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Let’s say you buy a three-room condominium unit for RM500,000 with a 10% down payment. The remaining is financed through a 35-year mortgage worth RM450,000, at 3.5% interest, which works out to a monthly repayment of RM1,860.
With service fees, sinking funds, and other expenses, your cash outflow would be RM2,300 a month. How might you earn rental income from this property? Here are three ways.
1. Rent it out as a whole unit for RM1,500 a month
This is self-explanatory.
2. Rent out each of the bedrooms separately
Assuming your unit has one master bedroom and two smaller rooms, you could charge RM900 for the master and RM600 for each of the cozier rooms. With all three rooms tenanted, you would earn RM2,100 a month in rental income.
3. Rent out the unit on a daily basis
This could be done via platforms such as Airbnb and Agoda. You could, for instance, charge RM180 a day for occupants. With 20 occupied days a month, you could stand to earn RM3,600 in rental income.
So, which of these do you prefer? Based on monetary gains alone, option 3 clearly generates the highest yield. But is it the best way to go? Consider the following pros and cons of each strategy.
1. Renting out the whole unit
In this case, you would deal with one tenant at one time. If your relationship with your tenant is good, you could receive rental income on time and consistently for a year, two years, or even longer.
You could almost be hands-off in managing your tenant, especially if he or she is responsible and sensible. As such, this option generates the lowest yield but does not require much active or physical management.
2. Renting out each room
Here, you would deal with multiple tenants. As such, you need to bear in mind the following:
Will your tenants be all-male, all-female, or both? You need to consider this to ensure harmonious living conditions.
What are the rules with regard to the use of common areas such as the living room, common bathroom, dining area, kitchen, corridor, or even the storeroom?
While it would be great if all tenants were clean, sensible, and respectful of one another, this might not always be the case. So, as a landlord, you should state your house rules and be firm in executing them.
How would you split utility bills among tenants? One of them might use a lot more electricity or water than another.
You could consider setting up individual meter readings for each room, but this is a big hassle considering the limited income you would earn from each tenant.
3. Airbnb, Agoda, etc.
This option is only available if the management of your building allows it. If approved, your tenants could occupy your unit for a day, two days, a week, or however long they require.
Even if you manage to secure 20 occupied days with different visitors, you would need to ensure your unit is clean and inhabitable every time a tenant vacates.
Would you be in charge of cleaning it? How much would it cost to replace missing or damaged items? And how much effort would you have to put into advertising your unit’s availability?
This side hustle would certainly demand more time and energy from you, while requiring you to be on standby to manage guests’ immediate needs.
So, which should you choose?
As a property owner you would need to decide this for yourself, but option 1 is less demanding in terms of time and effort, which would allow you greater flexibility to build your business or career.
If, however, you have the manpower, resources and interest, you could choose the other two options as they offer a higher yield.
That said, remember that being a homeowner isn’t always about the returns: strike a balance between income, time, and energy spent on managing your property.
This article first appeared in KCLau.com. Ian Tai is a financial content writer, dividend investor, and author of many articles on finance featured on KCLau.com in Malaysia, and ‘Fifth Person’, ‘Value Invest Asia’ and ‘Small Cap Asia’ in Singapore.