Landlord 101: 5 Questions First-Time Landlords Should Ask
The rental industry in Klang Valley areas is on the rise, thanks to thousands of millennials who are pursuing their career goals as more opportunities are available in the city. The rental industry, like any other company, has its ups and downs. If you want to be a landlord who can stay in the game for the long term, you need to do your homework ahead of time.
Becoming a landlord is often mistaken as just doing nothing. In reality, it's more than just sitting back and pocketing your rental profits. You do have several obligations that come with being a landlord.
In this article, we will take a look at the 5 most important and basic tips and things that every first-time landlord should know in order to succeed.
What are your rights and responsibilities?
Currently, there’s no specific legislation in Malaysia that covers rental agreements. Nonetheless, there are few provisions to solve any disputes related to tenancy. The laws that will cover rental disputes are:
- Contracts Act 1950: Tenancy agreement conflicts
- Specific Relief Act 1950: Prohibition of certain practices related to rental (such as eviction, changing of locks without court orders)
- Distress Act 1951: Matters of eviction
- Civil Law Act 1956: Disputes regarding rent payments
By learning about the laws and your rights as a landlord, to a certain extent, you can be safely assured that you are following the best practices to avoid any future legal battles with your tenant. As for the responsibilities, these are some of the basic ones a landlord has to observe
- Insure the property
The buildings, furnishings, furniture and appliances that belong to the landlord must be covered and protected against loss and damage by fire throughout the rental period.
- Resolve issues related to utilities (water, electricity and gas supplies)
Landlords should deal with any problem arising from these installations as it is registered to the name of the owner, not the name of the tenant.
- Ensure a property is habitable
Make sure that all the electrical appliances set forth in the inventory are in good operating condition at the start of the agreement date.
What are the costs involved?
Renting your properties is an excellent way to earn some side income. However, without investing a little on your own, you can't expect to generate money; and by investing, you need to make sure you’re making more than you’re spending. Ask yourself - how much do you want to earn in relation to the effort and time you put into the investment to make it all worthwhile. By answering this question, you can plan ahead for the financial predictions of the property and plan for unforeseen costs and non-payment of rent.
Common costs for renting properties:
- Maintenance and repair
There’s no way of avoiding this aspect of being a landlord, and there’s almost no way of predicting how much you’ll spend on maintenance. That’s why it’s important to have a contingency pot of money to help cover these unexpected occurrences.
- Property and income tax
Rental income in Malaysia is taxed on a progressive tax rate from 0 - 28%. The rental income is in effect on the first date the property is rented out, whereas the actual rental income itself is calculated on a receipt basis.
Landlord insurance is a sort of coverage that protects landlords against financial losses in their rental properties. This coverage guarantees that landlords' rights and interests are protected should issues arise.
- Furnishings and renovation
Despite increasing rent and deposits amount for tenants to pay, furnished properties tend to cost more for landlords to maintain. Not to mention the extra expenses needed to cover the wear and tear.
Tenants are generally responsible for paying utility bills directly. However, some landlords do offer “bills included” as part of the deal. If that’s the case, this should be added to the costs, and also reflected on the rental fees.
- Marketing or advertising fees
You would need to market your properties to attract tenants and potentially, close sales. This means budgeting for the marketing costs which cover advertising, travel mileages, screening tenants, making copies of documents, etc.
- Legal fees for lease review and in the event of an eviction
To make a lease legal and admissible in court, it needs to be stamped by LHDN (Inland Revenue Board of Malaysia) which will involve a sum of money. As a landlord, you will also have to bear the administration charge. Besides that, you may also want to seek other legal actions such as eviction proceedings in the event of tenants defaulting on rent.
How to know the rental market?
Staying up to date with the rental market can mean the difference between setting rent prices too high (leading to vacancies) or too low. You must constantly look at the market and adjust the rent based on demand. Thus, understanding the rental market is important as it involves assessing different factors to determine how much to charge accordingly for rent. There are multiple factors but the most basic ones you can start with are as follows:
- Job market
It only makes sense to invest in rental properties if the people in the area can afford to pay the rent. This is why it is important to assess the job market first and be aware of things like the major industries, median salary and the employment rate, before making a move.
- Population growth
If an area has substantial population growth, it typically indicates that the rental market is growing at high levels. In the event of insufficient rental supply, tenants will be prepared to pay higher prices for rental units. Analyzing the local market can help you find the right balance of value for tenants and profits for your business.
The location of your home has a major impact on the rental rates. You may charge more for studio/one-bedroom apartments in the KL city than a 2-bedroom home in other parts of the country, for example, Cyberjaya. If your property is situated in an area where demand exceeds supply, you can be a bit more ambitious with your rental rates.
How to ensure protection?
You will acquire all kinds of additional legal obligations when you become a landlord. To protect yourself, typically you will need insurance. Landlord insurance will cover your property from unexpected loss and damages caused by accidents as well as protect you and your financial assets in the event of a liability claim. However, insurance coverage may cover more than you need so you may be paying an unnecessary amount sometimes.
Another way is to collect a security deposit upfront. In the case of damages during the course of the tenancy, the tenant’s deposits can be deducted to pay for repairs and may not require insurance coverage. Unfortunately, some damages may cost more than the deposit amount paid.
Luckily, Instahome’s Rental Default Guarantee (RDG) is here to save the day! Our rental property solutions will back you up in the event of a tenant's late or non-payment rent. This plan compensates you with a 1-month's rent if your renters leave or fail to pay their rent. This is because Instahome is serious about finding you the best tenants. To show that we mean business, we will perform thorough background checks on tenants before accepting and recommending them to you. How do we do it? We put renters through an extensive credit scoring process, reviewing their CTOS reports, CCRIS reports and even psychometric data based on how they interact with our platform.
The cost of screening our tenants along with the Rental Default Guarantee is 5% of your monthly rent. Before you receive the rent payment, the fees for this plan will be deducted from the tenant's monthly rent.
From rental collection to eviction (if necessary), Instahome does everything for your part. That’s why we’re here in the first place!
You can read more on what constitutes wear and tear and damages and which one can be claimed through the insurance policy in this article.
How to set house rules?
A tenancy agreement is a roadmap to establishing a good relationship between you and your tenant, in addition to setting the guidelines for your residential tenancy.
More often than not, conflicts between landlords and renters stemmed from an unclear set of rules and responsibilities. Because of this, it’s important to communicate your policy, outlining what you expect of them and include them in the tenancy agreement. The tenants should be informed of the policy before they could move in so they will know what they are about to sign up for. Besides that, once the policy has been put in place, do not amend or add new ones while the contract is in effect.
Apart from clarity and consistency, the policy should be reasonable and generally in accordance with the legal and fair housing laws of the respective country - which Malaysia does not have. However, we do have certain items in the tenancy agreement clauses to make the contract favorable for both tenants and landlords. A standard tenancy agreement in Malaysia should include:
- Property information
- Tenancy period
- Monthly rental fee
- Renewal clauses
- Deposits amount
- Rent due date and payment method
- Obligations of landlord and tenant
- List of items/furnishings provided by landlord
- House rules: Do’s and Don’ts
- Terms and conditions on deposits return
- Terms and conditions on subletting/adding tenants
- Utility bill and property tax obligations
- How to resolve disputes
- Early termination of tenancy
- Special clauses (pets, smoking, partying and other rules)
The tenancy agreement establishes ground rules and expectations for both parties. Therefore, ensuring your tenancy is complete with clearly defined guidelines while complying with laws applicable to home rental is very important.
Finally, are you ready to become a landlord?
Owning rental properties may be a lot of effort. But that hinges on how much of a direct involvement you’re planning on. The financial and emotional advantages, on the other hand, can make it all worthwhile to say the least. Thus, the road to becoming a landlord may be as daunting as it is compelling. But, if you do your research well before diving in and have all these five questions answered, you may have the best chance at making your rental properties a successful venture and generating long-term gains.