Buy a house, rent it, and let the rental pay the home loan. Simple, right? Yeah, in about the same way heart surgery is “simply re-attaching some tubes”. New home owners like to count on rent, but a lot of them are inexperienced landlords. In this article, I look at their favourite ways of wrecking their rental income. If you’re counting on your tenants for loan repayments, best avoid these costly mistakes:
1. Be a Total Cheapskate
Wow, that tenant, he whines all the time. He wants a new microwave, a new fridge, a new paint job…but you know how to deal with that. Just act like the evil step-mother in a fairy tale. Right?
There are limits. Here’s a quote from Melissa Lam, who used to rent a single room in Siglap:
“I don’t mind if some things are spoilt. Like the tap in the attached bathroom kept leaking, but it would have been expensive to fix, so I understand that. But just little things, like the paint was peeling really bad, and the lock was funky, he (the landlord) also wouldn’t fix it.
In the end I just got fed up. I left on short notice. And I know I paid a lot more than usual for the room. I was paying $900 a month for that one room. I didn’t mind because the location was convenient. But he was so cheapskate I just couldn’t take it.”
Before refusing your tenant’s request, compare the costs. How much would a vacancy cost you, as opposed to a fresh coat of paint or a new kettle? If you’re still paying the home loan, maybe you can’t afford not to cater to tenants.
2. Don’t Give Tenants Their Privacy
It’s understandable if you check your property from time to time. But when your tenants start reliving their stand-by-bed days from the army, your notice is on its way.
Good landlords restrict their visits to the following:
- Upon the tenant’s request
- Bi-annual checks
- Consultations / checks during repairs or upgrading
If you drop in more than once a month, you’d better be the tenant’s mother or something. Repeated checking puts tenants on edge; they’ll assume you’re trying to find fault.
If you live on the same property as the tenant, don’t pry. Sneaking into tenants’ rooms will result in higher turnovers than an Iraqi bomb squad. Always ask for permission to check.
3. Keep Making Changes
As a landlord, you have the power to seriously inconvenience your tenant. And a great way to do that is to keep changing the paint, buffing the floor, or tweaking the air-conditioning.
A couple of times a year? Understandable. But having a contractor turn up every other month? Would you live with that? Tenants don’t like camping at McDonald’s while someone drills the wall, or coming home red-eyed at 8pm and finding out the windows are being refitted.
You could argue that these are improvements. But improvements are meant to attract and retain tenants, not drive them away. Before making changes, ensure it’s convenient for them.
4. Keep Tenants In The Dark About Rent
If you intend to raise rent, give your tenant plenty of prior notice. Otherwise, even if they want to stay on, they just may not have the money ready.
This is often the case if you’re a home owner on a floating rate package. Because you can’t predict the monthly repayments, it’s hard to decide your rental rate. It may be tempting to wait until the last minute before renewing the lease, to get a feel for the SIBOR or SOR rates.
While I empathize, it’s better to undercharge a tenant than to have no tenant. Even better, take this into consideration when picking your loan package. If you’re heavily dependent on rental income, maybe it’s better to take a fixed rate package.
Tenants don’t like migraines any more than you do. Try to inform them at least two months ahead that you’re raising rent.
5. Don’t Clarify Terms In The Lease
Yeah, I know you spent a fortune paying your lawyer to draft the lease letter. Too bad the tenant only understands it as well as you. Admit it; without your lawyer to explain it, going over the lease is like reading Ulysses in kindergarten.
The lease agreement may state the tenant pays for all repairs, but whether the tenant understands that is a different matter. Even if you’d win a legal dispute, what sort of victory is that? The only thing you’d “win” is a loss of rental income.
Before letting the tenant sign, clarify the terms in plain language. Make it clear what he pays for, and what you pay for. This will ease tensions and prevent confrontations. You should also spell out the consequences for things like late payment. It may turn away some prospective tenants, but those weren’t the tenants you wanted anyway.
Want Your Rent to Pay Your Home Loan?
As I mentioned in point 4, you need to match your rent to your home loan package. To find an appropriate loan, visit www.smartloans.sg. Just enter your property type and your desired loan, and this free site will display the best available packages. The site’s mortgage specialist can also contact you to advise your further.
How do you protect your rental income? Comment and let us know!
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