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Saturday, December 12, 2009

Earning from rental

Effort, patience and research needed to achieve success

RENTING out real estate can be a lucrative source of income. Those who are already in the game know the rewards that it can reap. It offers stable returns compared with a lot of other forms of investments and is a great way to build wealth.

But just like any other investment, it requires a good deal of effort, patience and research to achieve success.

Location and money

These two factors are the essence of property investment. The investor needs to find properties in locations that are likely to generate great yields. To attract tenants, it is a good idea to own a place near a school or a college, with good access to public transportation.

Having money to spend is also very important. But what if you are a small-time investor and your financial resources are limited?

“There are many ways to find property. Look out for foreclosures or auctions. Get to know people on the inside who know about properties that are going under the hammer,” says Felix Wong, who has been a landlord for over 30 years.

“Keep an eye out for advertisements in the newspapers or speak to real estate agents who can let you know in advance about these sales.”

Alternatively, if one doesn’t have the money to buy property, one can always rent and subsequently sub-let at a profit. That was how Tan, now an accountant, financed his tuition fees when he was studying in college.

“I was renting a bungalow in Petaling Jaya and got a part-time job to pay the rent and tuition fees initially. I then sub-let the rooms in the house to other students. I was able to quit my part-time job and use the spare time to focus on my education,” he says.

It is important, though, to make sure that your tenancy agreement has no clause that forbids sub-letting.

If you are determined to own property, you should have a rough idea of how long you plan to hold on to it, says financial planner Alex Low.

“The longer you own the property, the more you’ll need to invest in maintenance, repairs and improvements. If you’re only planning to own the property for a short period, you should avoid making any major improvements unless you’re sure you can recoup the cost with a better re-sale price,” he adds.

You’ve invested in property. What now?

Once you have something to rent out, you need to let the world know you’re looking for tenants. But before you do so, there are a couple of things that needs sorting out first.

·Checking out the competition

“Check to see if there are other properties within the vicinity that are being rented out. Find out their rates and set your rates accordingly. If you charge too much, you’ll only chase tenants away,” says Timothy Arumugam, a Bangsar-based landlord.

“Of course, you still need to charge enough to pay for maintenance, insurance and utilities, and make a profit. Don’t forget that you may also need money for repairs and other emergencies.”

·Knowing your target market

Determine also the type of people you hope to attract. If you are targeting students, your rental rates would have to be more affordable than if you are hoping to have tenants who are, say, white-collar employees.

Property to let

Now it is time to tell everyone how attractive your rental offer is. If you have money to spare, the best way is to advertise in the newspapers. If you have a specific target group in mind, such as students or only women, you could try advertising in education or women’s magazines.

Alternatively, there are creative ways to advertise for free, says K. Marimuthu, a Klang-based landlord.

“You can always place ads on trees, street lights, walls, buildings or telephone booths. If you have permission, you can advertise in the colleges or universities,” he says.

Another idea is to to promote the property via a webpage or blog. “Don’t forget to put down your contact number or e-mail address, and if it’s an outdoor ad, the website or blog address, if there is one. It’s also helpful if you had pictures of your property on it. After all, a picture tells a thousand words,” adds Marimuthu.

Protecting your investment

Before letting a potential tenant into your home, it is best to run a background check. Doing a check on the person’s financial background helps if the tenant has a bad track record.

Marimuthu says it is also very important to lay down the “ground rules” before finalising the tenancy agreement. “Determine from the start what can and cannot be done. It’s your investment, so it’s your rules. It’s of course better if these rules could be laid down in black and white.”

He adds that it is also useful to set up an “emergency fund” for repairs to the property. “You never know. The toilet could get clogged or the water heater could go kaput. It’s your responsibility to make sure everything is in working order,” he points out.

“Just before the tenant rents the place, the landlord should take photos of the premises so that when the tenant leaves, any damage to the property can be assessed more clearly.”

By The Star (by Eugene Mahalingam)

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