BY Kent Tan
One of the most lucrative passive incomes aspired by many is reaping monthly rentals. Though the “occupation” seems as easy as eating a burger, it is not all rainbow and sunshine, as it comes with its fair share of hazards and risks just like any other business.
Welcoming tenants into your life brings as much perks as perils, along with footing out cost for the property upkeep. To present a clearer picture, here are six things to consider before being a landlord.
Rental income is taxable
Owners ought to declare taxes when they rent out their properties. However, there are ways to plunge the taxes. Expenses which are allowed deduction are the direct charges that are wholly and exclusively incurred in generating the rental income.
Examples of such expenses are assessment and quit rent, interest on loan and fire insurance premium, expenses on rent collection, expenses on rent renewal, and expenses on repair and service charges.
Only expenses incurred after the apartment has been rented out are deductible from the rental income. Initial expenses are not deductible. Examples of initial expenses are the costs incurred to obtain the first tenant, such as advertising, legal fees to prepare rental agreement, stamp duty and commission for the real estate agent.
Finding good tenants
The quality of tenants somehow determines the quality of your life and it could mean a long waiting session. While there are a variety of websites that could link you to tenants for free, you are only interested in good tenants who will take care of your house and pay rent on time.
It’s best to have the widest exposure to find the right tenant and that could mean a monthly fee to appear on premium spots of these websites for a minimum of RM50. Also, don’t just rely on property websites. Your circle of relatives, friends and acquaintances could be your tenant pool too.
Apart from an attractive location, it’s important to do home staging to make your property look appealing to compete with others in the neighbourhood.
Difficult tenants exist
An undemanding landlord might eagerly hand over the keys to tenants without much hesitation and end up with nightmares of late rental payments or having their properties mishandled, which would impose a negative impact on their profit-making scheme.
It pays to get a more detailed survey of potential tenants before extending your trust to avoid unpleasant experiences throughout the tenancy period.
Most home owners will have their properties equipped with home insurance to cover loss of rent in the event their houses are rendered inhabitable due to an insured event (fire, robbery and others) for the period of reinstatement. Some insurers such as Etiqa Insurance Bhd provide such services.
What to include in your lease
Though tenancy agreements are quite standard and one can follow a general template to save the hassle, landlords are entitled to customise the terms according to his/her own preference; such as general conduct, parking ethics, alterations to the property, proper use of plumbing fixtures, pets, guests, maintenance and expected conditions upon moving out.
Costs for maintenance work
Even with the best tenant, the rules of physics still apply and wear and tear of equipment and fittings in the house such as the plumbing and paint will happen.
In general, properties are constantly in need of maintenance. Some major repairs or renovations might even require keeping the property vacant for months. These costs will eventually cut into the profit margin. However, they are necessary to attract quality tenants who are able to pay higher rents for quality living.