6 ways to earn from rental properties
MANILA, Philippines - A condominium unit with triangular shape which is considered unlucky in feng shui was put up for sale. It was ill-fitted with mismatched pieces of furniture. It was cramped further because of too many items scattered all over the place. The only view from the rickety window was another building, hardly appealing at all.
No one was interested in buying or renting it. Since it was uninhabited and was on sale for more than a year, the unit aged further that upon inspection, the wife of Carl Dy, a sales director for Ayala Land Sales Inc., had to step back since the smell was intolerable. While his wife did not exactly share his belief that the unit could use some makeover, Carl went ahead and bought it.
The unit was eventually purchased in 2009 for P1.2 million and renovated for P300,000,00. To date, the tenant has renewed for the 4th year, renting P17,000.00 monthly.
Find out how Carl made that happen and get tips on investing in rental properties, which he shared with the audience of the Money Summit and Wealth Expo held at the SMX Convention Center, Pasay City on July 13:
1. Identify your market
Buy and hold. Property investing is a marathon, not a sprint, Carl said. He also personally thinks that it is best to buy and hold on to a property and earn from the rental income. "Work as hard in your job and earn as much as you can. Buy a property and hold on to it. Otherwise, it is like selling your goose that lay the golden egg. Sell only if you really, really need the money.”
Study your neighborhood. Once you spotted a property and eventually acquire it, study your community as this is your immediate market. For example, a 3-bedroom condominium unit is not exactly saleable to students living in the university belt: its cost will not be within their budget.
Study establishments around you. Check those establishments one ride away from your property to see what is around. Leverage them to help make your property saleable.
Know your product. One valuable lesson Carl learned is that not all properties are equal. What might be appealing to a prospective buyer might not be to another, like how Carl and his wife differed in opinion over that condominium unit. He knew the potential it had. It now brings in a comfortable rate of return of 13% and net of 10%.
“Real estate is volatile but if you know how to play the game, it is a steady investment,” Carl said.
Do not overprice. “Property investing is best played long-term. Your price has to be fair with your tenant, especially if you want long-staying tenants. As much as I can keep my rent at the same price, I keep it. That way, I also keep a long-staying tenant,” Carl said.
2. Furnish your unit
Have a single theme. Thinking that the unit would appeal to Makati yuppies working at the central business district (CBD), Carl renovated the unit and jazzed it up with solid, complementing colors, fitted it with matching furniture from the sofa to the bed to the bar sink. He had the toilet and bath installed with glass partition and a hot-and-cold shower.
Do not be ordinary. You must have a unique selling proposition and highlight that in renting out your property. In Carl’s case, that the condominium was located in Makati CBD was already its selling point, but he had to complement that fact with design and furnishing to make it more appealing — and it did.
Create lots of storage. The tiny storage room in that unit now has more space when mounted with shelves. The entire unit also had more storage with those creatively fitted beams and counters, a breather and space-saving feature of the transformed unit. In condominium units that are by nature small, an extra storage is something to be thankful for, Carl said.
Do not buy cheap and flimsy furniture. Good properties need significant money to purchase, and beautifying and maintaining them need more money. In the long run, it can be a good source of cash flow as well as capital appreciation.
Just like in Carl’s case study, the transformed unit has been bringing in good income from its long-staying renter. “The renter is happy. I am happy. It is a win-win thing,” Carl said.
3. Attract renters
Take beautiful photos. Carl advised the use of the HDR (high dynamic range) feature of your digital camera or smartphone camera to take photos of your rental property. Take also pictures with lights on to emphasize the interiors, and lights off for the view to help make your rental property more attractive even in photos alone.
Create a sales pitch. Of course, the stunning visuals must be complemented with an effective sales pitch. You must be ready with a short, direct-to-the-point presentation or an elevator pitch highlighting your rental property's unique and value selling features. Above all, be prepared to answer questions, and respond honestly than switch to an unconvincing hard sell.
Use media. Carl personally prefers the traditional media, like placing classified ads in the newspaper as this is easier for prospective renters with every detail having been already printed. With online ads, renters have to search using keywords until they stumble on your ad. However, Carl also promotes the use of social media and those sites dedicated to home buying, renting or property selling and investing to advertise your rental property to reach more prospective renters.
Send out direct mailers. If your rental property is located in nearby offices, send direct mailers to their HR departments and ask them to spread the word that you have an available unit. Carl said such selling strategy works because those departments know who among their employees are looking around for a nearby place to rent.
Make an open house. “Send invites to the people in your building since they are your first market... they may know a prospective renter. Invite them to view your place. If there are those who come and are interested, you create an urgency,” Carl said.
4. Stage your unit
Make sure the details that are easily seen or are particular to a prospective renter are taken care of. Keep the entrance clean. Leave no broken items unfixed. De-clutter. Let the lights in. Have a clean toilet and bath, which is a come-on for prospective female renters. “Do not have a bad-smelling unit. Go to the source of it and fix it or get rid of it,” Carl stressed.
Hold a viewing or an open house at night. This is also a good approach as it helps create a mood. Carl adds that if he has the time, he personally hosts the open house which helps create personal connection between him and the prospective renter.
5. Protect yourself
Have a detailed lease of contract. Rental properties as a business generally need lesser man hours to look after. There are also lesser things to worry about. The lease of contract must clearly state the details and conditions involved in renting your property and that the renter understands them to help avoid headaches in the future.
The term and amount of lease, advance rent and security deposit, utility payment, among others, are details that must be fully stipulated, especially if there are violations and penalties to be included such as misuse in terms of improvements, alterations or botched repairs, use of hazardous or prohibitive materials, allowed number of persons in the unit, and abandonment of property.
Screen your tenants. Get referrals to help you check those prospective renters. Carl said he does not mind if his tenants are fond of cooking strong-smelling food or have kids who like writing or drawing on the wall. “As long as they are good-paying and they are not into any illegal activities, I’m OK,” Carl said.
6. Take care of your tenant
Treat each tenant as your best customer, Carl stressed. To welcome their tenants, Carl sends them a gift basket containing no-cook foods like cup noodles or rolls of toilet paper, essentials they need until they've completely moved in and settled down.
Make a directory. List the nearest convenience stores, supermarkets, laundry shops, and the likes. This information is helpful especially for expat tenants, who prefer to stay in the central business district where it is easy for them to locate establishments.
Stay within reach. If they call you late at night inquiring about something or complaining over a thing, answer it. Do not be hard to reach, especially with those expats who are new in the country. You are not only their lessor, but also their guide, Carl emphasized.
Think about your tenant's comfort. Simply put, “take care of your tenants and they will take care of you,” Carl emphasized. - Rappler.com