For an investor, property investment is like a business. The tenant is the customer (buying a service/ product. In this case, renting a place to stay in exchange of an agreed upon sum of payment) and you are the business owner (the product/service). The bottom line for the continuation of any business is to make a profit. As such, the goal of property investment is to make a profit. As in most business operations, there has to be an allowance for bad debts. For a viable and sustainable property investment business, the bad debt should not be more than 5% of the total rental income for the year. The tenancy agreement is one of the important tenant management tools. It is just a formality and it is the last resort if all other efforts in rental collection fail.
In tenant management, be approachable and helpful but not overly friendly. Tenant selection is one of the most important steps in property rental business. You may tie-in an incentive for early rental payments. For example, 12 post-dated monthly rental payment cheques or a standing order to the bank for direct payment to your bank account. Do not get too distressed if the tenant does not pay the rental on time. This is just part and parcel of the property rental business. Have a reminder system in place such as an SMS, Internet and call. If the tenant fails to pay the rental within the first seven days of the month, call and find out their reasons. If it is reasonable, you may postpone the payment to a few days later or reschedule the payment accordingly on a case-to-case basis.
Educate your tenant on the rental payment requirements as the landlord has monthly repayments to a bank. The property may be auctioned if the due monthly repayments are more than three to six months. Keep good tenants by not raising the rental and eliminate the bad tenants by increasing the rental.
For a commercial property, you may support your tenant’s business by being their customer. If your tenant’s business is profitable, so will your property rental business. You may also contra or exchange the rental overdue with your tenant's products or services.
It is best to communicate and/or meet with the tenant and discuss how to resolve the outstanding amount. When all measures fail and the tenant has terminated all communication, then consult a good lawyer to consider the appropriate legal actions such as termination of the tenancy agreement, double rental, follow up with a distress order and/or eviction. Your lawyer would be the able to best advise you on the course of action based on the terms and conditions detailed in the tenancy agreement.
By Dr Peter Yee, he runs How to Make Money from Residential, Commercial and Auction Property workshops in Malaysia. For more information on upcoming workshops, SMS
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