Income+
How to be a more effective landlord
Lim Siew May 
Once you have conducted due diligence on your prospective tenants, you need a good system to help you track the property’s cash inflow and outflow – 123RF
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If you had ever been a landlord, you’d appreciate the skills that make tenant management a breeze. With a lack of local professional property managers compared with developed countries like Australia, owning and leasing multiple properties to different tenants often means more headaches for landlords.

Poor tenant management, plus the need to juggle between demanding full-time jobs or businesses, and other commitments, can make life as a landlord hellish. Three landlords who own more than three properties share how they rise above their challenges.

 

Be selective about who you let in

Smart filtering is the key to minimising issues with tenant management. Effective landlords believe it’s better to invest time and effort to know your prospective tenants well, rather than leasing your place to the first tenant who agrees to rent.

BY Tiang, author of several books including Salary Man Cracking The Property Investment Code, applies maximum effort at this stage to ensure only the best possible tenants make it into his properties.

Tiang collects 12 monthly post-dated cheques from his tenants

“This helps me avoid the cost of removing and replacing unsuitable tenants. Whilst not 100% foolproof, experience has shown that this is the best method to filter out the majority of unwanted tenants before they even get into my property,” he says.

Tiang requires each potential tenant to compete an application form. “I check the tenant’s full background and references.

“During viewing, I will do my own background search by asking questions like: ‘Where do you come from? Where are you staying now, who will you be staying with (in my property) and more. It is also a good time to build a relationship with the tenant, and have a clearer understanding of his suitability,’ he says.

Being a landlord is not as hands-off as one would think, Wong says

Similarly, Wong Whei Meng, founder of home-rental application Speedrent, believes that by communicating with prospective tenants and asking them what they want, you can gauge their characters. While not foolproof, this method has served him well.

“They can request everything they want in the world. At the end of the day, as the landlord, you can discuss and decide what is really needed.

“If the (prospective) tenants want everything, say their wants are non-negotiable, and display a take-it-or-leave-it attitude, then most likely, I wouldn’t want to deal with them. It can mean they don’t respect others, or are just tough to deal with,” says Wong, adding he also shuns prospective tenants who do not communicate promptly.

A good system must be created to solve most potential problems, says Leong 

Property investor Hazel Leong believes the most crucial aspect of property investment, apart from buying in a good location, is to have a good tenant management system, or to find someone who excels at it.

A good system must firstly be created to solve most potential problems, says Leong. “Anything that can go wrong will eventually happen, and that is what a proper system has to be built for. Once that is defined, then we move forward by determining the type of tenants needed to fit into this system.

“Tenant selection is one of the key components of a proper system. The rationale is that we are dealing with people, who are our tenants. We must be able to properly select the group which fits best into our control system. That is the first key,” she says.

In Leong’s view, a proper system must have four key components – qualify tenants, manage tenants’ expectations, a proper control feedback loop and enforcement system.

“However, my system always starts with the enforcement of processes, then the rest are built on this principle. It is useless to create a perfect structure which cannot be enforced anyway,” she points out.

An example of an unreasonable enforcement is when a tenant does not pay a monthly room rental of RM300, Leong explains.

“In this case, our course of enforcement cannot be to take legal action and drag the tenant to court, as it is not logical to spend RM10,000 to chase the defaulting RM300. Hence, it starts with enforcement. Then, the rest of the components are built accordingly. In the end, it all still goes back to the four main components.”

System to track and enforce payment

After conducting a reasonable amount of due diligence on your prospective tenants, you need a good system to help you track the property’s cash inflow and outflow.

Wong uses a Google calendar and spreadsheet to track rental payments and expenses incurred for his properties.

“Every quarter, I ask my tenant to send me photographs of the house and utility bills to ensure that he has been maintaining the property and paying the bills. I also use Google calendar to set auto-recurring events to remind me. WhatsApp is my key mode of communication with my tenants,” he says.

Renting out properties is not all smooth sailing, as issues are bound to crop up from time to time. When complaints arise, Wong works with a friendly contractor to deal with them. He pays for all maintenance-related expenses and records them in a spreadsheet.

Like Wong, Tiang also has a calendar reminder system to check if rentals had been banked into his account. “So far, the biggest headache for me was when tenants did not pay rental on time. I could only keep reminding them of the overdue rental,” he says.

However, Tiang has refined his game over the years by collecting 12 monthly post-dated cheques from his tenants. “Every month before I bank in, I will text the tenant and inform him that I will bank in the cheque the next day, just to ensure there is sufficient funds in his account,” he says.

 

Foster good relationships

It is worth investing in relationships with your tenants, especially if they have been good. Not surprisingly, this is the last of Tiang’s strategies as a good landlord. This, he says, can be as simple as sending them festive greetings.

Tiang also lowers the rental to reward prompt payment. “For tenants who had paid rental on time for the entire year, I will let them know that in the following year, they will receive a one-off RM100 deduction, or that the cost of the tenancy agreement renewal will be borne by me,” he says.

Leong, too, believes in rewarding good tenants, by not increasing rental. “That makes the tenants happy, and it is part of my way of contributing to hardworking and good families. Different people have different ways of contributing – some spend time helping at orphanages, while others contribute money to charitable organisations.

“My way is charging slightly lower rent for good families. It is very heartening to know they’ve appreciated the gesture so much, as it gives them a few hundred ringgit extra to spend on other necessities in life,” she explains.

Solving tenants’ problems quickly and fairly will also endear you to them. Whenever problems arise, Wong aims for win-win solutions by communicating with his tenants empathetically.

“Communication is extremely crucial in helping you understand your tenant’s needs and fulfilling those that sound reasonable. After all, this is a long-term relationship. Solving their issues amicably is the most important thing.

“While money is important, it is tiny compared to the risk of a tenant wrecking your house. It’s not worth playing the nasty card,” he says.

Three property investors share their thoughts

Renting out your investment property may be a great way to earn “passive income”, but some landlords attest there is no free lunch.

Based on the experience of Wong Whei Meng, founder of home-rental application Speedrent, once you own a certain number of properties, your passive income may not be as passive as you think.

“You need to work on it by attending to your tenants’ needs, like maintenance, or chasing rents. Some tenants even want to meet you face-to-face occasionally. It’s not as hands-off as you would think,” he says.

Like many landlords in Malaysia, Wong has encountered tenants who didn’t pay rentals on time. As someone who loves to be a change agent, he started Speedrent, with the mission of making property rental a true passive income for property investors. He also performs credit checks on his tenants through Speedrent.

As for BY Tiang, author of several books including Salary Man Cracking the Property Investment Code, he was well aware of the work that needs to be done when he decided to be a landlord.

“First and foremost, you need to know the objective of the investment property – is it for capital gain or rental income? There is no free lunch in the world. If you want to achieve your goal, it requires time and effort,” he says.

“If you do not like to manage property, talk to strangers, or answer calls from tenants during weekends or at night, then this role is not suitable for you.”

Tiang admits more work is required when a landlord’s property portfolio expands, but says the higher revenue justifies the effort.

“I would highly encourage investors to (accumulate) five rental properties as quickly as possible. Assuming you have five properties and rent each at RM800 monthly, you would receive RM48,000 in annual revenue.

“If you target a 10% cash flow margin, that would equal to RM4,800 a year. This is a substantial amount of money, and you can use this strategy to pare your debt faster,” he explains.

“Several of my friends just bought one rental property each and they already complain about the headache that comes with it. Here’s the thing: one rental property is a headache because you don’t have enough revenue to justify the time and extra costs spent on the property.”

 

Create a good system

Hazel Leong, a property investor with a double-digit portfolio in the Klang Valley, believes in creating and enforcing a good system. Whether you have just one or 100 properties, a good tenant management system should cater across the board with minimal structural change, she says.

With her impressive portfolio, it’s no surprise that she has encountered diverse tenant-related problems, such as subletting without her permission, not paying utility bills, having police cases at their units, and chief of all, not paying rentals on time.

After an incident which caused her sleepless nights, Leong sold a unit in exasperation. On a heartening note, she did not walk away from the unpleasant episode empty-handed. Despite the trouble in tenant management, she bagged a net profit of about RM80,000 from the sale. The experience was also a wakeup call for her on the importance of being systematic.

“In the calmness after the unit was sold, I realised it was my inability to manage tenants that forced me to sell. In that moment, I decided that to invest in properties, I must be able to create an unbreakable system or process to handle tenants,” she explains.

Being a landlord has taught Leong that tenant-management problems do not lie solely with tenants, but also landlords’ lack of a proper system to manage them.

“Most people feel that it’s just ‘gut feeling’ when managing tenants, but to scale up, there needs to be a proper system in place.

“The most dangerous mindset is to underestimate the issue, assume a best-case scenario, or to think that it is ‘common sense’. Tenant management is really a science – it can be defined, worked on, improved and scaled,” she says.



This article first appeared in Focus Malaysia Issue 256.