Renewing rental property contracts Skip to main content

Renewing rental property contracts

Every 2 years, I have to renegotiate the property lease with the tenant.  If the tenant was good, I usually extend their lease - it's pretty much a no brainer, unless they're lowballing me.
Costs to factor in when you switch tenants:
  1. Lost rental due to vacant property. It takes about 1 month (0.5 months if you're lucky) to successfully market the unit and about 2 weeks for the tenant to move in and start paying rent.  So it's about 1-1.5 months in lost rental income.
  2. Time spent passing keys to housing agents to market your place.  Do not use an exclusive agent, as it ties you down with someone with a finite network.  They will always try to sell you the idea of exclusivity (being focused, they can control the rent offers, blablabla), and it's in their interest to, not in yours.   What happens after 1 month of exclusivity and they still can't find a tenant?  You fire them, they walk away with no penalty.  It's your lost rental income. Do not use an exclusive agent.  You have to understand the market, manage the 3-4 agents yourself, and make the final decision.  No-one else should make the decision for you.  See below for the rental contract value calculation.
  3. Agents commission which is 1 month rental for a 2 year contract, or 0.5 month rental for a 1 year contract.  So another month of rent lost here.
  4. Staging costs: repainting the place, cleaning up, polishing the floor, washing the curtains.  This will cost about SGD1.5-2k.  Any new furniture that the previous tenant damaged (you may not be able to claim it back from them as it's classified under wear and tear) that you need to make the place look comfortable, and the costs begin to add up.
It's better to continue with same tenant, as long as they didn't trash/damage the place.  It potentially saves you 2-2.5 months of loss rental income, your time, and any extra furnishing/cleaning costs.
I would look at the total rental contract value like this:

Assuming the current rental contract is 4k/month, hence 96k over the 2 year period. I'd subtract 8k (2 months) from 96k, which is now 88k and divide this over 24 months to get your baseline rental figure of 3.6k for the full 2 year extension.  If they want a shorter extension, prorate the calculation accordingly. Use this figure as your walk away target (in a falling rental market) to negotiate with your tenant.  In a rising rental market, just take the market rate.

The property rental income serves as a stable base to the portfolio, a very stable hedge.  The yield is never supposed to be high in Singapore, probably around 2-3% at best after subtracting management fees, property taxes, and any touch ups to the property.

Market factors to look out for in order of importance:
  1. Supply and prices of similar and newer properties nearby, and their proximity to MRT.
  2. General expatriate workforce strength and economy health
  3. Updated demographics of the condo
It takes practice and a good understanding of the property market to execute this well.  The best way to understand a city is to understand its property market.
Labels:

Comments

Post a Comment

Popular posts from this blog

Hotel Review: Novotel Halong Bay

As I travel quite often for work, I’m going to keep a record of all the hotels I’ve stayed in, to serve as a reminder of what works and what doesn’t. It’ll make future bookings much easier. Unfortunately there was no SPG/Marriott hotel in Halong Bay area, so i ended up with Novotel. Location: Along the western side of Halong, right across some ongoing construction. Room: Decor is dark wooden, taking a spin on modern Chinese. Wood flooring and a huge king size bed that's abit hard and uncomfortable. I like the decor though. Gym: This has got to be the saddest hotel gym i've ever seen. I decided to run outside instead. Breakfast: The selection is so limited, and it's not even that good. Nice decor though. Would I return? Definitely not to this 4 star hotel. Thankfully I was only here for 1 night. Although the place is filled with Korean tourists, you can eat some basic Korean breakfast here, but that's not my preference.
Post a Comment
Read more

Hotel Review: Sheraton Grande Sukhumvit, a Luxury Collection Hotel, Bangkok

As I travel quite often for work, I’m going to keep a record of all the hotels I’ve stayed in, to serve as a reminder of what works and what doesn’t. It’ll make future bookings much easier. Location:  Right at the Asok BTS, across from Terminal 21 and the Westin.  I think traffic in this area is too jammed, and will likely avoid in the future. Room:   The bed is very comfortable, but the decor is quite old school.  The room feels like parts of it has been modernized, but parts of it are still the same as when the hotel was built.  The whole scheme doesn't gel. The bathroom is also dated and in need of upgrade.  Who uses small tiles like this in bathrooms nowadays?  This is so 1990s. Gym:  It has a couple ellipticals and a couple treadmills.  Not much selection of weight machines and the space is rather crammed.  The decor is seriously old school 1990s, but I think all Sheratons are like this. Breakfast:  The selectio...
Post a Comment
Read more

Max out your Medisave account in Jan

Effective Jan 1, 2019 the Basic Healthcare Sum (BHS) has increased from S$54,500 to S$57,200. Funds in the Medisave Account (MA) and Special Account (SA) earns 4% p.a, while funds in the Ordinary Account (OA) earns 2.5% p.a. Assuming you have hit the $54,500 limit in 2018, we can take the opportunity to top up $2700 to our Medisave Account by this month using cash to leverage on the following benefits: Tax deductions if you use cash to top up your MA. Note the $7000 annual cap on CPF deductions, so the SA top up in FY2019 will be $4300. When your MA has been maxed out, your monthly CPF contribution from your salary and employer will flow over to your SA. This account also earns you an interest of 5% p.a. Once your SA has met the met the Full Retirement Sum (FRS), the funds will flow over to your Ordinary Account, which earns you a 3.5% interest rate p.a. In summary, whenever the government increases the Basic Healthcare Sum, quickly max out your MA i...
Post a Comment
Read more