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Renting out your property to repay the mortgage is the easiest way to gain profit from your real estate investment.
However, being a landlord involves lots of responsibilities. Therefore, you must learn the obligations and details as a landlord to succeed in your rental property investment.
Real estate management firm PropropManagement Pte Ltd Wong Zhi Cheng and Chen Peng Tian has taken the liberty to share with StarProperty.my about the know-how of rental property, not only in identifying the obligations and responsibilities of both landlord and tenants, but also to prevent potential conflicts and disputes in the future.
Management and maintenance of the property
The tenancy agreement is a legally binding document between the tenant and landlord that states the obligations and rights of both parties in a said property.
It should specify what is and isn’t allowed in the unit, as well as your duties as a landlord and your expectations for the tenant.
In Malaysia, you could easily find a standard template for a residency tenancy agreement online. It consists of identical terms such the monthly rental, security deposit, duration of tenancy, the responsibility of the tenant and landlord, prohibition of activities and more.
Generally, the landlord will be responsible for the property maintenance fees and the repairs and maintenance of the amenities, while the tenant will pay for the water and electricity charges.
However, there are grey areas for liabilities such as the Indah Water sewerage service. In this case, an additional clause on the written agreement could spell out specifically and sufficiently the payment obligations to prevent conflicts.
Wong and Chen also suggested that the landlord could set a clause on the wear and tear of the home appliances. For example, the landlord will take full charge of any repairs occurring within 14 days after the tenant moved into the unit. However, the tenant will be obliged to pay for the cost after that.
“For example, if the tenant uses the air-cond for long hours on a daily basis, the regular service cost for the machine should be counted towards the tenant,” said Wong, adding that it should be listed down in the Tenancy Agreement.
Moreover, he suggested that the landlord includes a clause on the loss of keys and access card during the lease.
“I will clearly state in the agreement that a fine of RM200 will be charged in the event of missing keys and access cards.
“It is not about punishing the tenant, but to ensure that they are careful and responsible to the premises,” said Wong.
Tenancy agreement with a renewal option
The tenancy agreement in Malaysia is generally signed on a 1+1 year basis to limit the termination of the tenancy.
The first 12 months of the lease is a fixed-term tenancy. Neither the landlord nor the tenant could terminate the tenancy early without breaching the contract. Also, to protect the interest of both parties, a cancellation clause should be added to the Tenancy Agreement to clarify the penalties of the premature termination.
However, the next 12 months is not enforceable and it is optional for the owner and renter to continue with the lease. It allows both parties to terminate the contract without a breach or penalty. It is common for the owner and tenant to negotiate for the renewal terms two months before the expiry of the fixed-term tenancy.
Although the 1+1 year tenancy is widely used in Malaysia, the tenant and landlord could further negotiate the duration based on their needs.
Hire a real estate agent
A professional real estate agent helps to streamline, simplify renting logistics and find you a quality tenant.
However, one of the common questions of a first-time landlord is whether they should hire multiple agents to rent out their property.
“In fact, for veteran investors like us, we will generally engage up to 30 agents for a single listing to maximise the exposure of the unit.
“For the landlord, the more agent you engage, the higher the chance for you to lease out the unit,” said Chen.
He also advised the owner to be wary of dishonest agents with unethical practices. “There are cases where the agent misleads inexperienced first-time landlords into signing the Exclusive Agreement.
“The contract restricts on the exclusive rights for the listing and distribution of the property.
“Even if the owner has finally find a tenant based on his own effort, a one month rent is required to be paid to the agent as commission,” said Chen.
Wong added that the real estate agent would charge a one month rent as a commision for finding a tenant under the usual circumstance.
“Due to the high competency, it is unlikely for the agent to increase the price, unless the owner offers to pay extra to request for priority service.
“However, if the agent is offering services far below the market price, it might be a sign that he does not have a strong network connection,” said Wong.
Understanding the market
Moreover, it is advisable that a property investor do proper research before deciding to buy a house.
“When it comes to investment, it is not necessary to follow the property hotspots, but more importantly to understand the market of the location.
“I would suggest starting your first investment in the location that you are familiar with, such as the place where you grew up,” said Chen.
Besides, he also suggested that the landlord can offer a discount to tenants who pre-pay their annual rent, as it will reduce the hassle of knocking on their doors to collect rental.
Chen added that he would usually maintain the same rental after the first 12 months of the fixed-term tenancy to retain a quality tenant.
“If there is a necessity for the rent hike, the rate of increase will also be below 10%, as the residential rental growth in the market is slow,” he said.
*Read Part 2 to learn more about the Letter of Intent (LoI), tenant screening and tenant eviction.