If you are currently renting, have you ever thought of ‘Can you make a profit from subletting?’ Here we detail the consequences, costs, and how you can make a profit!
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There are many ways to generate income from real estate. However, one method that often gets overlooked is subletting. Many are still unclear on the topic. Although there are various costs and consequences, when done right, you can make a profit from subletting!
What is subletting
Subletting is renting out a property by a tenant to another individual. That means you are generating profit without owning your property. It is also known as subleasing or rent-to-rent. For example, you rent a house from a landlord for RM1,000 and then rent it out to someone else at RM1,300. You gain a profit of RM300.
READ: Sublet Agreement In Malaysia – What You Should Know
Types of subletting
There are at least two types of subletting for anyone who thinks of venturing into this business.
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Subletting a whole house
This is like the previous example we gave you. You rent a house from a landlord at a certain price and then rent the entire place out to someone else at a profit. It can also also be a fully furnished or a partially furnished house.
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Subletting a room
Say you rent a 3-bedroom apartment. You will stay in the master bedroom and rent out the two other rooms on the property. In most cases, you, as the original tenant, essentially become the ‘landlord‘ to the subtenants.
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Why do people prefer to sublet
Is there a market for sublets? Yes, there is! Here are some of the reasons why people prefer to stay in a sublet:
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Affordability
Renting a room is cheaper than an entire house or apartment. A person may even get to rent the entire property for cheap as some of the tenants are willing to settle for a lower amount just so they can get the rent covered quickly and move on to the next thing.
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Short-term rental
If a person is expecting to stay in the area for only a short period, going for a sublet may be the solution. It’s usually hard to find short-term stays for a normal lease.
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Flexibility
A person has a chance to learn more about the neighbourhood and the building before signing a long-term lease or buying a new house. The flexibility also allows a tenant to freely change one home or room to another without having to worry about paying a housing loan.
Is subletting a good idea
There are many things to consider if you want to sublet your house. It’s wise to look at the pros and cons first.
Pros of subletting
Here are the pros that of subletting if you are thinking of subletting your whole house or rooms.
- You can earn supplemental income from rent money
- If you’re planning on a v action for a few months or have another job opportunity in a different city, you don’t have to leave the house your love. If if you do decide to move permanently, you won’t have to worry about the lease term or move-out date
- As with the previous scenario, someone else can pay your rent while you’re gone
- You will have a physical presence in the house when you’re gone. This will help to prevent robbery
- A subtenant can alert you and the landlord to urgent repair issues, which you’ll miss if you’re away
- You won’t have to move out early, and a longer rent history at one apartment may help you rent future apartments.
Cons of subletting
Nothing in this world is 100% perfect especially with subletting as there are risks and consequences that you should know of before deciding to do it to gain profit.
- The subtenant can steal your valuable possessions.
- A subtenant can break your agreement and leave you out in the cold. You can take legal actions but they are sometimes more trouble than they are worth
- You may have to pay for damages that were caused by the subtenant
- If the subtenant doesn’t pay on time, you’ll have to pay late fees and late rent payments
- When you sublet your house, you are putting your reputation on the line alongside your landlord.
Is subletting illegal in Malaysia
Whether it is legal or not, the rights to subletting depend on the terms of your tenancy agreement. Most agreements will have a clause about subletting. If it is not mentioned, you must always ask your landlord whether or not they are willing to allow you to do so. Some of them would not mind as long as they keep getting rent and any terms of their agreement with you, are not breached.
Have you heard of the Malaysia Association of Sublet Operators (MASO)
The Malaysia Association of Sublet Operators (MASO) is the first sublet room association recognized by the Malaysian government. They represent operators and landlords who are doing sublet business in Malaysia.
They aim to provide solutions for any conflict related to subletting and act as an organised body for matters related to the industry. There are four different types of memberships, that are open to the manager, operator, and any individual operating a sublet business
- Ordinary
- Associate
- Honorary
- Lifetime
What do you do before you sublet your rental property
Here are a few things you should iron out before you sublet your property:
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Refer to the terms and conditions in your tenancy agreement
The first thing you need to do is check your rental, lease or tenancy agreement. Most agreements will have a clause about subletting. In some cases, there might even be a subletting fee. The terms also give you a picture of the risks you take by subletting, for example, if the property is damaged, etc. You’ll have to ensure the subtenant does not break any of the rules too.
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Discuss with your landlord
Think, can I sublet my apartment without telling my landlord? Even if your agreement allows or says nothing about subletting, you should still ask your landlord first. You would not want something to go wrong and the landlord evicting both you and the subtenant!
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Advertise on property platforms
Finding a good tenant is crucial when you’re subletting. After all, the responsibility ultimately falls on you if any damage or anything unwanted happens. There is plenty of property of platforms that you can advertise on like iproperty.com.my. Be sure to include quality photos of the apartment, a list of amenities, and the rent cost.
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Draw up an agreement with the subtenant
A written agreement between you and the subtenant helps avoid legal disputes in the future. If you do not have a lawyer to draw up an agreement for you, there are plenty of subletting agreement templates online that you can use. You also need to decide if you want to take a security deposit from your subtenant.
How to pitch rental arbitrage to your landlord
A rental arbitrage is a way to earn passive income without owning property or assets. That means you are using someone else’s property, furniture, signing the tenancy agreement, and collecting the rent. This is usually for short-term rentals like Airbnb. The best way to pitch rental arbitrage to your landlord is first to check your tenancy agreement. If your landlord agreed to it, discuss if you have to pay more deposits, subletting term (long or short), and other specific terms and conditions.
How to sublet your rental property
Here are a few things you should iron out before you subletting your rental home or room:
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Sublet an individual room
This means you’ll be sharing the house with the subtenant.
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Sublet a whole house
You’ll have to move out and stay somewhere else. You can do this if you’re going for a month-long trip around the globe and why not earn some income while no one is staying at your place.
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Sublet a house without furniture
You might own the furniture and want to take it along with you to your new place. Be sure you mention the condition of the house in your advertisement. A house without furniture usually fetches lower rent.
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Sublet a fully furnished or semi-furnished house
Which furniture or utilities in the house are yours or the landlord. Be sure to detail in the agreement about what happens in any damages that occur.
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Sublet as a homestay or short-term rental
This option is popular in tourist locations like Pulau Langkawi.
What are the costs involved when subletting a property
If you’re having a lawyer draw up the tenancy agreement, it’ll obviously cost you. There’s also stamp duty. Rather than a single fixed fee, stamp duty for tenancy agreements is calculated based on every RM250 of the annual rental.
For tenancy periods less than 1 year, the stamp duty fee is RM1 per RM250. If you’d like an additional copy of the tenancy agreement to be stamped as well, the stamping fee is set at a flat rate of RM10. As for subletting, you might want to consider drafting a sublet agreement or a room rental agreement. This is to secure every party’s interest in the business – the landlord, the tenant, the sub-tenant. Again, talk to your landlord regarding getting his or her consent and check your existing tenancy agreement on subletting clauses.
Is subletting income taxable
There’s a misconception that rental income is classified under an investment. Therefore, it can be exempted from any form of taxation. This is false as any income you make from renting out properties is taxable. The only difference is how they are taxed.
As a general rule, the rent you receive is regarded as a non-business source of income and is charged to income tax under section 4(d) of the Income Tax Act 1967. However, if the property concerned is managed and let in such a systematic or organized manner that the letting can be regarded as carrying on a business, it will be regarded as business income. Therefore, it is charged to tax under section 4(a) of the Act.
There is, however, a tax exemption of 50% on the statutory income of rental received by Malaysian citizens who live in Malaysia. You may refer to Income From Letting of Real Property by the Inland Revenue Board Of Malaysia (IRBM) or LHDN for further explanation.
What happens if you get caught illegally subletting
Here are the situations that could happen if you get caught illegally subletting.
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Breach of the tenancy agreement
If you breach the tenancy agreement by illegally subletting, not only do you risk facing penalties, you might also be evicted by the landlord! Also, a legal expert might be brought into the whole disputes between a landlord and tenant when the situation gets complex. Landlords may apply to a court for a repossession order of his or her property from the tenant.
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You may face penalties or warning
Failing to carry out the tenant’s obligations can easily result in a breach of the tenancy agreement. Landlords may get legal action against the tenant for subletting his or her property. You may face penalties or warnings depending on the severity of the agreement breach. A lawyer will examine the legal basis for landlords seeking to take action against their tenants who do sublet.
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Edited by Rebecca Hani Romeli