Monthly Archives: August 2013

Which is Better? Fixed Interest Rate vs Variable Interest Rate for your Home Loan?

This is the question that I have asked myself many times before I even purchased my first property. I did do some research on what was the available options before I decided. Depending on the different countries, the loan details may vary slightly but the main core product is basically whether it is loan that is tied to either a fixed or a variable rate of interest. Either way, this is the cost of maintaining the loan.

An important point to consider is to look at the historical chart of the interest rates in your country vs where the rate is now. This would give you an overview or a snapshot that may assist you in your decision making process on which rate is more suitable for you. In an example, when I was about to purchase my 1st property which about 2004 about 11 years ago, the base rate minus the variable rate was one of the lowest in the historical chart of rates.

The fixed rates were not readily available by many banks at that time as only insurance companies like AIA and ING offered such fixed rates. The fixed rates usually came with compulsory insurance that had to be taken against the property. It would be a disadvantage if you did not want to take this insurance.

The variable rate was a rate that would take the base rate and either minus or add to the base rate and this will ne the variable rate. An example would be if the base rate was 6.4 minus 2, the variable rate would be 4.4 percent. The base rate is usually controlled by the central bank of the country and this may vary according to the government thus, the name variable rate.

As for fixed interest rates, every month, the repayment would be a fixed amount for the rest of the tenure period of the loan, for example a payment of RM1000 for 30 years. This allows the owner of the property to have a safety net where rate increases by the government would not affect the owner’s bottom line. However, a fixed rate is usually higher then a variable rate, therefore the owner maybe loosing out on additional profits just because of having a safety net that may be more costlier in the long term.

So which rate did I decide on? At that time since the rate was one of the lowest, I decided to take the variable rate. It would take some considerable amount of time before the rate would reach the highest point therefore I wanted to take advantage of this point. Furthermore, if the rate would change, I could pass on the increase to the tenant via rental increases by either increasing the rental at yearly anniversaries or via new tenants with newly increased rentals.

So there it is, my view on what I feel is the best among the two. It may or may not be the choice that you may want to take as it depends on your risk appetite that you have. Do let me know what you think or the experiences that you have had with this by dropping your comments below.

Real life issue -Tenant wants to upgrade existing room to a air conditioner room, how to address this issue?

Every now and then, I get existing tenants asking this question and just recently I had a tenant who was renting one of my rooms paying a monthly rental of RM310 for a non-air conditioning room. She was willing to pay as additional RM100 each month if it was installed but I was not really willing to do so for several reasons.

Firstly, when I received this inquiry, I did mention to her that I would check with the owners on this issue and revert back to her. It is important for you to revert back to your tenant soonest possible on any issue that is brought up to you as it is part of the service that has to be done by the owner or manage r of the rooms.

Secondly, we have to look at the cost involved in this possible upgrade, buying a new air conditioning unit and installing it plus the piping required to the outside compressor would cost quite a significant amount since this is a non-windowed room situated in the centre of the house so therefore it would need quite a lot of piping just to get to the outside of the house to install the compressor. This is additional cost required vs if the room had a window that was next to the outdoor of the house.

Thirdly, would it be viable and profitable for this upgrade to be done? Yes it can be done but the situation may defer from case to case. In this particular house there is already 5 rooms out of the 10 rooms that are fitted with air conditioning units. Normally air conditioning rooms will also naturally increase the electricity bills of the house so that is also a something to consider especially when your rental includes the utilities of the house. Air conditioning rooms are also the slowest to be filled vs non air conditioning rooms. There was also a situation where the upstairs tenant which was a air conditioned room was also looking to move out so it would be possible to arrange a transfer of the existing tenant to either that particular room where the tenant is looking to move out or another air conditioning room in the house. There are of course the standard transfer fees required if the existing tenancy agreement has yet to expire. It takes extra time and effort for transfers to be done, therefore a charge is required and the tenants will not misuse this. What has happened in the past is that tenants would move in to the rooms and after a month or two, they will either start asking about either upgrading or downgrading a room and at that point in time, I did not have any experience in this situation and No charges was initiated to the tenant for the upgrade. What I notice after this upgrade was that tis news started to spread around the house and other tenants also wanted to do the same thing as it did not cost them anything to do so but it would give you a real administration nightmare. The reason for this is that you would have to pro rate what the owner has paid for in rental and also tenancy agreement fees and all the other fees vs the cost of moving in to the new room and whether they have to either top up or refund certain deposits and also you would have to have a new tenancy agreement written and you have to get involved in the moving of the tenants stuff from the old room to the new room as they would need some time to move their physical stuff. So the new room keys would have to be given to them while leaving the other room open for this process to be done. After which you would have to get this room that the tenant has just transferred from to be ready for viewing for the next potential tenant. All this really takes a lot of time and effort so a fee for this process is usually a norm that you have to make clear to your tenants. Of course, some profit will be made at the same time but that is what I call a business. I charge RM50 for every transfer done and currently I only allow upgrades and not downgrades as refunds are required on the deposits and I rather not get into that situation where it would reduce my cash flow but focus on increasing it.

Do please share with us what you feel on this issue or whether you have encountered a similar issue and how you have solved it by commenting below.

How Often Should We Do Maintenance For the Houses?

This is an often asked question, and the way around it is to ask yourself this question, do you have extra help like a hired staff or are you doing it yourself? If you have hired help, on a full time pay, it would be as often as possible in the most efficient manner.

If you are managing it on your own, you must schedule time to do it, like for example, every Saturday morning from 8am-12 noon. This is to ensure that you make full use of the limited time that you have especially if you having a full time job during the weekday. This is what I am currently doing. I get messages from my tenants during the week but I only inform them that I will take a look during the weekend. I will only attempt to do something about it immediately only if it is urgent enough like if the house is on fire, or if there is water falling into the house like a waterfall, which actually did happen when there was a leak in the pipes on the roof in one of my houses. The water flowed down up till a point that one of the tenants literally placed a plastic bucket where the water filled up so much until it was too heavy and broke the wet roof. The water was dripping into the room directly from the roof, now this is a situation that needs immediate attention.

Also when you plan your maintenance, you can go to the hardware shop and buy your supplies before the planned day. One thing to remember is that you may want to drive by to take a look at the problem during the week to evaluate the problem and you will know what kind of supplies to purchase and whether the issue is something that you can fix and manage or whether you need professional help from a plumber, etc.