The landlord of a new luxurious condo was especially proud that his unit came with the most expensive and sophisticated kitchen appliances. But never did he expect that this would result in a misfortune for him – his tenant’s domestic helper misused one of the appliances and triggered an explosion and fire.
While no one was hurt in the incident, the condo suffered serious damage that needed $75,000 to fix. Luckily for the owner, he had adequate home insurance to pay for it.
So, if you think that property investment means just collecting rent to pay for the mortgage while you sit back and wait for the property’s value to go up, you should think again.
Just like any job or business, being a landlord comes with risks and obligations, and if you are not careful, your investment may well turn out to be a nightmare.
While residential rent amounts have not suffered as much to date when compared with the global financial crisis, there are signs that demand has weakened significantly as more workers lose their jobs or leave Singapore during the current Covid-19 outbreak.
As a result, many landlords are having problems with renting out their units now – even those with excellent views and in prime districts.
For instance, the owner of a two-bedroom apartment in the Central Business District had a Japanese executive who had been paying about $5,000 monthly rent for the past five years. But early this year, the tenant was recalled back to his head office due to the outbreak and the unit has been vacant since.
“He was really a good tenant. I got a call from him that he had to leave and that was it. It was so sudden. It is not easy to find a new tenant now because there are many new two-bedroom units in the market that are looking for similar tenants,” the landlord, who is in his early 60s, laments.
Landlords should exercise caution even in good times, but more so when the economy is on the skids.
4 things to look out for
1. Do proper checks on your tenants
Even if you are eager to find a tenant in this market, you would do well not to take in the first person who shows up at the door without some due diligence.
The tightening of border movements due to the outbreak has cut landlords’ risk somewhat of taking in foreign tenants who hold fake or expired passes. But as the law imposes stiff penalties for the harbouring of illegal immigrants, landlords should still do careful checks on all foreign tenants.
2. Be wary of rental cheats in a recession
The owner of a luxurious penthouse in the city learnt this painful lesson after he leased his unit to a “senior executive” of a company for over $30,000 a month.
The tenant, who boasted about his work credentials, drove a hard bargain. Claiming that he was keen to rent the unit for the long term, he persuaded the landlord to give him three months of free rental in return for a two-year lease that would be paid by his company.
Neither the landlord nor the property agent handling the deal suspected anything, as the tenant was very convincing and even had a ready and signed agreement.
The tenant was able to stay in the penthouse for almost six months even though he failed to pay rent after the initial free period, citing delays due to his company’s cash flow.
It was only after he vanished one day that the landlord found out that he had been duped – a check then revealed that the company listed as the lessee of the unit had a paid-up capital of only $2.
In all, the landlord only received the initial one-month deposit and was cheated of more than $150,000 in rent.
While hardcore rental cheats are uncommon, the current recession has produced an increasing trend of tenants who terminate leases prematurely due to job losses.
Once a tenancy agreement is signed, tenants are obliged to fulfil the terms, which usually includes compensation to the landlord should they leave prematurely.
While the law on this matter is clear, enforcing this in the event of a default is another matter altogether. SingCapital chief executive Alfred Chia has come across cases involving foreign tenants who had to leave Singapore after being retrenched recently.
3. Prudent to have an all-risk home insurance
All landlords should check that they have adequate home insurance to cover against possible mishaps that are caused by their tenants.
Note that if you take a home loan from a bank, the bank requires you to take a basic fire insurance for your property, but that policy usually does not include coverage for damages to your home interiors and contents.
According to Mr Chia, many home owners do not have adequate home insurance simply because few agents go around peddling such insurance as they do not earn much from these affordable policies.
For instance, a standard fire insurance may cost less than $100 a year and even an all-risk insurance starts from only about $200.
For landlords, it pays to have better coverage in case the tenants’ children run around and knock down and smash your flat-screen TV.
If you are renting out a luxurious penthouse with expensive fittings, paintings and chandeliers, you may need a “masterpiece” policy to adequately cover these items.
For an extra $50, some policies also cover the “legal liability” of your tenants.
“This is useful to avoid headaches in case you discover damages, such serious burn marks on your floor and wall tiles after your tenants have left,” Mr Chia notes.
But such policies do not cover “wear and tear”, such as the choking of pipes, even though this may be the result of tenants’ inconsiderate behaviour.
4. Set out clear terms on repairs
Some landlords are penny wise but pound foolish – they provide old and cheap household appliances such as second-hand washing machines for their tenants and when these items break down, they end up spending hundreds of dollars for repeated repairs.
To avoid squabbling, both sides should discuss and agree on who should pay for what – for instance, tenants can be asked to service air-con units if there is water leakage due to prolonged use, while landlords are responsible for repairs if the compressor breaks down.
Household repairs are common disputes of tenancies even when parties agree on how costs should be split – they sometimes quarrel over the choice of repairmen who turn out to be more costly than expected.
So don’t believe anyone who tells you that a property investment is a sure-win. Just like any other investment, it pays to do your homework so you don’t end up as an asset-rich but cash-poor property owner.
“Source:[4 things landlords in Singapore should look out for in a Covid-19 market] © Singapore Press Holdings Limited. Permission required for reproduction”