rent the property. In the letter, it will say that the tenant and landlord will talk about the Tenancy Agreement and sign it within a certain amount of time (usually seven days).
After the LoI is signed, the landlord can’t rent the same property to anyone else. “But if the landlord wants to do that, he will have to give back the whole booking deposit,” Wong said.
If the renter doesn’t sign the rental agreement, the booking deposit will be lost.
“For example, I’ve had a troublesome tenant who refused to sign the Tenancy Agreement at the last minute,” Wong said, adding that he used his right to keep the person’s deposit.
“The tenant was upset and said that he would sue me if I didn’t give him the money back.
“My agent suggested that I pay him back to end the dispute, but I decided to act based on the signed document.
Wong says that he was stuck in the situation for almost a month, and that the tenant eventually changed his mind and signed the tenancy agreement. Wong, on the other hand, didn’t want to take in the problem tenant because he thought that person would cause more trouble in the future.
It is not easy to find a good tenant. Wong says that landlords should always make the tenant meet with them before signing the lease.
“I will tell landlords that they shouldn’t rent to a tenant who doesn’t make eye contact and shows signs of guilt and anxiety when they meet,” Wong said.
He also said that the landlord could ask for more information, like what the person does for a living, where they work, or even a recommendation from their last landlord.
“If the tenant doesn’t want to give you this information, it could be a sign of trouble,” said Wong. “You might want to think twice about letting your unit to him.”
Chen also told owners to go with their gut feelings. “Don’t rent to someone if you don’t feel good about it,” he told her.
Chen says that he once rented his apartment to a foreign woman who was very helpful at first and gave him all the information he needed. But Chen thought there was something fishy about her.
“After she moved in, I found out that she had turned the apartment into a party house and had people over to drink.
“Not only did she do that, but she also hit the car of her neighbour,” said Chen.
If the tenant is in a hurry to move in as soon as they see the place, this could also be a sign of a bad tenant.
This is a sign that the person is disorganised and doesn’t have a good plan for their money. Worse, his old landlord may have just kicked him out, so he may be in a hurry to find a new place.
A good tenant should be able to talk about the lease a month ahead of time and pay the deposit on time. This shows that he has a good handle on his money and plans ahead.
“However, if the potential tenant wants to pay the security deposit in instalments, it means that his financial situation is not stable,” said Wong.
How to choose an investment property?
In Malaysia, residential and commercial properties are the most common types of rental investment properties. But if you are new to the property market, it is best to start with an investment in a home.
Wong and Chen say that it usually takes a business hub a long time to become a happening place.
Also, professional lawyers will be involved in the leasing of commercial properties. Along with the rules and restrictions that come with commercial properties, buying new real estate is a complicated process. Because of this, the risk is higher than with a residential property.
Compared to landed properties, high-rise properties are doing better in the residential market. This is because strata properties have facilities and security systems that make life easier for tenants, so they can charge more rent.
But people who want to invest in high-rise properties need to pay attention to the land title.
“For example, the commercial land was used to build small office home offices (SOHOs) and serviced apartments.
“Since the land is used for business, utilities and quit rent for homes built on it under a commercial land title will be charged at a higher commercial rate.
“Not only will this be hard on the renter, but it will also hurt the rental market,” said Chen.
He also said that investors should focus on condos with three bedrooms instead of studio apartments.
“A three-bedroom apartment is easier to rent out than a studio of the same size,” said Chen.
How to evict a bad tenant?
Chen thought that the Tenancy Agreement in Malaysia looked out for the interests of the tenant. “For example, the landlord could only file the Eviction Order to get rid of the tenant if he hadn’t paid the rent after the notice date had passed.”
Chen says that it could take the court up to six months to make the order. “Even if you were able to get rid of the bad tenant, you’ve already lost months of rent,” Chan said.
If a landlord wants to get back the rent, they will also have to pay the lawyer’s fees. At the same time, the place couldn’t be rented out because it will be used as proof in the lawsuit. So, you shouldn’t start a rent recovery process unless the amount is more than RM10,000,” said Chen.
The owner has no right to change the locks on their property or get rid of the access card. In Malaysia, it is against the law to lock the house without going through the right steps to evict the people who live there.
Chen suggested an informal but legal way to solve this problem: “If the tenant doesn’t pay the utility bills but still lives in the house, the landlord could write an official letter to the supply authorities asking them to turn off the water and electricity.
“This approach might get the tenant to pay the rent and utility bills,” said Chen. “Then the two of them can talk about how to work out the late rents.”
If the landlord can’t get in touch with the tenant, he or she may write up a “late rent notice” with the tenant’s name and IC number, as well as the amount of late rent.
The notice can then be put on the front door of the rental property to let the tenant know that they have a certain amount of time to respond.
Usually, the notice comes with an ultimatum: If the rent isn’t paid by a certain date, the landlord has the right to kick him out.
If the tenant doesn’t respond by the deadline, the landlord could file a police report about not being able to get in touch with the tenant and say that he’s worried that something bad might happen in the house or that the property is being abused.
Chen said, “If the tenant still couldn’t be reached after the police report, the owner has the right to open the door with the help of a police officer and a third party.”
Tenant is the real asset
“As long as you’re still paying the mortgage, a property should be seen as debt because it belongs to the bank, not you.
“In fact, the tenant is your real asset because they help you pay the mortgage,” said Wong. He also said that putting money into a good tenant is the key to a successful property investment.
Source from StarProperty