Real Estate Tips #11: Property Investment - Tenantability

Say you are a property investor, and you are given by your Registered Estate Agent the following properties for consideration:

Option 1:
Alex has got a double storey shopoffice at Jalan Dedap, Taman Johor Jaya selling at RM400,000 with rental income RM2000 per month, i.e. 6%p.a. return. All shops on the same row are fully tenanted. From your survey, you are told that tenants are always on queue for this row of shops.

Option 2:
Brian has got a double storey shopoffice at Jalan Rosmerah, Taman Johor Jaya selling at RM400,000 with rental income RM2000 per month, i.e. 6%p.a. return. There are a total of 3 units of shops located on the same row are still empty. You know that there are always empty units along the same row of shops from your survey.

My advise would be:
The above 2 properties are having the same rate of return, i.e. 6%p.a. However, should Option 1 becomes empty, it will be immediately taken up by another tenant, whilst the same may not happen to Option 2. Under the same scenario, even if Option 2 is fetching a slightly higher rate of return, say 6.5%p.a. , I would still advise the client to consider more on Option 1 due to its better tenantability.

Question arises here, how would you know a property's tenantability is good or not? Firstly, check out if there are empty units around close vicinity. It would be the fastest indication. Then, go to the nearest shops around to talk to the locals on the tenantability history at the vicinity.

Always speak to the locals/neighbours on the surrounding development and history before you buy a property for investment.