Buying an investment property and then renting it out – this is a popular and common investment vehicle that some Singaporeans use to enjoy passive income.
It sounds easy on paper – getting a lease signed and a tenant that is willing to pay their monthly rental with no fuss.
But in my 13 years of experience, managing and closing approximately 300 residential tenancies – this form of investment is NOT as easy as it seems.
This is especially so when there is a dispute between the the landlord and tenant.
Being the middleman to help resolve these disputes is especially trying and challenging.
I personally had assisted to solve many of problems on my part that the landlord faced.
It is a huge headache, wastes the time of everyone involved and a lot of effort is required to solve the various issues.
So if you are a property investor who is looking for good tenants and good returns on your property investment – here is an opportunity for you to learn these common issues that arises… AND NOT repeat these mistakes!
1. Overcommit to furnish or purchase items as per request stated in the Letter of Intent
As a landlord – you know you will need to check your tenant’s employment details.
At the same time, please pay attention of the items requested by the incoming tenant.
More importantly – please do not commit yourself to buy the requested items even after you had accepted the letter of intent and bank in the good faith deposit cheque .
It is safe to proceed to purchase those requested items ONLY after the tenancy agreement is signed with another 2 months security deposit received upfront.
This is to prevent from over committing as the tenant might back out for some reasons:
- during the period after the letter of intent was submitted
- during the tenancy agreement stage where both landlord or tenant could not agree on certain clauses
2. Not vetting or clarifying the tenancy agreement
When in doubt on any clauses indicated in the tenancy agreement – please seek advice from the realtors that had forwarded you the tenancy agreement.
Do not pen down your signature on the contract if you are still unsure on certain clauses.
I had experienced situations whereby landlords didn’t vet through the tenancy contract and did NOT truly understand some the clauses.
All these gives rise to misunderstandings between the landlord and the tenant. But the disputes only arises later on during the term of tenancy.
Common clauses in the Tenancy agreement to take note:
- Minor repair clauses – the amount varies from $150 to $300 depending on the size and age of the apartment
- Aircon Servicing clause – to include top up gas and chemical wash to be borne by the tenant if necessary
- Diplomatic Clause – in most cases , tenant is required to stay 12 with 2 months notice (14months) or 2 months rent in lieu if they wish to exercise this clause
- Sale with tenancy clause – to allow landlord’s agent to bring prospective buyers to view the apartment during the tenancy period with prior appointment
- Refund of pro rate commission – in the event of premature lease termination, the tenant on behalf of the agent have to refund the commission paid by the landlord to the agent’s company on a pro rate basis
3. Landlord did not provide sufficient cleaning invoices during handover and show to the incoming tenant
As a realtor securing tenants for my landlord, I will engage professional cleaning services (basic cleaning like cleaning of the apartment, aircon servicing and dry cleaning of curtains).
I will then present these invoices to the incoming tenant during the handover.
The reason for doing this is to manage expectations.
This is to make clear to tenant that the same quality of cleaning is expected when the landlord takes back the apartment.
This is important because at the end of the tenancy agreement – which is about 1 or 2 years later – some tenants will claim that they did carry out the cleaning services but could not show any invoices.
By showing the invoices in the beginning of the tenancy, we make it clear that similar invoices will need to be presented during the handover of the unit back to the owner.
4. Not checking their bank account regularly is one of the common mistakes that some landlords make and it could cost them dearly
In my early years in the real estate industry, I had encountered a landlord who did not receive rent for 10 months. He discovered this when he was looking to renew the tenancy contract with the tenant.
Later I found out that the landlord did not make the effort to check his bank account regularly.
I discovered this when I sound the tenant out to check if he wished to renew for another year. The tenant had not been paying despite the fact it was indicated in the tenancy contract that rent was payable on the 1st of every month .
Eventually the landlord evicted the tenant with grave consequences as he is unable to recover the losses. His security deposit that he held was barely enough to cover the repair cost and the loss of rent.
Therefore this is a reminder to all landlords to check your bank account regularly for the rent payment. While you have the security deposit to fall back on – it might not always be enough.
5. Landlords putting unnecessary stuff into the inventory list
If you are the landlord, please be mindful of what you want to include items in the inventory list.
Of course, it is essential to indicate the white goods, furnitures and fixtures like basin and WC .
But remember loose items like standing fans, iron/ ironing board, vacuum cleaner, clothes hangars, couch pillow , carpets or even cutlery should not be included.
These are not considered as normal furnishing items to begin with and are prone to breakdown due to wear & tear.
Some tenants will request for a replacement in the event that the item breaks down which result in unnecessary expenses for the landlord.
Hence just provide the essentials and turn down any tenant’s request nicely if necessary if they indicate these requests in the letter of intent.
I also noticed that this is common in apartments where the landlord used to stay there.
This is because they do not wish to bring along these used loose items into their new apartment or thought it might be useful to the incoming tenant.
6. Not getting a reliable professional / handyman
Cheap is not always good.
Engaging a reliable handyman or professional is very important to rectify those reported defects as it can be very stressful to both tenants and landlords in some difficult situations.
This is especially if the issue is serious – like water seepage problems.
If it is a recurring problem that creates a lot of inconvenience for the tenant, there is a possibility the tenant might not renew the tenancy as they do not wish to go through the hassles of facing the problem again and again.
It can be costly to engage a professional and some landlords will always choose the cheaper option.
But this usually will result is non-renewals and regrets later on in the future.
7. Relying and expecting the agent to manage all their tenancies
Many landlords always expect their realtors to manage their tenancies throughout the tenancy.
But the truth is the realtor’s responsibilities will end upon handover of the apartment to the incoming tenant.
This dependency on realtors to manage the relationship between the owner and tenant has become the norm in the local Singapore context.
But that doesn’t make it right.
In other countries, a management fee is REQUIRED if the landlord wishes to use the realtor’s services to manage their tenanted apartments.
It became the norm in Singapore because the realtor hopes that the landlord/owner will engage their services again if the time comes for the owner to sell the apartment.
If the realtor is willing to manage your tenancy – it is based on a pure goodwill basis. The realtor has NO OBLIGATION to service the tenancy at all.
For further clarity, you can refer to this page from the CEA website:
It is necessary to engage a realtor to service the tenancy especially for those who frequently travel overseas and have no time to manage the tenancy.
If any problem arises, it becomes difficult for the landlord to resolve the issues as it will be hard for the landlord to deal directly with the tenant.
As for landlords who have engaged realtors to get a tenant for their apartment, you might want to consider engaging them to manage your tenancy once it’s secured with a professional fee.
8. Not starting early to source for a tenant replacement
In the event that your current tenant chooses not to renew the lease – they will usually make known their intentions to the landlord 2 months before the current lease expires.
This is based on the standard tenancy agreement.
However there might not be sufficient time for the landlord to source for a replacement.
The landlord needs to consider the number of factors that results in loss of rental income.
This is especially when the apartment is left vacant with the current tenancy expires.
- Reinstatement / Repair works that will probably take as long as 1 – 3 weeks when the outgoing tenant vacates the premises
- Marketing / Viewing time to source for the replacement which can take as long as 1 – 3 months
- The incoming tenant might start the lease at a later date which probably exceeds the 2 month time frame. Some landlords have no choice but to accept it as they are aware of the costs involved if the apartment is left vacant
Seasoned Investors knew that not starting early to source for a replacement can be expensive .
In my opinion, landlords should sound the current tenant out at least 3 months in advance.
Check your tenant’s intention whether they wish to continue the lease. In the event of non-renewal, the landlord can start taking action.
For example, assigning an agent to start marketing their place with the consent of the current tenant if he / she decides not to renew the lease.
This small step can go a long way to preventing a unit from becoming vacant for too long – each month it is vacant is essentially a cost to the owner’s pockets.
My Thoughts on the 2019 Residential Rental Market
The tenancy vacancy rate has been high for the last of couple of years meaning there is a huge amount of supply left vacant due to the lower foreign employment rate.
This means low demand meeting a huge amount of ready supply .
For 2019, the rental market might turn to a positive note – due to more than 60 en-blocs sales that had transacted and completed in 2017 and 2018.
The displaced owners of the affected enbloc properties will:
- either stay in another property that they own
- buy another property somewhere else
- do nothing and enjoy the enbloc sales proceed payout. Most do not physically stay there as the place was bought for investment purposes and rented out. Their tenants will have to find another place though.
Finally, there will be a group that will adopt a wait and see approach for the right time to enter the market therefore they will rent a place for the time being.
What about the tenants that are currently staying in the en-bloc properties?
Since they have to relocate due to this ongoing event, I believe there will be an increased demand in the rental market.
I hope this article provides some insights on the responsibilities of the landlord-owner, tenants and realtors.
If you are an owner looking for tenants or simply thinking about entering the property market, I invite you to contact me for a no-obligation discussion.
There are pocket of opportunities for landlord-owners to make good returns through renting out their properties as mentioned in my previous article.