By Property Soul
(This article is extracted from my book No B.S. Guide to Property Investment, a bestseller at Kinokuniya and Times bookstores.)
As an investor, you have two major objectives when you are holding your property:
- To generate an optimal return from your investment; andTo increase its value to be sold at a good profit in the future.
- To increase its value to be sold at a good profit in the future.
To achieve that, you have to maximize the rental income and minimize the costs at the same time. In other words,
Maximizing the return of your property = cost savings + value creation
Below are seven useful tactics that you as a landlord can use to save money while adding value to your property.
1. Ask for early completion
You have submitted the cheque with the last payment to your lawyer. Instead of waiting for twelve weeks, you can request for an early completion of the sale in ten weeks, so that you can get the keys earlier and rent out your property faster. Your lawyer should be able to liaise with the attorney of the seller to make the necessary arrangement.
2. Start your work early
Once the seller hands over the property to you, you need to rent it out as soon as possible.
If it is agreeable by both the seller and the existing tenant, you can request for one or two timeslots before the handover date for a short viewing. This is meant for your renovation contractor to inspect the place and give you a quotation.
However, except for cleaning a vacant flat, resist the temptation to begin any renovation work at the place before you collect the key — in case any accident happens during renovation or the sale can’t be completed for some reason.
3. Avoid festive seasons
Take note of the completion date of the sale. Try to avoid Christmas, year-end or Chinese New Year. This is the time when the renovation contractors go for home leave and potential tenants go on holidays. It unnecessarily prolongs the vacancy of your property and affects the return of your investment.
4. Compare before committing
Get at least three quotes for all planned expenditure, including legal fees, mortgage, insurance, renovation and repairs. Contacting different vendors may be time-consuming but you are most likely rewarded with better options and more savings.
You don’t have to use the one that submits the lowest price. But you can use the lowest quotation as a reference to negotiate the price with your chosen vendor.
Never let those negligible numbers add to up a considerable sum.
5. Look for savings constantly
When interest rates have increased, take action immediately to refinance or reprice your housing mortgage.
You can specify in the tenancy agreement for the tenant to pay for minor repairs and routine maintenance under the cost of $150.
Before the tenancy starts, tell your tenants to notify you if they spot anything wrong or anything out of order. Many repairs in the flat are simpler and more cost-effective to do if they are done earlier, especially leakage of water, gas or electricity.
Similarly, if your tenant complains about a loose window, fix it the next day. Don’t take the chance to let any accident happen in your property.
6. Raise the rent
Remember to increase the rent regularly. Tenants are more likely to accept it with moderate increases every year rather than a big jump after three years.
When negotiating for a raise, an initiative from you to fix or upgrade something in the flat can give you the upper hand. It makes the increment look more justified and you will receive less resistance from the tenant.
You can also consider signing a lease with progressive rental increments from your tenant. For example, a three-year lease can specify a fixed increment on the second and third year.
If it is a month-to-month contract or a short-term lease that lasts shorter than a year, always propose a rent higher than the market rate to compensate for the hassle of finding the next tenant.
When I first started as a Do It Yourself (DIY) landlord, I made the mistake of befriending my tenant. That makes negotiations on rental increment difficult. Maintain a cordial but business-like relationship with your tenant so that you can win the cooperation of your tenant on inspection, maintenance, flat viewing, etc., but won’t make it awkward to discuss a rental increment.
7. Shorten the vacancy period
If you are buying a property with an existing tenant, get a copy of the tenancy agreement to check the actual expiry date and the renewal clause. If the tenancy is ending soon, negotiate with the existing tenant to adjust the rent upwards to match the market rate.
If the tenant is not renewing the contract, have your agent to look for a replacement as soon as possible to avoid any loss of rental income from a vacant flat.
If the tenant wants to terminate the contract, he/she should give your agent sufficient time to find a replacement. To avoid any rental loss, you can ask the tenant to continue staying and pay a pro-rata rental on a daily basis until the handover of the flat to a new tenant.
Learn more about rental tips for both owners and tenants at the coming Smart Landlords vs Smart Tenants Education Seminar.
This article was first published at propertysoul.com