Easy & difficult
Investing in rental is a complicated process. This column is the third of a four-part series on rental income.
In the first one, I identified three keys to managing rental investments: Master the fundamentals of the rental market; deploy a clear strategy for servicing your tenants; and keep your expenses under control.
In last week's column, I broke down the characteristics of the market and emphasised the importance of investing in an underpriced home in a popular neighborhood with good public transportation.
I also stressed that finding the optimum balance between purchase price and rent is your key to success.
Try to minimise the cost of your investment and maximise the rent.
(Hint: Orchard and other expensive areas aren't necessarily the best places to look for an optimal balance.)
Now, let's turn to developing a client service strategy.
In the rental business, your tenants are your clients. Without them, you don't have a business.
Not all landlords get this point and end up turning off potential tenants.
The rental community in Singapore is a small one, and there are plenty of stories of potential renters walking away from unpleasant landlords.
Having been both a rental investor and a tenant, I categorise renters into two groups: The easy renters and the difficult renters. One can then devise the appropriate service strategy.
Easy Renters treat your home as if it's their own. If you get lucky, they even improve the value of your investment by making modest upgrades. Examples include planting lovely gardens, renovating koi ponds, or putting up built-in bookcases.
Savvy landlords spot easy renters from a kilometre away and will even reduce their rent to win them as tenants.
Landlords know that they're better off trading a couple hundred dollars a month for a nice family who pays their rent on time.
Often, you'll hear real estate agents using the fact that they're representing an easy renter to bring down the rent.
The formula for servicing an easy renter is simple. Respond to their requests with a smile knowing that most of them will cost you very little and will be easy to accommodate.
For those rare, difficult requests, there's usually enough goodwill between both parties for an easy compromise to be worked out.
Difficult renters are far more tricky and they come in many forms.
They can be demanding, entitled, and even nasty. Often, they are also late with their rent payments.
The danger for you as a landlord is that they can bring you down to their level, causing a contentious relationship. This isn't good as the one most likely to get hurt is you.
They're living in your investment, and it doesn't take much to exceed the security deposit in terms of physical and psychological damage.
The best way to avoid a difficult renter is to develop a reputation among real estate agents for being a good landlord. Agents and, by extension, their clients know who are the good and bad landlords.
If you're good, agents will bring you nice families. You don't want to develop a bad reputation. As they say, a dog attracts fleas.
If you find yourself stuck with a difficult renter, the best strategy is to remember that rental investing is a business - don't fight fiery clients with fire.
Deploy your real estate agent as an intermediary so that interaction with the renter can be conducted at a professional level. A good real estate agent knows how to manage difficult renters while maintaining your good reputation in the market.
Next week, I close out this series on rental income with some advice on managing the expense side of your rental investment.
Sam Baker is co-founder of SRX, an information exchange formed by leading real estate agencies in Singapore to disseminate market pricing information and facilitate property transactions.
HDB stats in may
HDB RESALE PRICES
- 1.2 per cent drop compared to April
- Prices are at a 2-year low
- 11.1 per cent drop compared to April
- 19.4 per cent drop compared to May last year
The median amount below SRX's estimated market value that buyers are paying for their flats
Source: Singapore Real Estate Exchange