Feb 1, 2010

Ask Azizi: Rental rate dilemma

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Dear Azizi Ali,

I am a little overwhelmed after reading some of your books including Millionaire Landlord. However, I’m now really interested to venture into the property business and have done my homework. I still have one question, though.

I'm living in Penang and want to purchase an apartment that is more than 10 years old. I intend to rent it out but am not sure how much I should charge the tenant. Let’s say the monthly rent 10 years ago is RM500 and the current rate is around RM900. How much should I charge knowing that the other landlords are probably charging the old rate?

Your advice is much appreciated. Thank you.

Willi Thae
Pulau Pinang

Dear Willi,

First, it is normal to feel overwhelmed when you learn something new. There appears to be so many new things to learn and master. However, if you keep at it, you should be able to handle most, if not all, of the new knowledge. In time, everything will fall into place.

Seeing that you are new to this, I must add that you need to educate yourself further. Apart from referring to the books you have read, you should also attend talks and seminars or talk to people who are already successful property investors. The more knowledge you gain, the higher your chances are of making it big.

In answer to your question, I understand that there are tenants still paying RM500 despite the current rental rate of RM900. This could be because they have been there for many years and the landlord did not raise the rent.

All properties should reflect their current rental rate. This usually means a higher rate as the years go by. If the rate doesn’t increase, something is not right with (a) the property, (b) the landlord or (c) both!

So you should charge the current rental rate of RM900 per month. In fact, the other landlords should also charge the current rate (plus or minus a few ringgit). It makes no economic sense for a landlord to charge a rate that is 10 or 20 years old. How is he going to make money? And if he is losing money, why did he buy the property in the first place?

If you think it will be difficult to get RM900 for the unit, my advice is to not buy the apartment! Look for another one that will enable you to charge its current rental rate. There are plenty of properties in Malaysia. Surely you can find one that will help you build wealth.

http://starproperty.my/PropertyGuide/Finance/2063/0/0