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

I increased my term + accident insurance policy with Aviva

I recently maxed out the SAF Aviva group term insurance on both term life plan for $1M and accident plans for $600k, which costs me $47.42 and $77.37 per month respectively. This is on top of my existing  whole life plans . I did this to ensure adequate insurance coverage in times of need. The only downside of this is that Aviva pays out a maximum of $20M per event, and it's prorated accordingly, so don't bet your house on this and have some other backup. Term covers up to age 65-70 (your income generating years), and whole life covers your whole life (including your retirement years). In general whole life plans are alot more expensive per $ of coverage, compared to term plans, so you have to utilize both to get adequate coverage at a reasonable cost. In Singapore where voluntary death isn't an option, it could really bankrupt a family. Some say to purchase a $1M term plan that covers you up to age 99. That means you can't live past 99, but such plans are...
Post a Comment
Read more

Purchasing life insurance

I recently re-balanced the family's insurance schemes. I remember just when i was just starting out, my cousin once told me to buy only Term + Critical illness insurance. I didn't listen and bought an investment linked plan from one of my friends (he played the friend card, which is annoying). They guarantee you 3% returns or something similar, along with coverage. I bought the Manulink Flexi plan on Nov 1 2008, and had it for 89 months (7years, 5months). Monthly premium was $206.59. Total Premium paid was $18386.51. I remember getting back only around 11k when i surrendered this policy. Basically I paid $7386.51 in total for term + critical insurance coverage for the 7+ years, about 1k per year. Looking back, i did not require such coverage as i didn't have any dependents. Lets see the figures comparing what i would've otherwise gotten, had i invested in a stable dividend stock/reit, since the premise is that this policy is not necessary. I'm looking at a t...
Post a Comment
Read more