Some Malaysians may be interested in buying and renting out properties to generate a side income that can be used to pay off their mortgage or supplement their savings. It has been reported that rental rates for residential properties grew 5.5% in 2023 as the real estate market recovers.
If you plan to rent out your property for more income, there are a few things you should know to ensure a smooth rental experience.
Read Also: How Much Does It Cost To Own A Holiday Home In Genting Highlands?
#1 Understanding The Local By-Laws And Regulations
Currently, there is no specific legislation that oversees the drafting of a tenancy agreement in Malaysia. However, as reported by news media, the government has announced plans to introduce the Residential Tenancy Act, that aims to address conflicts with regards to rental agreement, the responsibility of renters and owners, as well as enforcers. The bill is expected to be tabled sometime in 2024.
Some laws that can impact a tenancy include the following:
- Contracts Act 1950
- Civil Law Act 1956
- Distress Act 1951
- Specific Relief Act 1950
- Common Law
There are also rental laws that apply to only certain states in Malaysia. For example, in Penang, most short-term rentals at private residences are prohibited including Airbnb.
#2 Vetting Tenant Profile
Renting your property can come with risks such as tenants running away or skipping out on paying rent. You can do a screening of your tenants to keep the risks to a minimum. For example, you can check your tenant’s credit reports with the credit reporting agency CTOS.
Additionally, whether you intend to rent out to a local or foreigner, it is important to verify their personal particulars and other relevant documents. For example, rental platform Speedhome conducts tenant screening by requesting the following documents from tenants:
- Identification document (ie: IC, Passport, & Visa)
- Employment or university offer letter
- Student card where applicable
- Payslip where applicable
- Three-month bank statements
- Certificate of registration of company where applicable
Though there is no law that currently regulates discrimination in property rental based on race, it may be addressed with the Residential Tenancy Act, given that it has been a growing issue.
#3 Determining Rental Price
In order to attract tenants, you need to set a rental price that is fair for both you and the tenant. The average rent in Malaysia is RM1,975.
Nevertheless, you have the flexibility to set your rental upon factoring in the expected demand and supply for your property, including its unique attributes such as location, size and whether it comes furnished. For example, the average rental price for a residential property in the bustling capital Kuala Lumpur is RM3,192 while the average rental price in Selangor is RM1,851.
You can check property platforms like PropertyGuru to get a gauge of the market rental price of properties that are in the same location or have a similar profile as yours.
#4 Outline Homeowner And Tenant Responsibilities
During the negotiation phase, it’s important to state the duties of each party regarding home maintenance and repairs to avoid disputes in the future.
Tenants living in the property can take on duties like paying the utility bills or making small repairs like replacing a faulty lightbulb.
Meanwhile, as a homeowner, you are responsible for maintaining the overall structure of the property such as a falling roof or mouldiness and larger appliances. If you own a condominium, you must also be responsible for paying the monthly maintenance fees.
#5 Prepare Tenancy Agreement
Once the verbal terms are agreed upon, you can draft the tenancy agreement. It is a written contract that details the terms and conditions of the rental of a property for a duration that typically ranges between a year and up to three years.
For rentals that exceed three years, the lease would need to be registered with the National Land Code and recorded in property documents.
You may appoint a lawyer to draft the agreement or even amend standard templates. Both parties to the rental agreement should review the agreement and make changes until all terms are agreed upon.
Generally, a tenancy agreement should consist of:
- Identification details of homeowner and tenant
- Details of the property
- Monthly rent amount and payment method
- Tenure
- Usage of the property ie. for personal or business
- Responsibilities of homeowner and tenant
- Security deposit
- Renewal
- Termination
The Contracts Act governs that homeowners are entitled to their rights stated in the tenancy agreement that was agreed upon by both parties.
As mentioned earlier, the government is working to table the Residential Tenancy Act in 2024, which will clearly outline the tenancy terms.
#6 Ask For Rental And Utility Deposit
As part of the tenancy agreement, you may ask tenants to pay a rental and utility deposit upfront when the agreement is signed. Rental deposits serve as a safety net for homeowners in case of a breach of terms in the tenancy agreement. Withstanding any breaches, the deposits are to be returned to tenants at the end of the tenancy.
Security deposit
Depending on the length of the tenancy agreement, you can request that the tenant pay a deposit amounting to one- or two-month’s rent upfront. For instance, if the monthly rental is RM1,000, you may request a security deposit of RM1,000 to RM2,000.
This is to safeguard you in circumstances where the tenant may run away without paying rent or cause damage to the property.
If you want to use the security deposit for home repairs, you need to specify the terms in the agreement, stating that the deposit would be forfeited should the property be returned in a damaged state.
It is advisable to include a restoration clause in the tenancy agreement that states that tenants are obligated to restore the property to its original condition upon return and to compensate the homeowner for any damages caused.
Utility Deposit
You can also ask for a utility deposit to cover maintenance costs such as electricity and water bills. According to iProperty, a common practice is to ask for an amount that is equivalent to half of the monthly rent.
So, for example, if you charge a rent of RM1,000 a month, you can ask for RM500 in utility deposit.
#7 Apply For A Court Order For Eviction
In the event of contract breaches such as failure to pay rent or overstaying after the end of the tenure, you have the right to evict tenants.
You need to obtain a court order to evict the tenant. It’s important to note that you are not allowed to change the locks on the property or evict a tenant without a court order.
If a tenant hasn’t been paying the monthly rent, you can provide a notice to pay. If despite notice, the tenant still doesn’t settle the outstanding amount, you can provide a notice of termination as well as file a lawsuit and get a court order for eviction.
On the occasion where you need to provide a notice of termination to tenants, the notice period should follow what is stated in the tenancy agreement.
However, if there’s no early termination clause in the agreement, you are not allowed to ask tenants to leave until the tenure ends.
Consequently, tenants who want an early termination of the agreement will need to compensate you based on the balance period of the contract. For instance, if your tenant agreed to a three-year tenure and wants to leave after a year, he or she will need to pay two years’ worth of remaining rent to you.
Renewing Your Tenancy
As the saying goes, a bird in hand is worth two in the bush. It is always easier (and less costly) to rent to an existing tenant than to find a new one. Therefore, as a good practice, you should speak to your tenant about renewing the tenancy at least a few months before the tenancy expires. You will have to prepare another tenancy agreement based on the refreshed terms and conditions that both parties agree to.
Alternatively, you can also include a renewal clause in your initial tenancy agreement that details how the tenancy can be renewed for another period of between one and three years.
Read Also: How Much Does It Cost To Renovate Your Condominium In Malaysia?
Follow Us On Telegram & Instagram!
Join our Malaysia Telegram channel (@dollarsandsensemy) and follow our Malaysia Instagram Page (@dnsmalaysia) as we bring you the latest finance content in Malaysia!
