How you can protect and manage your properties effectively
Properties can be protected with insurance coverage, personal financial reserves for emergency needs and regular maintenance.
1. Insurance Coverage
If the property is your own home, it is advisable to have a fire insurance policy. You may also want to consider having a mortgage reducing term assurance (MRTA). MRTA is a policy which provides funds to pay off a mortgage if the borrower dies or suffers from permanent disability before the mortgage loan is fully repaid. If a person dies or becomes permanently disabled, the MRTA policy will provide the funds required to settle the housing loan. Therefore, the person’s family will not lose the roof over their head and will have peace of mind.
For investment properties with a building on it, having a fire insurance policy is a must but the MRTA is optional. With regards to land, no insurance policy is needed, as it can neither be recreated nor destroyed.
2. Financial defence
As a financial defence move, you can create an overdraft (OD) facility using your home as collateral. You would have created liquidity from your illiquid property. An OD facility will help you in times of need for cash but it is to be used wisely and with strict financial discipline.
As an investor, your money should be fully invested at all times. Don’t work for money; let your money and other people’s money work hard for you. It is without doubt that it is good to have financial reserves. However, from my experience as a property investor, all my properties have been bought using borrowed money or other people’s money (OPM) and I believe it is a wise choice.
From the aspect of financial protection, what will happen to your properties when you have passed on? It is advisable to have a well planned and written ‘will’ or ‘trust’ to protect your investments and ensure that they it will be passed to your dependants or chosen beneficiaries.
3. Property maintenance
Consider a yearly inspection for white ants and signs of any other pests; check the piping and drainage for any leakage, electrical wiring and also see if any painting is required. Always protect your properties through a well planned yearly repair and renewal plan. For landed properties, it is advisable to have anti-white ants spray every six month. For residential properties, maintenance is the responsibility of the landlord and for commercial property; maintenance is the responsibility of the tenant.
How to manage your property effectively
Different types of properties attract different kinds of tenants. Apartments attract tenants from the middle or lower income group. Condominiums attract young couples, yuppies, or professionals and expatriates. Landed residential properties such as terrace/ link houses, semi-detached houses and bungalows attract middle and higher income families.
Different locations also attract different categories of tenants. Properties near Kuala Lumpur City Centre, Bangsar and Sri Hartamas areas for instance, attract expatriates. Properties near a university or college attract students and lecturers. Properties near an industrial area attract workers.
The location of your investment properties from your home or management office should preferably be less than an hour of travelling time. Property management involves tenant and property maintenance management. If you have a troublesome tenant staying in one of your properties located more than five hours away, you can be really very busy. As such, before buying a property for investment, do consider the type and location of the property which will determine your tenant profile and the amount of time required to manage it.
After you have bought a property for investment, tenant selection becomes very important. Always select the best tenant. From experience, good tenants not only stay longer, they also help us in maintaining the property.
For residential properties, selecting tenants must be based on career and character. Always find out more about their occupation and estimate their ability to pay the rental. The rental should not exceed 25% of their income. Analyzing character is difficult. Observe the elements of responsibility and integrity in the potential tenant. Good character and the ability to pay the rent are essential in tenant selection.
For a good tenant, consider a slightly lower rental than the market price. Collect at least one month’s rental deposit and half-month’s utilities deposit besides the first month’s rent for residential properties.
Never hand over the keys to the tenant until he/she signs the tenancy agreement and the deposits plus one month’s advance rent are settled. Add a clause in the tenancy agreement to say that the tenant must bank-in the rent to your account within the first seven days of the month. The tenant also must call, sms or fax to inform you. Always use the tenancy agreement as a reference whenever there is disagreement related to the rental. For ongoing repairs and maintenance, you can get the tenant’s help in locating for a plumber or electrician and inform you the estimated repair cost. Ask the tenant to pay in advance and deduct it from the following month’s rental.
For difficult tenants, use whatever methods you can think of to reach them. Always remind the tenant when rental is due via telephone calls, SMS, WhatsApp, faxes, e-mails or letters. Be flexible, willing to discuss, negotiate, and fair but do not be too friendly with the tenant. If the tenant ignores all your reminder letters, do not hesitate to consider legal action, distress or eviction after consulting your lawyer.
For commercial properties, the tenant selection criteria are based on the tenant’s experience in running the business and whether the business can survive in that area. For commercial properties, ask for at least a two-month rental deposit and one-month utilities deposit. Always be flexible, willing to discuss and negotiate with the tenant. Repairs and maintenance of commercial properties are the tenant’s responsibility.
Rental Management Summary
Make all rental collection at the beginning of the month because salary is paid out at the end of the previous month. From experience, rental collection in the middle of the month for residential property can be very difficult because the tenant may have spent their salary by then.
SMS, email or call to remind your tenants that rental is due, two days before the due date.
SMS, email or call again on the due date if you have not received the faxed copy of the bank-in slip or your www. maybank2u.com.my account for example, as stated in the tenancy agreement.