How To Occupy Your Property With A Tenant.. Fast

How To Occupy  Your Property With A Tenant.. Fast

The occupancy rate for residential properties in Kuala Lumpur is relatively low. Currently at about 80% in general, it is significantly lower in the high-end segment. Downward pressure on the economy, both locally and globally, is not helping to improve this phenomenon. The effect of low oil prices has rippled through the Malaysian economy with vengeance. The property market has not been spared. This is especially visible in the KLCC area and other luxury markets within greater Klang Valley, where job cuts in big oil & gas companies including Petronas, have resulted in an outflow of expatriates and lower occupancy rates.

Occupancy rate is a key performance indicator of an investment property. Let me demonstrate with some numbers. A property that can fetch RM2,500 in monthly rental will give you an annual revenue of RM30,000. This assumes it is occupied 100% of the time in a year. However between new tenants every year, this property could be vacant for a month. This means the annual occupancy is 92% which also means that your annual revenue averages RM27,600 or RM2,300 per month. What if it takes longer to find a new tenant? If it takes you 2 months to find a new tenant, your annual revenue drops to RM25,200 or RM2,100 per month. This simple math establishes the all-important fact that occupancy is very important for cash flow. As an investor you must target high occupancy rates or in simpler words, you must have tenants occupying the property as frequently as possible.

So, how do you do this?

1. Location

2. Treat your property like a business

3. Realistic rental rates

4. A manageable number of RENs with good track records

5. Creative models 

1.LOCATION

This is probably something you’ve already heard countless times – location, location, location. Although most people have heard this, it is quite surprising how little attention is paid to it.

Of all the things you could do to rent your property out fast, this is probably the most difficult to change. You cannot change the location of your property. So, it is very, very important you get this right when you decide to invest. Some important location-related questions to ask before investing:

• Does the property have good connectivity vis-à-vis proper roads, highways, rail links, and bus routes?

• Is the property close to important amenities like school, hospital, banks, and commercial centers?

• Are there plenty of job opportunities near your property? The more jobs available or created near your property, the more demand there will be for housing.

• Is the property close to a good mall? Notice that shopping malls like Midvalley Megamall, The Curve, and One Utama have played pivotal roles in influencing the popularity of its surrounding neighborhood

. • What is the current occupancy rate in the neighborhood like? The above are what we call demand drivers. If there are strong demand drivers for a property, it will probably fare well in the rental market and appreciate handsomely.

2. TREAT YOUR PROPERTY LIKE A BUSINESS

If you are in the business of letting out properties, then you should be doing it like a proper business. Quite a number of years ago I had a client who was unable to rent her property for over 6 months. When I had a look at the property I sensed why. The property was dusty and dirty. It had a musty, stale odor lingering inside. There were cobwebs everywhere. It looked dreadful.

I suggested that we clean up the whole apartment and stage it nicely. She was very reluctant so I offered to do it at my own cost (yes, I was full of zest then). I got the apartment thoroughly cleaned and washed, rearranged some of the furniture, put on bed sheets, and used a good air-freshener. The apartment looked so nice even the owner was impressed. She offered to change the curtains. I found a tenant for this apartment a week later.People who treat their buy-to-let properties like a proper business never seem to have problems with finding tenants. They calculate everything. Every cost that can improve occupancy is an investment to them. However, they do not spend aimlessly. They are prudent enough to balance revenue and costs.

3. REALISTIC RENTAL RATES

Realistic rental rates do not necessarily mean low rental rates. Rather, it means giving perceived value. What is the difference between a Mercedes Benz E-Class and a Honda Accord? What is the difference between a Louis Vuitton and a Coach handbag? What’s the difference between a Rolex and a Tissot? There may be clear differences in quality, but this difference in quality is not necessarily marked by an equal difference in price.

The difference in price can be 100% to over 1,000%. Yet, people are willing to pay this huge difference for the brand. This is because consumers perceive the brand to be worth the price. So, while John can tell the time just fine with his Tissot, he would be happy to pay RM30,000 for a Rolex if he can afford it. And that really is how you should be thinking about rental price. Would a potential tenant see your property and perceive your asking price as reasonable? In 2011 I visited a studio apartment in Damansara Perdana. It literally blew me away. The renovation was not expensive but the apartment was classy, functional, and cozy.

You could tell that a lot of thought had gone into this apartment. The owner’s asking price was RM1,500. It was about 10%-15% higher but I had no doubt it was worth it. I think everyone who saw it thought the same. This apartment has no occupancy problems. I’ve also never seen it advertised in any of the online property portals. This owner is getting a hot supply of leads and does not even need to advertise! Then I have visited apartments that barely impress but have significantly higher price tags than the average. Needless to say, these apartments are vacant longer than usual. You do not necessarily have to put in expensive furniture or make your property look like a page out of the Malaysian Tatler. You just need to be realistic.

I know a very savvy property investor who owns a number of properties. His rental rates are 10% below the market average. He does not try to make his apartments very beautiful but because of he exceeds perceived value with his asking price, his occupancy rate is very higher. To him, keeping a tenant long-term and increasing occupancy to nearly 100% saves him more than 10%. He is therefore happy to lower his rental rate.

4. A MANAGEABLE NUMBER OF RENS WITH GOOD TRACK RECORDS

Real Estate Negotiators (RENs) are perhaps your most important partners in the business of finding tenants. A good REN will have a strong network of clients (corporate and individual), advertises her listings in a frequent and consistent manner, is specialized in a particular area or genre and has a good soft skills. The biggest mistake you can make is to appoint 50 random agents to rent out your property. More so in the high-end market. You will find yourself wasting a lot of time dealing with unqualified leads and too many distractions. You could inadvertently also create a price war as RENs advertise on the same channels.

50 RENs with little marketing skills will end up reducing price to secure the same pool of leads. A better approach is to have 5-10 RENs with solid tack records for your type of properties. Interview the REN you would like to appoint. Ask her about her client base, ask her for the number of properties she has let out in the last 12 months, ask to see some of her advertised listings, and observe her soft skills. Having manageable number of RENs with solid track records by your side is akin to having the Dream Team play basketball for you.

5. CREATIVE MODELS

Changes in technology have made renting out your property a lot easier. One of the most significant developments in this step is the rise of AirBnB. With AirBnB, you can list your property in less than 30 minutes and have it seen by literally millions of people around the world. You become a host to holidaymakers and business travellers. I have been hosting hundreds of people from all over the world for nearly 2 years now and the experience has been wonderful.

 

This article was first published in the iProperty.com Malaysia July 2016 Magazine. Get your copy from selected news stands or view the magazine online for free at www.iproperty.com.my/magazine.  Better yet, order a discounted subscription by putting in your details in the form below!
 
 

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