Being a landlord involves lots of responsibilities. To succeed in property investment with high rental yield, a landlord must learn the obligations and details of the renting process.
Part 1 of the article had explained about the Tenancy Agreement, the additional clause and fixed-term tenancy. The article also shared tips on how to hire the right property agent.
Continuing with the tenant and landlord topic, the real estate management firm PropropManagement Pte Ltd’s Wong Zhi Cheng and Chen Peng Tian will further share their experiences in rental property investment.
Letter of Intent (LoI) and Tenancy Agreement
After the potential tenant has viewed the property and expressed his interest to rent, the next step is to sign the Letter of Intent (LoI) and pay a booking deposit.
The LoI, in short, is a letter proposing the potential tenant’s intention to lease the property. In the letter, it will indicate that the tenant and landlord will negotiate and sign the Tenancy Agreement within an agreed time (usually seven days).
After signing the LoI, the landlord is not allowed to rent the said property to any other party. “However, if the landlord chooses to do so, he will need to refund the booking deposit fully,” said Wong.
If the tenant decides not to sign the tenancy agreement, then the booking deposit will be forfeited.
“For example, I’ve encountered a troublesome tenant who refuses to sign the Tenancy Agreement at the last minute,” said Wong, adding that he practised his rights to forfeit the individual’s deposit.
“The tenant was unhappy and claimed that he would be filing a suit against me if I do not refund the money.
“My agent suggested that I pay him back to end the dispute, but I chose to act based on the signed document.
According to Wong, he was entangled in the situation for nearly half a month, with the tenant eventually changing his mind to sign the tenancy agreement. However, Wong was not willing to accept the problematic tenant as he believed that that particular person would cause more trouble in the future.
Looking for a good tenant is not easy. Wong advises landlords to always insist on meeting with the tenant before signing the tenancy agreement.
“I will suggest to landlords not to rent their property to a tenant that avoids eye contact and with signs of guilt and anxiety upon the meeting,” said Wong.
He added that the landlord could also ask for more details such as their occupation, workplace, and even a referral from the former landlord.
“If the tenant hesitates to provide such information, then you might need to reconsider whether to rent your unit to him as this could be a sign of trouble,” explained Wong.
Chen also advised owners to follow their instincts. “If you have a bad feeling about renting out to someone, then don’t,” he said.
According to Chen, he once rented out his unit to a foreign lady who was very cooperative at the beginning as she provided all the information he needed. However, Chen felt something fishy about her.
“Only after she moved in did I realise that she turned the unit into a party house and invited drinking guests.
“Not only that, but she also banged into the neighbour’s car,” said Chen.
If the tenant is rushing to move into the property immediately after viewing it, this could be a sign of a bad tenant as well.
This is a hint that the individual is disorganised without proper financial planning. Even worse, he might have just been evicted by the former landlord and is, therefore, rushing to find a new place.
An ideal tenant should be able to negotiate the Tenancy Agreement a month earlier and pay the deposit on time. This shows that he is financially stable with proper planning.
“However, if the potential tenant requests to pay the security deposit in instalments, it means that his financial situation is not stable,” said Wong.
How to choose an investment property?
Residential and commercial properties are the most common type of investment properties for rental yield in Malaysia. However, as a new entrant to the property market, it is recommended to start from a residential investment.
According to Wong and Chen, a business hub generally needs an extended period to mature into a happening area.
Moreover, the leasing of commercial properties will involve professional lawyers. Together with the restriction and limitation associated with commercial properties, it is a complicated process for a new real estate investment. Therefore, it results in a higher risk compared to a residential property.According to Wong and Chen, a business hub generally needs an extended period to mature into a happening area.
For the residential segment, high-rise properties are performing better compared to landed properties. This is because strata properties provide facilities and security systems that offer conveniences to the tenant, hence its ability to fetch a higher rental.
However, investors must pay attention to the land title when investing in high-rise properties.
“For example, the small office home office (SOHO) and serviced apartment were built on the commercial land.
“Since the land is purposed for conducting business, hence the residential property built under the commercial land title will be subjected to a higher commercial rate on utilities and quit rent.
“This will not only burden the tenant but also negatively impact on the rental market,” said Chen.
He also suggested that investors focus on three bedroom condos rather than the studio apartment.
“Given the similar size, a three bedroom unit is easier to be rented out compared to the studio,” said Chen.
How to evict a bad tenant?
Chen opined that the Tenancy Agreement in Malaysia tends to protect the tenant’s interests. “For example, the landlord could only file the Eviction Order to remove the tenant if he has failed to pay the rent after the notice date expires.”
According to Chen, it will take up to six months for the court to issue the order. “Even if you have successfully evicted the bad tenant, it has already cost you months of loss rental,” said Chan.
Landlords who want to recover the rents will also have to incur additional cost for the lawyer fees. At the same time, the premises could not be rented out to others as it will serve as evidence for the lawsuit. Therefore, it is not worthy to initiate a rent recovery process unless the sum exceeds RM10,000,” said Chen.
The owner has no rights to change the locks or cancel the access card to their property. It is illegal in Malaysia to lock the house without going through the proper eviction process.
Chen shared an informal but lawful way to solve this issue: “If the tenant fails to pay for the utility charges but is still staying in the property, the landlord could write an official letter to the supply authorities to cut off the water and electricity supply.
“This approach may prompt the tenant to settle the rent and the utility bills,” said Chen, adding that both parties can then enter into a negotiation with the goal to solve the late rents.
In a case where the tenant cannot be contacted, the landlord may prepare a “late rent notice” which includes the tenant’s details such as name and IC number, together with the late rent due.
The notice can then be posted on the front door of the rented property to alert the tenant with a specific response deadline.
The notice typically spells out an ultimatum — if the rent is not received within a specific period, then the landlord has the right to evict him.
If the tenant fails to respond after the deadline, the landlord could lodge a police report regarding the lost of contact with the tenant and express his worries regarding an accident in the house or an abuse towards the property.
“The owner has the right to unlock the unit with the presence of the police officer and an independent witness, if the tenant still could not be reached after the police report,” said Chen.
Tenant is the real asset
“A property should be viewed as debt as long as you are still servicing the mortgage as it belongs to the bank, not you.
“In fact, the tenant is your real asset as they are the one that helps you to pay the home loan,” said Wong, adding that investing in a quality tenant is the key to a successful property investment.
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