Thinking of owning a rental apartment? Good for you! While this is a great ambition and an excellent step towards your real estate empire, it is crucial that you do your homework thoroughly before taking the leap.
Below are some handy tips to help you learn the ropes in the business of owning a rental apartment so as to help you avoid any costly mistakes and achieve some big wins!
Your Tenant Has the Right to “Quiet Enjoyment”
If you are planning to own properties in executive areas such as Mayfair Gardens or Belgravia Green, you are likely to experience a greater demand for these apartments. Thus, it is important to know how the below mentioned covenant can affect your relationship with the tenant and your business.
The landlord-tenant covenant implies that you, as the apartment owner, will not interfere with the tenant’s right of occupancy, privacy, uninterrupted use and the quiet enjoyment of the rented property. It also stipulates that the tenant should be notified of any construction or other works that are on-going and could interfere with their quiet enjoyment before they sign the agreement.
So why should you carefully consider this covenant?
In a bad-case scenario, the tenant can completely stop paying rent and terminate their tenancy agreement. In worst-case scenarios, you may even end up before an arbitrator and dent your reputation.
Have Enough Holding Power
When you own a rental apartment, especially one financed through a mortgage facility, the question that should always ring in your head is – do I have sufficient cash flow to service the loan repayments even in the absence of a tenant?
The truth is, it is careless to presume a continuous flow of tenants and rental income coming in at all times. Instead, always prepare for periods of vacancy – such as during home renovations or in -between tenants. For properties in the high-end market, it is more common to experience a longer period of vacancy. In the case where you get a new client from an external agent, be prepared to still fork up a month’s worth of rent money to the agent.
Therefore, you must figure out a way to stay afloat and service your loans even when there are no tenants occupying the property. In other words, always ensure you have sufficient holding power at all times. Experts’ advice that you should have funds available to service your loans for at least six months even if there’s no tenant occupying the apartment.
Maintenance and Renovation Costs are Regular and Frustrating
In Singapore, it is the responsibility of the property owner to ensure that it is fit for human occupancy. Air-conditioners are notorious for frequent breakdowns and are expensive to repair, making them the bane of most homeowners. Floors get scuffed, cupboards crack and paint peels over time and need to be up to tenants’ standards. Repairs and maintenance should be regularly scheduled and can run up to thousands of dollars. Thus, it is crucial and helpful to prepare yourself with a consistent maintenance schedule for each apartment that you own.
If you own a private condo, like the Parc Esta Condo, there could also be a maintenance fee charged by the management, so be sure to factor this in your loan repayment.
In conclusion, owning a rental apartment is a significant achievement. However, it is good to be aware of these factors that may significantly affect your ownership.