How To Give The Middle Finger To Sucky Rental Yield

GoodPlace Girl Knows

If you want to watch property investors get all hot and bothered, just whisper these words into their ears: “low rental yield“. It’s no secret that yield has gone down the dogs in the past few years with the rapid rise of property prices across the board, and this factor alone has sent many property wantrepreneurs and investor wannabes back to their 9-to-5 rat race.

GoodPlace middle finger meme!

According to NAPIC’s latest report, the number of property transactions in 2013 dropped by 9.7%, but the value increased by 6.3%. This means that while the total number of transactions dipped, prices actually went up. So, if you’re expecting prices to come down soon, well… that’s about as likely as Tun Mahathir and Anwar taking selfies cheek-to-cheek. Ain’t gonna happen anytime soon (if ever), folks.

A random survey of GoodPlace.my readers (through our 4,000+ strong GoodPlace Digest subscriber base as of April 2014) revealed a couple of trends which are currently driving the rental market:-

  • There’s a higher tendency now for renters to move from sub-par to better properties despite higher rental.
  • More renters are polling their funds to afford living in their preferred properties.
  • Lower quality properties (even in good locations) are fast turning to the short-term let market.

The writing is on the wall, folks. You can’t just get a bare unit, rent it out and then expect the rent to cover your monthly installments to the bank. You have got to have a strategy moving forward if you want your property to churn out short-term cash while you wait for the capital increase for the longer term.

Recommended reading: If you’re into upmarket properties, read this guide on how to position your property for maximum rental yield.

So what it all means is this: competition is going to be fiercer in the rental market. You see, just like buyers, tenants will always compare your property with the neighbouring units or whatever else which are on offer. Your property is commodity unless you do something about it.

Renting Out Your Unit? Here’s Five Rules To Obey

  1. Take claims of projected rental yield with a large dose of salt. Developers tend to exaggerate when they sell (see the maps on their brochures? No, man, your property is NOT next to the Petronas Twin Towers), and we don’t blame them for the hustlers that they are, but when you see statements like “Rental Yield Estimated At 8.5%”, run to the hills.
  2. Differentiate your product. What makes your unit different from the others which are also on offer? Pimp up your place and make it kick major ass. If a property does not rent well, it’s usually a problem with THAT property and not with the supply or demand or anything else a property guru will try to bullshit you about.
  3. Expect flat rental year after year. Price your rental realistically, and expect the rate to STICK even after you renew the contract after 2-3 years. Don’t get into a loss-leading position: it almost never works out. Renters are getting savvier nowadays, and they know that landlords would prefer existing, decently-behaved renters than risking putting out the unit again into the rental market. Quoted for truth.
  4. Consider property that can be shared. There are new properties now which are designed for “multi generational living”, which means that the units can be segmented up to accommodate two (or even up to three) families while preserving their privacy. Alright, so there’s more work also in managing multiple tenants in a single property, but hey, nobody says this is gonna be easy.
  5. Consider short-term lets. With sites like AirBnb and TravelMob (hi, Ray & JR, here’s a free plug for ya) getting major traction in this side of the planet, there’s much moolah to be made in the short-term let market.

If you follow the rules above and rental yield is still sucky for you, it means one thing and only one thing: your property is a dud. Instead of indulging int self-pity and crying into a cereal bowl, go find yourself a hustler/agent and unload that piece of crap into the sub-sale market, pronto.

About Khai Yin

When I am not writing for GoodPlace.my and helping my readers find properties though the DealMatcher service, I spend time doting on my three kids: Wenyi, Qinyi and Eian. My personal stuff, some published essays and contact details can be found at khaiyin.com

Comments

  1. Indeed rental depends on supply and demand. It’s very true tenants compare – who won’t? That itself for us to accept and to do the right things.

    Common mistake I notice is that many landlords, no offense intended, furnish with cheap furniture, small 32 inch. TV, bla bla bla. just because of the belief that the tenants will damage these items and the landlords themselves are not living there, so why care? I think this is a typical attitude – but we can’t really blame anyone from thinking that way. Money is money and it is a hard earned money.

    However, I beg to be a little bit different, I would like to furnish my rented properties as if I were living there.

    However, so far have not managed to furnish them 100% the way I want because my other half would protest “why do you want to be so nice to the tenants?”. So, I compromise. In a way such balancing is also making sense – I mean here we have potential tenants who pay 4, 5, 6k per month to stay in your million dollars properties (that you pay through arms and legs) while the tenants may have the cheek to pay rent late, treat your properties like it is their father’s, etc, etc.

  2. Can you give me an example of 4? I have no idea how it looks like. Do we have such houses in Malaysia? I remember >20 years ago, I saw a house that could fit the description. It was a house by my Mom’s friend. They built a 2 storey house. The bottom is for them and the 2nd floor is for their tenants, who use a different entrance altogether.

  3. Hi KY,
    Good work on this blog and your mission in taking on the established norms. Highly informative and refreshing.

    Would love to ask you your thoughts on a mature student residence with decent low 5.xx% yield but low chance for cap appreciation. But this may not be the right place for it. Perhaps 1 day in hacker hub then.

    Keep it up 🙂

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