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Sunday, 6 August 2017

(The Star) Unclassified: Landlords vs Tenants

There are kung fu skills required in buying and renting. Here, two professionals share their views on how you can hone your chops in investing, renting and dealing with tenants. 

Investor Ahyat Ishak is bewildered how people would spend more time checking out a phone than a property.

“For that RM3,000 phone, they would go on YouTube, look at the reviews, ask people, read the blogs, and go to the shops to get a feel of the phone. They do a lot of research before they decide which one to buy.”

“But when it comes to property, they go to an investor group and when a taiko comes in, saying that some RM300,000 apartment is a good buy, they just take his word for it.”

“They only think about the ‘now’ – that they can come up with the deposit and transaction cost, secure a bank loan – so they sign on and buy. But you cannot make a decision based on the ‘now’. You have to be two or three steps ahead. You have to think of your ‘exit’ when you want to ‘enter’ (buy).”

“You don’t want to enter a room, then realise there is no exit or that the exit is full of tables and chairs and all sorts of obstruction that you have to climb over and hurt yourself in order to get out,” says Ahyat, who runs workshops for potential property investors and writes books on property.

If people understand the basic principles of entry and exit as well as risk and reward in buying, investing and renting out of properties, it would give them so much ‘kung fu’ in making their decisions,” adds Ahyat who has a team managing over 40 residential and commercial spaces for rentals.

The rental game right now is “brutal”, he says.

“I have four units in Cyberjaya and all used to be tenanted. But now two spaces have been empty for up to five months because of the sudden mushrooming of new properties.”

Supply is coming out faster than demand, he says, which he attributes to the emerging educational institutions in the area.

Ahyat finds the same problem in other areas.

“I am seeing a reduction of rental rate for all of my properties whenever there is a change of tenant. I used to rent out a medium cost apartment in Shah Alam for RM1,200 but now I am okay with RM1,000 because it is difficult to get good tenants.”

Ahyat gears his property investments towards the middle-income group because they make up the biggest segment of society.

“In good times, the lower income group upgrades to a medium-cost rental unit. And in bad times, the higher end downgrades to medium end units so the medium ground is always safe.”

Being an early investor, and getting the property at a good price, allows him the space to reduce rent.

“Sometimes I reduce the rent because of the tenants – if they are nice or if they are newly married or just started working. But if the tenant is someone with an attitude problem, I would rather leave my unit empty and search for another tenant.”

If Ahyat is looking to buy a no-frills apartment from the secondary market, he checks out the cars that people there drive to get an idea of the type of tenants that he can expect.

Ahyat has his share of horror stories of tenants.

One carted away all three of his air-conditioner units including the outdoor compressor. Some stuffed all sorts of dirty things into the kitchen cabinet. Others refused to clean the sinks, leaving the place in a disgusting state. Some delayed paying the rent.

He has since adopted the carrot rather than stick strategy to get tenants to pay on time.

“My team will tell the tenant that the rent is RM1,100 but if he pays before the seventh of the month, the boss will give a RM100 discount. Let me tell you, 100% of my tenants pay me before the seventh.”

Ahyat believes that tenants would pay up when there is a system in place.

Three days before the end of the month, his team will send out the invoice for the rental. Then on the first day of the month, they will send a follow-up message, asking whether the tenant has received the invoice and to remind them to pay up before the deadline to get the RM100 discount.

“If they don’t pay by 10th, we will send a warning letter. It is a declaration of ‘war’,” says Ahyat.

With problematic tenants, he has even offered to pay for a lorry to move their belongings out.

As for those looking to invest, Ahyat says this should not be based on hopes that property prices will never fall.

This has happened in 1997/1998 and again in 2007/2008, he says.

“Those who get hurt are those who enter the game with their eyes closed.”

He tells investors to have a banker, an agent, a valuer, lawyer, and an investor friend who are just a phone call away.

“Even Superman doesn’t fight alone anymore. He has to team up with Batman. Like in The Avengers, it is the teams that are successful.”

Adrian Un counts himself lucky.

He bought a high-end condo unit around KLCC not too long ago and managed to rent it out for RM8,500. This is only RM200 more than his monthly instalment but he is pleased because many landlords around there are struggling to find tenants.

Many expats who used to rent in that area have left Malaysia because of the global economic downturn.

Un, who is the CEO and co-founder of property education and investment company Skybridge International, says the rent for units like his have dropped to as low as RM6,000.

“If you bought a property three to four years ago, it is a known fact that the rental you get will not be enough to cover the loan instalment.”

“And with all the new developments that come up, there are too many units available within one location. So people have ample choices and are not willing to pay high rent,” he says.

Landlords, he says, are willing to lower their rent to find a tenant in the hope that the value of their property will appreciate in about five years and they can sell it off with a decent profit.

Un, who owns and rents out a number of properties, says a landlord should rent out his unit as soon as possible.

Even before you get your keys to the unit, you should start contacting real estate agents, he says.

“The trick is to spend a bit and do up your unit differently from others. It doesn’t have to be costly. The simplest way is to put up wallpapers in the rooms and install some lighting. Curtains, too, are a must.”

Sprucing up a unit differently would help because the agent is more likely to show your place.

Un believes that a unit that is left unfurnished will lead to potential tenants seeking lower rent.

“If there is a price war, the landlord ends up losing. The unit may remain vacant for a long time before you secure a tenant. So would you want to risk that?”

“Sometimes a landlord gets a nightmare tenant who doesn’t pay up on time, or stops paying rent altogether and refuses to move out. Or he may get someone who trashes the unit before leaving. A lot of times a tenant will run away with your furniture, TV, and electrical items,” says Un.

Therefore, the first protection landlords have is in the tenancy agreement.

Most landlords collect two months equivalent of the rent as security deposit and one month deposit for utilities. Un advises landlords to take photos of their furniture and electrical items and to attach this inventory check list with the tenancy agreement and get the tenant to acknowledge it.

When the tenancy agreement comes to an end, the landlord can detect if any items are missing or spoilt and deduct the amount for repairs or replacement from the security deposit.

Chasing tenants who don’t pay and don’t move out can be quite a hassle, he laments.

Most landlords try to persuade the tenant to pay as and when they can. Some may tell the condo management to deactivate the apartment access card. Others may cut off the electricity and water supply but Un points out this is against the law.

Un believes one way to get tenants to pay outstanding rental is to incentivise them.

“If the tenant owes three months rental, the landlord can say if he pays up, he will give him a half-month deduction. That works.”

Un once had a tenant who was struggling to pay the rent, so he suggested an alternative apartment at a cheaper rent to him.

“Sometimes, you have to solve these things diplomatically.”

Un says some landlords might seek the help of police friends or even gangsters to scare the tenant. He cautions landlords against breaking into the house because that is tantamount to trespassing.

The worst case (and more expensive) option would be to get a lawyer to issue a letter of demand, giving a deadline for the tenant to leave.

“It’s like a warning letter that if the tenants refuse to move, the landlord reserves the right to pursue the outstanding amount through legal means.”

Un says most of the time the landlord would be happy just to get back vacant possession of his unit and won’t pursue the outstanding rent because the legal process is tedious.

“But if it is a high-end unit with extremely high rent and the amount owed is huge, it makes sense for the landlord to pursue it all the way.”

When a tenant is sued for arrears in the rental, his name will be blacklisted in CTOS, Malaysia’s Credit Reporting Agency.

For Un, gone are the days when landlords could sit at home and just check their bank accounts every month to see if the rent has been paid.

“This is a very outdated approach. Landlords should have continuous engagement with the tenant. You can call or WhatsApp to ask whether everything is okay in the unit.”

He says this approach helps the tenant feel that the landlord is concerned about his well-being.

“Sometimes human factor plays a role in the tenant paying up properly.”