Knowing how to manage your rental property is crucial, but it is only half the equation for any property investor who relies heavily on rental income.
It is a common misbelief that rental income is a form of passive investment. What differentiates a professional property investor from a rookie is the amount of work put into managing their relations with their tenants. By doing so, landlords maximise their rental income and boost the return on investments.
Here, we will share the crucial do’s and don’ts of how to become a responsible landlord and to increase your income significantly.
DO draft a tenancy agreement
Make no mistake. Sometimes it is hard to justify drafting a tenancy agreement, especially when the rent receivable is so little that it is not worth the hassle to go through all the legal fees and stamp duty.
However, for the majority of property investors who are raking in four figures of rent from your investment property, it might be a wise move to draft a tenancy agreement.
Why? Because in Malaysia, there is no central law that governs the relationship between landlords and tenants.
The tenancy agreement, which falls under the Contracts Act 1950, is the only legally binding document that governs the relationship between both parties. It is also the only document that offers rights and protection, which is essential in building trust with your tenants.
Under Malaysian law, a verbal tenancy agreement is still contractually binding and can be brought to court when needed. However, you would have to undergo a much more rigorous and complicated process to prove your case, which is definitely not worth the risk.
Hence, it is advisable to have your tenancy agreement prepared, examined and stamped by a professional. It usually costs less than half a month’s rent to do so.
DO interview your tenants
You would be amazed to find out how many landlords in Malaysia are freely renting out their property without even meeting them face to face beforehand.
Certain landlords have several explicit criteria that they have on hand, such as age, gender, race, work status or studying status. However, it is also important to identify good tenants based on implicit criteria such as cleanliness, financial means, and communication skills.
You can get to know your potential tenants better by meeting them face to face, as opposed to sending emails or online chat messages.. Remember, establishing a landlord and tenant relationship is a long-term commitment, and it is hard to do so over the internet.
This is a crucial step because identifying a responsible tenant will make your life as a property investor so much easier.
There are plenty of great case studies of tenants renting from the same landlord for two decades, and the landlord would only need to bump their rent only once every few years just to keep up with inflation.
Finding a reliable and responsible tenant is a rare occurrence, and it is best to identify them as soon as possible through actual interviews. In case meeting in person is not possible, try to schedule a video call so that you can see their faces and pick up on non-verbal cues.
DO NOT enter the property without the renter’s permission
There are actually plenty of landlords that show up at their rental apartment unannounced, especially to clean and maintain the property.
Do you know that tenants can legally sue their landlords for trespassing into the property that they themselves own, even if the tenant has defaulted on their rent for an extended period of time?
Under Section 7(2) of the Specific Relief Act 1950, it is unlawful for property owners to evict their tenants or recover possession of the house or room without a court order. But more importantly, under section 232(1)(a) of the National Land Code 1965, it is a landlord’s responsibility to allow his or her tenant to enjoy “quiet enjoyment” of the property.
Under the legal definition, “quiet enjoyment” refers to a tenant being able to live in the rented property without interference from the landlord, or his/her agent or servant. Meaning, landlords cannot enter the property without permission, nor do they have the right to demand their tenants open the door to them without reason.
The simple solution? Request permission and obtain explicit consent to enter the property, even if it is something as trivial as hiring a contractor to fix a lightbulb or the washing machine.
This highlights why you should establish a good rapport with your tenants, especially if you plan on renting out the property in the long run. It is also important to screen your tenants properly to avoid tenants that will take advantage of this ruling to make your life as a landlord a nightmare.
DO NOT racially discriminate amongst your tenants
It is wholly within your right as a property owner to pick and choose whoever you want to rent out your property. It is your property, after all. But a quick search on any rental listing portal will show that most landlords have some sort of racial bias against tenants.
Not only is it hard to morally justify doing so, but it has negative implications on your wallet as well. By only selectively choosing your tenants based on race, you are eliminating a huge portion of the tenant pool within the market, where there might be a lot of gems of a tenant.
In a slow market where it is difficult to secure tenants, it is better to open up your options and get tenants early, rather than missing out on a few months worth of rental payments or opt to lower your rent.
A common reasoning used by landlords to justify racially-biased tenant screening, is that some races are somehow much more responsible than others in taking care of the property and paying rent on time. But do note that people of all ages and races are capable of being trustworthy and responsible in their monthly payments, regardless of their ethnicity.
Hence why, it is important to interview your potential tenants face to face to identify those qualities for yourself, rather than shutting the doors to people of a different skin colour or culture.
There are several ways to help support you on your screening journey. You could request your potential tenants to provide a copy of their credit score report to determine if they are diligent in paying off their debts and utility bills. You could also request your tenants for a guarantor or a reference person that could vouch for them.
By screening your tenants based on trust and their fiscal responsibility, you will open your doors to a larger pool of higher quality tenants while also building a reputation as a fair-minded property owner within the community.
DO have a proper discussion with your tenants
Many of the issues that arise from being a landlord can honestly be easily solved or avoided by having transparent communication with your tenants.
If your tenants have failed to pay up the rent, you can try and understand their predicament. It could be that they have just lost a family member or their jobs. They might have suffered an illness or an accident. Then, you can try to help them in your capacity as a landlord, such as deferring the payments or providing subsidies for a short period.
The alternative is evicting your tenants and finding new ones, which will take a lot of time, effort, and a huge chunk of opportunity cost as well.
It is also important for your tenants to understand your predicament as a landlord. After all, you might have mortgage payments to pay, or your own job security is also at risk. How your tenants respond to your own predicament also reflects the values your tenants have towards their landlords, which you might want to take into consideration moving forward.
In any case, start by having a conversation with your tenants for a better solution, before falling back onto your rights and protection under the tenancy agreement.
It may be challenging to balance the relationship between a landlord and a tenant. On one hand, maintaining a purely professional relationship will significantly downplay the social aspects of property investment, which may incur more troubles than benefits in the long run.
But if you are too lenient as a landlord, you become vulnerable to being exploited by the tenants. As a property investor, you must also take into account your returns on investments as well.
In the end, each landlord/tenant relationship is entirely unique. But hopefully, these tips will offer a different perspective and provide a unique outlook on property investments that you might have never considered before.
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