Lumina Sessions: Passive Income from Rental Business 101

Hello everyone! This week’s Lumina Session is interesting as we will talk about personal finance, entrepreneurship and some how-to’s regarding passive income.

We know that a lot of you is considering to invest in the real estate market that can give you an opportunity to earn some passive income in the future. However, some of you might still be hesitant or having second thoughts as you don’t have any idea on how to manage a rental property.

Let’s join Nikki, Marketing Assistant from Lumina Batangas, as we discover the different important details on being a landlord.

Common questions of landlords:

• Should I lease out my property short term or long term?
• How much should I charge?
• How do I find tenants?
• Am I aware that I need to register a rental property business?

For those first-timers who want to have their property rented or even for those who already have one, we will answer all these questions in this video.

What are the things I have to know when I start a property business?

1. Know your market.

You need to know your market in order for you to identify if you want to rent out properties in short term or long term.

Short Term Rental

Short term rental can generate higher income but can entails more work. These kinds of rentals are commonly preferred for vacationers, business trips, and staycations. One of the important things that you must consider when starting this kind of rental is the location of the property.

Location is everything for short term rentals. It should be near the town proper or tourist destinations. This will let your target market enjoy the convenience if they are just a few blocks away from the sites.

Long Term Rental

Long term rental can generate lower income but has less work. It caters to different individuals and families. These individuals could include students or those who are working in the area. Families can include couples, newlyweds, or families that may have kids, pets, grandparents, relatives, etc.

You can determine your target market through the size of your property if you can accommodate them.

Also, when it comes to property rental, the property features and amenities are very important. It would be a plus if the units of the subdivision are well-planned and there are amenities that can promote a balance lifestyle that you can provide to different kinds of lifestyles and families.

An example for this is a two-storey unit that has a provision for 2-3 bedrooms just like what we have in Lumina Batangas! You can enjoy our different amenities while having the convenience of city living.

2. Pricing

There is no a single right way on how to price your rental property so let’s tackle some options that you can use to price your rental property:

The 0.8% - 1% Rule

Your monthly rental or your monthly income from your property should be 0.8% to 1% of the total contract price you bought it for. Let’s take some example:

You get a total contract price of property from Lumina Homes amounted to Php 1, 500, 000.

0.8 % of 1.5 million = 12, 000

1 % of 1.5 million = 15, 000

You can also use 0.5% to 0.7% depending on the situation.

This only means that your monthly rent for your property must range between these numbers.

PR Ratio or Price to Rent Ratio

This method is commonly used when you are still trying to figure out if the rental of your property is expensive or not. Below is the formula for this:

Rental Rate = Total Contract Price (TCP) / 12 (no. of months in a year) x PR ratio (choose between 12, 15, or 18)

15 and below means that you area is in demand that’s why your price is higher. Meanwhile 15 and above means that your area is in usual rate of real estate properties. For example:

TCP/ 12 x PR ratio = Rental Rate

1, 500, 000 / 12 x 12 = 10, 417

1, 500, 000 / 12 x 15 = 8, 333

1, 500, 000 / 12 x 18 = 6, 944

Now, you can have some idea that for lower end, property rental range around Php 6, 000 while for higher-end, it is around Php 10, 417. It will be easier for you to identify in which type of spectrum your property belongs.

Prevailing Market Rates

Another method to compute your rental payment is by looking at the Prevailing Market Rates. To know about what are the ongoing rates in your area, you must search on the internet, social media, or property websites.

Most of the time, these are also called as competitive market rates.

3. Fees

You also have to consider other fees for your rental property:

Security deposits and advance rental payment

The usual security deposits are 2 months of your monthly rental and the advance is one month your monthly rental.

You might also encounter other fees such as move-in fee, move-out fee, cleaning fee (used for short term rentals), and homeowner’s association fee (you can decide if you want to include this or not in your monthly rental.)

4. How to find a tenant

One method is to promote your rental property by using online platforms and tools like social media and property listing sites such as:

• dotproperty (Moving Asia Online)
• OnePropertee
• Locanto
• Carousell
• Lamudi

When it comes to marketing your property online, it is important that you take good photos to hook attention of individuals or families who would like to rent out on your property.

5. Property turnover

There are few things that you need to consider here:

• Contract / agreement also called as lease agreement or contract of lease - should be signed at every page by the lessee and lessor.

• The move in ready – every lessor should make sure that when your tenant moves in, there’s no more personal belongings or part of the house that needs fixing.

• Checklist and sign-off on the current state of the proeprty

• Rent collection

For the monthly rent, you can either accept post-dated checks, advanced payments, monthly payments or whatever is the most convenient way that you can receive the monthly rent payments.

• Keep track of your cash flow

The cash flow for long term rental is quite simple. Here is an example formula for this:

 Monthly Rental – Amortization or other Minor Expenses = Net Profit

However, for short term rentals, you have to track all of your expenses.

6. Register your business

Running a rental property business even if it’s just one property is still considered as a business and therefore you need to register it.

And that’s all for today’s video of Lumina Sessions. We hope that we help you to be equipped of the important parts in having a rental property.

So, what are you waiting for? Click the chat button to start your homeownership journey with Lumina Homes!