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Here’s How You Can Make a Profit From Subletting

Updated 29 Apr 2022 – By Team Loanstreet


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There are many ways to generate income from real estate. However, one method that often gets overlooked is subletting. While there are various costs and consequences, when done right, you can make money from it!

So, what is subletting?

Subletting is renting out a property by a tenant to another individual. That means you are generating profit without actually owning your property. It is also known as subleasing or rent-to-rent. 


 
Picture this; you rent a house from a landlord for RM1,000 and then rent it out to someone else at RM1,300. You gain a profit of RM300.

What are the types of subletting?

There are at least two types of subletting for anyone who plans to venture into this business.


Source: imgflip

  • Subletting a whole house

This is like the previous example we gave you. You rent a house from a landlord at a certain price and then rent the entire place out to someone else at a profit. It can also be a fully furnished or a partially furnished house. 

  • Subletting a room

Say you rent a 3-bedroom apartment. You will stay in the master bedroom and rent out the two other rooms on the property. In most cases, you, as the original tenant, essentially become the ‘landlord‘ to the subtenants. 
 

We’re sure you’re asking, “Got market for sublet meh?”


Source: imgflip

Yes, there is! Here are some of the reasons why people prefer to stay in a sublet: 

  • Affordability

Renting a room is cheaper than an entire house or apartment. A person may even get to rent the entire property for cheap as some of the tenants are willing to settle for a lower amount just so they can get the rent covered quickly and move on to the next thing.

  • Short-term rental

If a person is expecting to stay in the area for only a short period, going for a sublet may be the solution. It’s usually hard to find short-term stays for a normal lease.

  • Flexibility

A person has a chance to learn more about the neighbourhood and the building before signing a long-term lease or buying a new house. The flexibility also allows a tenant to freely change one home or room to another without having to worry about paying a housing loan

Oh, is subletting a good idea?

There are many things to consider if you want to sublet your house. It’s wise to look at the pros and cons first.
                                                                                                                                                                        
Pros Cons            
You can earn supplemental income from rent money. The subtenant could rembat your possessions.
If you’re planning on a vacation for a few months or have another job opportunity in a different city, you don’t have to leave the house you love. A subtenant can break your agreement and ghost you. You can take legal actions but they are sometimes more trouble than they are worth.
Someone else can pay your rent while you’re gone. You may have to pay for damages that were caused by the subtenant.
You will have a physical presence in the house when you’re gone, which will help prevent robberies. If the subtenant doesn’t pay on time, you’ll have to pay late fees and late rent payments.
Subtenants can alert you and the landlord to urgent repair issues, which you’ll miss if you’re away. When you sublet your house, you are putting your reputation on the line alongside your landlord.
You won’t have to move out early, and a longer rent history at one apartment may help you rent future apartments.  


But wait, is subletting illegal in Malaysia?

The rights to subletting depend on the terms of your tenancy agreement. Most agreements will have a clause about subletting. If it’s not mentioned, you must always ask your landlord whether or not they are willing to allow you to do so. Some of them would not mind as long as they keep getting rent and you don’t breach any terms of their agreement with you.


Source: pngdir.com

What happens if you get caught illegally subletting?
Here are the situations that could happen if you get caught illegally subletting.

  • Breach of the tenancy agreement 

If you breach the tenancy agreement by illegally subletting, not only do you risk facing penalties, you might also be evicted by the landlord!  Also, a legal expert might be brought into the whole disputes between a landlord and tenant when the situation gets complex. Landlords may apply to a court for a repossession order of his or her property from the tenant. 

  • You may face penalties or warning 

Failing to carry out the tenant’s obligations can easily result in a breach of the tenancy agreement. Landlords may get legal action against the tenant for subletting his or her property. You may face penalties or warnings depending on the severity of the agreement breach. A lawyer will examine the legal basis for landlords seeking to take action against their tenants who do sublet.


Have you heard of the Malaysia Association of Sublet Operators (MASO)?


Source: Malaysia Association of Sublet Operators Facebook

The Malaysia Association of Sublet Operators (MASO) is the first sublet room association recognised by the Malaysian government. They represent operators and landlords who are doing sublet business in Malaysia.

They aim to provide solutions for any conflict related to subletting and act as an organised body for matters related to the industry. There are four different types of memberships that are open to the manager, operator, and any individual operating a sublet business

  • Ordinary
  • Associate
  • Honorary
  • Lifetime

So, what are the costs involved when subletting a property?

If you’re having a lawyer draw up the tenancy agreement, it’ll obviously cost you. There’s also stamp duty. Rather than a single fixed fee, stamp duty for tenancy agreements is calculated based on every RM250 of the annual rental. 

For tenancy periods less than 1 year, the stamp duty fee is RM1 per RM250. If you’d like an additional copy of the tenancy agreement to be stamped as well, the stamping fee is set at a flat rate of RM10. As for subletting, you might want to consider drafting a sublet agreement or a room rental agreement. This is to secure every party’s interest in the business – the landlord, the tenant, the sub-tenant.  Again, talk to your landlord regarding getting his or her consent and check your existing tenancy agreement on subletting clauses.  
 

Is subletting income taxable?

There’s a misconception that rental income is classified under an investment which means you can be exempted from any form of taxation. False. Any income you make from renting out properties is taxable. The only difference is how they are taxed.


Source: imgflip

As a general rule, the rent you receive is regarded as a non-business source of income and is charged to income tax under section 4(d) of the Income Tax Act 1967. However, if the property concerned is managed and let in such a systematic or organized manner that the letting can be regarded as carrying on a business, it will be regarded as business income. Therefore, it is charged to tax under section 4(a) of the Act. 

There is, however, a tax exemption of 50% on the statutory income of rental received by Malaysian citizens who live in Malaysia. You may refer to Income From Letting of Real Property by the Inland Revenue Board Of Malaysia (IRBM) or LHDN for further explanation.
 

Want to sublet your rental property? Iron out these things first

1. Refer to the terms and conditions in your tenancy agreement

Most agreements will have a clause about subletting, and some could include subletting fees, too. The terms also give you a picture of the risks you take by subletting, (i.e, if the property is damaged, etc). You’ll have to ensure the subtenant does not break any of the rules too. 

2. Discuss with your landlord

Even if your agreement allows or says nothing about subletting, you should still ask your landlord first. You would not want something to go wrong and the landlord evicting both you and the subtenant! 

How to pitch rental arbitrage to your landlord?

A rental arbitrage is a way to earn passive income without owning property or assets.  That means you are using someone else’s property, furniture, signing the tenancy agreement, and collecting the rent. This is usually for short-term rentals like Airbnb. 

The best way to pitch rental arbitrage to your landlord is first to check your tenancy agreement. If your landlord agreed to it, discuss if you have to pay more deposits, subletting terms (long or short), and other specific terms and conditions.

3. Advertise on property platforms

Finding a good tenant is crucial when you’re subletting. The responsibility ultimately falls on you if anything unwanted happens. There are many platforms you can advertise on like iproperty.com.my. Be sure to include the necessary info, like rent, amenities and pictures! 

4. Draw up an agreement with the subtenant 

A written agreement between you and the subtenant helps avoid legal disputes in the future. There are plenty of subletting agreement templates available online, if you don’t have that one lawyer friend (wink, wink). Consider taking a security deposit from your subtenant as well.


*This article was repurposed from How to gain profit from subletting? Know the consequences and costs involved, first published on iProperty.com.my . It is intended for informational purposes only. Loanstreet accepts no responsibility for loss that may arise from reliance on information contained in the articles.


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