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25 Biggest Mistakes Landlords Make That Could Wipe Out Their Profits (Part 2 of 2) - 2020

Updated: 6 days ago


25 biggest mistakes Landlords make that could wipe out their profits


Being a landlord is a learning experience. It's normal to make mistakes along the way and personal experience builds up over time. Some mistakes may not be detrimental, while some may be so bad that it could get you in trouble with the law.


Without guided experience, you may easily end up losing money, time, and sleep over common landlord mistakes on your investment properties.

We learn from failure, not from success! - Bram Stoker, Dracula

The mistakes can be categorised into 4 main areas :

1. Financials 2. Legal 3. Management 4. Marketing

This is a two-part article. Previously, in Part 1, which we shall look in the "FINANCIALS" and "LEGAL" type of mistakes. While in this Part 2, we shall look in the "MANAGEMENT" and "MARKETING" types of mistakes.


(14) EXPERIENCED AGENTS CAN YOU NAVIGATE OUT OF UNFORESEEN CIRCUMSTANCES


MANAGEMENT

(14) NOT GETTING AN EXPERIENCED MANAGING AGENT

Many landlords misunderstood that their agent who got them their tenant ought to be an experienced managing agent. In reality, both types of agents have different skill sets completely.


During tenancy, landlords can encounter all kinds of situations that they may not foresee.


Getting an experienced managing agent can help the landlord navigate, negotiate and neutralise out of sticky situations with their tenants. The managing agent can be the buffer to help smooth things out before they escalate out of control.


Normally, the retention fee for engaging an experienced managing agent is 10% of the monthly rent.


However, some of rental agents are willing to carry out the role of a managing agent out of good will provided the landlords signs on the CEA Prescribed Form that they will pay commission should there be a renewal.



(15) OVER NOSEY OR NEGLECTING TENANTS


MANAGEMENT

(15) OVER NOSEY OR NEGLECTING TENANTS

Once you handover your property to the tenant, it is considered "theirs".


In other words, you should not disturb them with multiple visits to inspect the unit on the pretext of paying a friendly visit.


As stated in the tenancy agreement, tenant has the right to quiet and peaceful enjoyment of the property.


On the other hand, "neglecting" the tenant totally is also not a prudent choice either.


Any checks such as valid passport and Employment Pass should be done well before you handover the unit to the tenant or before the tenant moves in.


Also, some Employment Passes may expire in the middle of the lease. You should set a reminder on your calendar to validate this one month before the expiry.


Also, landlords should investigate immediately if there are any complaints from the MCST or neighbours about abnormal activities by your tenants. For example, having a lot of people staying there when you just only lease out to one or two tenants should alert you already.

(16) NOT KEEPING TABS ON YOUR RENTAL PROPERTY


MANAGEMENT

(16) NOT KEEPING TABS ON YOUR RENTAL PROPERTY

Some landlords want to fetch a higher-than-market rate.


To do so, they allow their tenant to sub-let their lease. In return, they charge higher.


There have been incidences that unscrupulous tenants sublet out to more sub-tenants than necessary. Some even built unauthorised partitions in the apartment to accomodate more head count.


It will be in landlords' best interest to include a clause in the tenancy agreement to allow the landlord to inspect regularly on the list of occupants as well as all their passports and employment passes are valid.


Even if the main tenant runs foul of the law, the landlord is not exempted from penalty.


Ignorance of the law is no excuse.


(17) NOT PUTTING YOURSELF IN THE TENANT'S POSITION

MANAGEMENT

(17) NOT PUTTING YOURSELF IN THE TENANT'S POSITION

Landlords should buy with the head, not the heart; they are not the person who will live in the property. Disengage your emotions and buy a property that will generate a good return. Don’t fall into the common trap of buying a place you like but that is entirely unsuitable for the tenants you have in mind.


“Be careful to approach the decoration and fittings in the same way. Go for generic colours and furnishings, and think of your future tenants at all times.”



(18) TRYING TO DO IT ALL BY YOURSELF


MANAGEMENT

(18) TRYING TO DO IT ALL BY YOURSELF

The next common mistake that landlords make is not knowing when to ask for help. Landlords sometimes forget how valuable their time is and try to do everything themselves.


Just because you know how to fix a water heater does not mean it makes sense to drive an hour to your property, spend two hours fixing it, and then drive an hour home. You can call a skilled professional to fix the water heater and spend those four hours analyzing another property investment. Knowing how to delegate responsibility will often help you succeed as a landlord and help you keep your sanity.



(19) NOT DOING A PROPER INSPECTION DURING HANDOVER / TAKING OVER


MANAGEMENT

(19) NOT DOING A PROPER INSPECTION DURING HANDOVER / TAKING OVER

Ignoring the move-in/move-out inspections is another common mistake landlords with rental properties can easily avoid. This one is also related to keeping proper documentation and paying attention to the security deposit. Simply put, if you don’t document the condition of the property before the tenant moves in, it becomes quite difficult to prove that he or she caused any damage found after moving out. It becomes a “he said, she said” situation.  Keep in mind, local law may regulate whether an inspection should be done and how it should be conducted.


A comprehensive rental property inspection can help protect the landlord’s investment and clarify expectations with the tenant. Every damaged item, scratch on the hardwood floor or scuff on the wall should be noted in a report, along with photographs. Then put this report with your tenant file. A move-out inspection should be done, as well. Proper inspection documentation will go a long way to helping a landlord if he or she needs to tap the security deposit for repairs.



(20) BEING "MR NICE GUY"


MANAGEMENT

(20) BEING "MR NICE GUY"

I'm sure everyone wants to be a great landlord and still run a profitable business.


Renting property is a business with financial and legal consequences. A landlord should act courteously, professionally and provide good customer service. A landlord should socialize with a tenant or connect with one on social media. It’s easy to sympathize with tenants and let their problems become your problems, and have it interfere with your business goals, especially when it comes to collecting rent on time.


Establish clear policies and stick to the rent due date, applying any applicable penalties for late payments as outlined in the lease. A one-month lapse in rent can easily turn into two, meaning loss income before a landlord can even begin a costly eviction process. As always, keep meticulous records (see number two above). And, finally, do not accept partial payments, as the courts interpret partial payments from tenants as an acceptance of terms by the landlord.


The bottom line when interacting with tenants: Be personable but don’t make it personal.



(21) THINKING THE PROPERTY WILL ALWAYS BE SOUGHT AFTER


MARKETING

(21) THINKING THE PROPERTY WILL ALWAYS BE SOUGHT AFTER

Taking your own sweet time to lease out will cost you more than you think.


For example, the latest transactions for similar sized properties is $2700/mth. However, you expect to close no lesser than $3200/mth because you justify it with unblock view and therefore ought to command a premium. You don't want to lose $500 every month with a $2700 offer.


In reality, you are actually losing $2700 for every month that your property remains empty. On top of that you still have to take care of the mortgage. So the real opportunity costs are higher than you think.


Price it right, rent it out fast.



(22) "MORE VIEWINGS" IS NOT GOOD FOR THE PROPERTY


MARKETING

(22) "MORE VIEWINGS" IS NOT GOOD FOR THE PROPERTY


More is less.


Some landlords want to have more viewings, or hoping to have more viewings. They hope to catch the highest offer amidst all the viewings. In reality, this is a futile chase of the elusive Blue Bird of Happiness.


A bird in the hand is worth two in the bush. The longer your property is out in the market, the higher the risk of getting a lower rent in the end.


Your competitor landlords nearby may get desperate from the fierce and decide to drop price to secure the tenant. For every tenant that is "robbed" away from you, you will have a smaller pool to attract. Besides, subsequent tenants may offer you the lower price because your competitors have already spoilt the market with the low price.


Price it right, rent it out fast.



(23) SELECTING A POOR LOCATION


MARKETING

(23) SELECTING A POOR LOCATION


Location, location, location.


A lot of landlords may not be aware about the 8Rs when it comes to shortlisting a property to own.


More often than not, they allow their emotions to come in and buying "something they like". They justify by saying if they can't rent it out, at least they can stay in it. In reality, do you really want to stay in your investment property when you already are staying comfortably in your own home?


The first 8R is "RAIL". The LTA Master Plan 2040 stated that it wants to create an intricate network of MRT Lines such that each station is within 800 metres from any residential place (https://www.lta.gov.sg/content/dam/ltagov/who_we_are/our_work/land_transport_master_plan_2040/pdf/LTA%20LTMP%202040%20eReport.pdf)


So do own a property that is no more than 10 minutes walk from the nearest MRT Station. Any walking distance longer than 10 minutes would not be attractive to tenants, unless you are willing to reduce your price.


The second 8R is "RADIUS". You have to know who are your target tenants within 2 km radius from your property. Understanderbly, you may not want to own a property that is next to an industrial estate. There are also Business Parks and large foreign schools to consider. Business Parks have high profile PMETs who can well afford good rental. Foreign schools means the families are more likely to rent larger units nearby for ease of commuting to school.


The third 8R is "RESOURCE". The convenience of being close to eateries, supermarkets, malls, etc is a huge plus in the tenant consideration. Owning a property that is within 10 minutes walk to these amenities will ensure you of a good demand on your property.


I shall share more about the 8Rs in another next article.


Nonetheless, do work with experienced agents. They should be able to know what the 8Rs are and help you shortlist properties that match as close as possible.



(24) POOR HOME STAGING


MARKETING

(24) POOR HOME STAGING

Some landlords don't believe in sprucing up their properties up during the advertising period. They say they will "do up" the place once they secure a tenant.


This is just folly assumption. Tenants will never believe such landlords will live up to their promises to spruce up the place after signing the Tenancy Agreement. They want a property that feels like a home, not some kind of cheap hostel.


Do take a leaf from the Developers. They will go all out to make the showroom done up to impress would be buyers.


Landlords need not be so extravagant like Developers. All they need is to keep the place clean and tidy. Good home staging will always stand the test of time and showcase your property better,.



(25) OVERPRICING YOUR RENT


MARKETING

(25) OVERPRICING YOUR RENT

It's common for landlords to be enamoured with their own properties. They will justify asking for a higher than market rate rent as a result.


But if landlords were to just take a moment to consider from tenants' point of view, they would realise their folly. Over pricing will just help the other competing landlords rent out their properties sooner than them.


One way to stay competitvely priced is to check the latest rental transactions from portals such as www.srx.com.sg or www.propertyguru.com.sg


Being stubborn and not accepting a fair market offer has more consequences than you think.


For example, landlord expects $3000 for the rent. But the latest transaction showed maximum of $2700 only. So the landlord would rather have their unit empty because they think they will lose $300 every month. In reality, by keeping unit empty for a month, the landlord had lost $2700! In addition, there's mortgage to cover as well.



WHAT'S NEXT?

WHAT'S NEXT?


If you are unsure about how to successfully start your career as a landlord or fear that you may not have the time necessary to perform the job well, do give me a call.

I've been working with at least 200 landlords over my 10-year in this real estate industry. I can offer you to tap into my pool of network of getting the right tenants to take care of your property for you.

More importantly, I can guide you with the list of Do's and Don'ts for Landlord collated from my years of experience. This will help save you from heartaches, frustrations and loss of profits.


Previously, In Part 1 of this article, I'd shared about the "FINANCIALS" and "LEGAL" types of mistakes that landlords make.


There's just so much more to cover under each of the options highlighted above. That's because your situation is unique and the final strategy has to be customised to suit you.


Do call me for a 90-min free consultation if you wish to do more with your rental property so that your interests as landlord is well protected.



RELATED READINGS


RELATED READING


The 25 biggest mistakes Landlords make that could wipe out their profits (Part 1 of 2) - 2020


Anthony Yeo, Senior Associate District Director

Anthony Yeo is a Senior Associate District Director of OrangeTee & Tie, and has helped 450+ home owners successfully find buyers and tenants for their properties since 2009.


As one of the senior leaders in the industry, Anthony is also a real estate trainer and speaker.


Being certified for ACTA and NLP Masters Practitioner, Anthony has successfully groomed and mentored many top million dollar producing agents.

In 2019 3rd Quarter, Anthony received the award for 2nd Top Recruiter in OrangeTee.


Throughout his career, Anthony has helped many clients grow their wealth through selecting great property investments and managing their portfolios actively through Property Wealth Planning.