By Viktor Chong
It is the dream of every landlord to have their properties occupied by good tenants and to generate superior income, best into perpetuity. Your ability to attract and keep tenants, while maintaining good rental yields, is determined by various interplaying factors. The first step into property investment requires a little foresight, some investigative work, followed by the basic valuations such as location, property type, and surrounding amenities. Let's boil down to the details.
Products are designed to fulfil the desires of the customer, and rented properties are no different. With the B40 group, they are more likely to use public transportation, so having your rental properties closeby to feeder bus routes or light rail transit (LRT) stations are added selling points. Inversely, affluent areas attract well-to-do renters who are conscious of branding, and they are more receptive to high or mid-end properties. These can range from bungalows, spacious landed houses or villas burgeoning with posh facilities.
Pay close attention to the number of luxury boutiques and upper-level shopping centres in a particular place, as they usually point towards a wealthier crowd. Similarly, you will not find a Gucci outlet surrounded by affordable housing. To keep it simple, match your target tenants’ ability to pay to the property you are offering for rent.
Answers are found in the dark
When talking about a property for own stay purposes, the criteria is simple, get a home that you and your family love. But with a rental property, there is much homework to be done, and one simple assessment involves visiting the development at night. As the sun sets and the lights come on in the apartment units, you can quickly discern the composition of the development.
If it is already fully sold but most of the units are dark and empty, then you can be certain that most of them are intended for investment purposes. Here we have a saturation of rental units and a price war is likely to happen. An astute landlord never positions his rental property in an area experiencing a renter’s market as the yield is oftentimes minimal.
The smaller ones go faster
Homes in the affordable category enjoy higher occupancy as the pool of tenants is significantly larger, since the bottom 40% (B40) income group of Malaysians represents a significant portion of our population. Also, this category of people is more likely to rent instead of owning a home. Another advantage of purchasing a smaller home is because it is cheaper, thus reducing your mortgage burden and freeing you up for other investment opportunities. Also, they sell faster compared to the luxury ones, allowing you to liquidate your assets quickly should funds be required.
If you intend to buy a larger home for rental purposes, it can still be broken down to their individual rooms and rented out accordingly. But be aware if it is located in a higher-end neighbourhood as the maintenance fee may be higher. It goes without saying that the standard of living around the area should also rise a notch or two, making it unappealing for B40 tenants.
Nearer, less hassle
Congratulations are in order if you have around five to six properties under your ownership. But managing them can be quite a hassle if they are spaced a great distance away from each other. To make your life easier, you might want to buy your rental properties nearer to your permanent home.
You can drop by at leisure to check on the condition of the property or to remind an errant tenant to cough up their rent. If the maintenance work is being delegated to a real estate agent or a third party, your periodic monitoring should ensure their continued performance. But do remember, don’t put all your eggs in a basket. A certain area may lose its economic prospect and suffer from an exodus of population, which will negatively affect your capital appreciation, rental yield and availability of tenants. Maintain a diverse property portfolio to mitigate such risks.
You don’t want to live there?
Some property investors assume that they can buy a cheap property in an unfavourable area as it is merely used for renting purposes, and not for own stay. This is dangerous, as your potential renters are individuals with their very own aspirations and desires. Here is a thumb rule for caution — Don’t buy a property for renting purposes if you yourself do not want to live in it.
However, there are exceptions to the rule, such as the target demography you are positioning your product in, as discussed above. Where property is concerned, the age-old aspect, location, is of paramount importance. Even if you are not staying in the rental property, it should decently be situated nearby to areas of economic growth, such as the availability of jobs, entertainment and education.