The property market in Malaysia is experiencing a slowdown and long-term rental rates are dismal to say the least. What we need as property investors, is to Maximize Rental Income Using Creative Rental Strategies.
The main issue that property investors face these days is that it’s extremely difficult to cover their property loan repayments by doing things the old-fashioned way and simply looking for a good long-term tenant.
Rental rates are far below your property loan repayments and renters are spoiled for choice. Simple supply and demand dynamics give the renter the power to negotiate on price because there are so many vacant units with owners slashing their prices in desperation to secure a tenant.
After buying a property in the hopes of getting some passive income, are we instead going to become a slave of our own making?
Working to pay off our new bosses at the bank who demand money from us each month if we want to keep our so called ‘investment property’?
What we need to do as investors, is be nimble, adaptable and creative in how we rent out our properties.
We need to figure out how we can Maximize Rental Income Using Creative Rental Strategies.
Just what are creative rental strategies?
Anything other than long-term rental would be defined as a creative rental strategy.
Here are some out-of-the-box ideas on how you get more out of your investment property.
Airbnb or Short-Term Rental
Airbnb or short-term rentals have been gaining huge popularity with property investors in Malaysia over the last few years. The truth is really in the numbers, with Airbnb seeing Malaysia as its fastest growing market in Asia!
The reason for this is quite simple – the returns beat long-term rental rates in almost every case.
There are exceptions to this though however where certain units may not be suitable due to location or age of the building (or heat from unwelcoming JMBs). In some instances the location is simply not one that is near enough to any amenities or attractive to people for short-stays and Airbnb will not be able give an owner substantial returns. However, when this is the case, rental rates are also normally poor as well.
Let’s take a look at Airbnb as a creative rental strategy to maximize rental income.
We’ll take a look at a real life example of a unit in Putrajaya, or Conezion specifically where we operate about 20 units. (Since everyone only talks about KL City Center when it comes to Airbnb and forgets that outskirt areas have decent potential as well)
Average room rates are about RM160 for a two bedroom unit and average occupancy is about 60% per month. That means returns are on roughly RM2880 per month (gross income) before expenses. Less your utilities (RM200), internet (RM120), you’re looking at RM2560, if you manage the unit yourself.
Compare that to the average long term rental rates for a unit at RM1600 for a fully furnished unit, you’re almost at a RM1000 deficit.
This is quite significant (RM12,000+) when you stretch it out over a year and also note that you get the luxury of having your unit available for your own use, be it friends or relatives when the unit is not occupied by guests.
Most of all, you know that your unit is not being steadily worn away by your long term tenant which is a common occurrence when it comes to long term rentals. You won’t have to set aside another RM20,000 to refurbish your place again once they leave just so you can get a new tenant.
This is also a relatively well-known concept as well these days which involves turning a particular property in a ‘hostel’ of sorts.
Not like the movie, or what most people will have in their mind when you say hostel, the idea is basically making use of partitions to maximize the use of the space of the property to add more rooms which can then be rented out individually.
Thus, maximizing rental income.
Taking the 2D layout of the property and applying some clever hand-drawn lines, you can then split rooms up and add rooms where common areas once were to maximize the use of the space.
The rooms will then be rented out to students or working adults looking for a room to rent. Where there used to be 3 rooms, now could be 5 or where there were 4 rooms, there now could be 7!
It really all depends on the layout and size of the property in question. The more square the unit, the easier it is to divide up the space. It all really depends on how creative you are.
We’ve seen some properties that have been able to triple up their rental yield using this creative rental strategy. One case which we were able to help an owner achieve this, was in Cheras, where we turned his unoccupied 30-year-old, 2-storey, 4 bedroom terrace house into an 11-bedroom unit.
From just RM1700 rental for his unfurnished unit, we were able to increase his rental income to RM5000 per month at full occupancy!
I’ve even spoken to one very savvy property investor who took this concept to the next level and turned entire abandoned block of shop lots into foreign worker quarters plus rented an accompanying canteen and convenience store space, netting her almost 20% yield on her total investment!
Much like the hostel mentioned above, this is the commercial property alternative. As commercial office space has seen a huge downfall in Malaysia in recent years, people have come up with this very creative rental strategy to make use of the vacant lots to rent individual desk space out.
These companies offer some amazing office space for freelancers and entrepreneurs who don’t need a full office space on their own but also want the access to the full amenities that an office space offers such as fast and reliable Wifi, printing facilities, meeting rooms and storage space.
The problem I find with setups like this, is the high up front cost which can actually cost upwards of RM250,000 to complete (at the very least).
The returns can be really good however, as these companies charge hefty fees for tenants to work in these beautifully created spaces.
Prices vary depending on the location but on average they charge:
Office Suite: RM600 – RM800 per person (Minimum 3 – 4)
Fixed Desk: RM400 – RM600
Flexi Desk: RM300 – RM400
On top of this, they also have things like daily and weekly passes as well as charge fixed rates for meeting room and event hall use.
Personally, I feel a huge market segment that is being left out, is the minimalist co-working office space without the fancy-schmancy office setup. The average person looking for an office space on his own, might find RM600 a bit steep for a regular office space, especially if he’s just starting out.
On the other hand, I also feel that the person with the commercial property might not want to dump RM250,000 into his unit or even have this kind of spare cash lying around.
I’d say there is a product-market fit for a much simpler facility that would benefit both parties looking for something that operates like this with a significantly lower price tag.
Lower the renovation costs and add value such as free black & white printing services and meeting room use that is on a booking basis and not chargeable, whatever else there is that is more suited for businesses just starting out that can’t afford paying upwards of RM1800 to house its 3 man team for a month at one of these spaces.
Event spaces are reserved mostly for commercial properties and is an alternative use case for spaces where co-working spaces are not suitable. They also should be able to hold a large amount of people or are located in very open spaces.
There are several sites that handle these kinds of listings similar to what Airbnb does but instead for event spaces. Two of the most popular ones are https://www.venuescape.my/ and https://www.venuerific.com/my.
Some of the venues listed here can go for anything from RM700 up to RM7,000 per night, there’s even a hangar that you can book at Subang for RM18,000!
As you might have guessed though, with single day booking rates like that, designing and building spaces like these are going to be very costly.
Depending on the space however, the costs may be quite comparable to designing one of these upmarket co-working spaces so it could be a very good option for those of you who have significant amounts of cash lying around.
In these difficult times, we need to be fluid in our ideas and methods to make sure that we can reap the rewards from property investing.
The old ways are simply not sufficient for us to get positive cash flow from our investment properties and failing to come up with creative strategies to maximize rental yield will only lead to our own undoing as property investors.
Short-term Rentals, Hostels, Co-working spaces and Event Spaces are unique rental strategies for you to stay ahead of the market and should definitely be given a closer look.