Bread & Butter Properties

Bread & Butter Properties
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Monday, March 7, 2011

Is it difficult to collect rent?

One of the most frequently asked question when I talk to people about rental properties is: Isn’t it difficult to collect rent? I suppose the answer to this is relative; if you only have one rental property and that tenant gives you a headache when he doesn’t pay up, then I suppose it is difficult. But if you have more than one then you have economies of scale, whereby you don’t collect the rent yourself but can outsource the task. I prefer the latter, relying on my trusted agent and friend Mr. Lim to do the leg work. 
But even Mr. Lim is not bogged down by the tedious task of collecting rent. In today’s technological age, everything is accessible at the end of your fingertips - online. My tenants bank in their rental my bank account before the agreed date every month (usual around the 7th) and then SMS to let me know. I will usually scan through the list using e-banking facility and can quickly tell who has paid and who hasn’t. It is also a good idea to split the payments into different bank accounts – it can be confusing especially if the amount is the same e.g. RM550 per month. The other way I can more or less know who has paid is through the different payment methods, whether it is through cash at the CDM or cheque. Companies tend to prefer cheque while individuals bank in cash.  
If the tenant is late in paying, I will send them an SMS reminder. If they still do not pay the rent by the 15th of the month or so, I would then get Mr. Lim to give them a courtesy call and find out what’s happening. He would normally ask if they want to vacate the flat because that is usually one of the reasons they don’t pay: most owners are so hopeless in refunding the tenant’s rental deposit that they prefer not to take the risk. Most would ask that they stay the last 2 months by running down their deposit money. I usually would not allow this unless it’s exceptional case; I tell them that I will let them stay till end of the present month and pay them the 1 month refund owed. Mr Lim usually has a waiting list of prospective tenants for me that I don’t have to worry about getting them out immediately and be able to fill it in a few days time.
Well, I would be lying if I said that I have never faced any difficulties in collecting rent, but they are an exception rather than the norm. Usually if you have screened the tenants properly upfront, you won’t have to pay the price later on. But sometimes it just happens. Let me relate two real life examples which I have encountered recently.
Funnily most would think that companies would be better paymasters. But, both these incidents relate to companies and not individuals that rented my properties. The first property (let’s call it B3) was rented to a local restaurant that housed their workers in the unit a few years ago. The manager signed the tenancy and I have been getting the rental on time via cheques payments. Until recently I though everything was going fine. Then one day, a prop agent called me and asked if I wanted the new tenant in B3 to sign a rental agreement. I thought I already had a tenant. What I didn’t know was the manager has since resigned from his employment at the restaurant but before that, he had “rented” it out to 3rd party when the restaurant’s workers had moved out. The company continued to pay me the rent, and he had been happily collecting rent from the 3rd party for a couple of years. His scam unravelled when the new tenant moved in – they paid the previous tenant the 2+1 month deposit and promptly moved in. When I confronted the restaurant owner they had absolutely now idea of the scam. So, they terminated the rental contract and I ended up with a new tenant who says she has been cheated by the previous tenant of B3 as she had paid them the deposit. Cut a long story short I ended up with a tenant who had no deposit with me, and I did not want. I told her she could stay as long as she paid the rent promptly. But, it turned out she was not a good paymaster by being late with rent a on a few occasion and giving all sorts of excuses; best thing to do is to move them out, which is what Mr Lim is doing right now. But, here is a case of how you can lose one or two month’s rental income due to scams that can happen.  
Another troubled tenant also relates to a company (A12) – the security guard company rented a 3R2B unit to house its staff. The accounts side is so hopeless that the payment is always delayed and I have often time reminded them, going to the extent of sending the 1st and 2nd reminders. In the end I just wanted them out, and have told them so. But it is not so easy if they continue to pay you the rent, albeit late. So, this is still on-going but Mr. Lim is working hard to get them out. 
Well, as a final word, not all corporate tenants are bad paymasters; I have one unit which is rented out to a bookstore and they are a professional lot – payment in on time, all the time. Plus, they keep the property in good condition. At the end of the day, it all comes back down to screening your tenants well – if you invest time up front, you don’t have to pay later.

March 2011

copyright Chris Gan@2010,

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