What fac­tors to con­sider be­fore rent­ing out your house

Rent­ing out your house isn’t just about getting the right tenant but it needs reg­u­lar fol­low-up to avoid any fall­outs

HT Estates - - FRONT PAGE - Ash­wini Ku­mar Sharma ash­[email protected]

If you have in­her­ited or bought a house, or up­graded to a big­ger prop­erty in the last few years and con­tinue to own the old house for in­vest­ment pur­poses in the hope that real es­tate prices will only in­crease, you may have been dis­ap­pointed by now.

In the last few years, prices have ei­ther re­mained stag­nant or de­creased in ma­jor mar­kets across the coun­try, andthere are no signs that the trend will change any­time soon. In this sce­nario, there are only two­choices: sell­ing the prop­erty or putting it on rent. If you want to sell the house, read wha­t­ex­perts sug­gest should be your exit strat­egy here.

How­ever, in the cur­rent mar­ket sit­u­a­tion, chances of cap­i­tal ap­pre­ci­a­tion are very low, and rent­ing out aprop­erty does make sense. It al­lows you to make a lit­tle money (typ­i­cally 2-3% of the prop­erty value an­nu­ally) ev­ery month, which could help you in pay­ing off a cer­tain por­tion of your equated monthly in­come (EMI), if any, or en­hance your re­turn from the as­sets.

DO YOU WANT TO RENT OUT?

The first ques­tion to ask your­self is whether you want to rent out or not. Mak­ing de­ci­sion to rent out your house is not al­ways easy. Say, if you have in­her­ited a house or lived in a house be­fore, rent­ing it out could be tough on you emo­tion­ally. Also, it’s time­con­sum­ing. To start with, be­fore look­ing for ten­ants, you have to look into re­pairs and main­te­nance as­pects of the house. A house­y­ouboughtafewyearsago may not be in the con­di­tion to be put on rent. Then there is ad­ver­tis­ing or deal­ing with agents in or­der to find a tenant. It doesn’t stop at that: there is rent to be ne­go­ti­ated and le­gal and other for­mal­i­ties to be com­pleted be­fore the tenant fi­nally moves in.

Even dur­ing the ten­ancy, you may have to in­ter­act with your tenant reg­u­larly for rent and other is­sues, han­dle main­te­nance and re­pairs, and deal with any emer­gen­cies that may come up.

If you are ready to do all that and more, here are five things you should con­sider be­fore rent­ing out your house.

DE­CIDE THE RENT

The­first thing youneedto de­cide is how much rent you should ex­pect. “The rental mar­ket is, al­most by def­i­ni­tion, price sen­si­tive,” said Anuj Puri, chair­man, Anarock Prop­erty Con­sul­tants Ltd, a prop­erty broking firm. A land­lord should re­search rental rate trends for the given lo­ca­tion and prop­erty ty­pol­ogy and en­sure that the prop­erty has not been­priced off the mar­ket, added Puri.

Re­mem­ber, there are var­i­ous fac­tors whichde­ter­mine the rent of a house such as its lo­ca­tion, ameni­ties, neigh­bour­hood and in­fra­struc­ture. But the most im­por­tant fac­tor is the con­di­tion of the house it­self.

“Newer homes will rent out for more, but ren­o­vated flats in older projects can earn al­most as much as a new one,” said Puri. But be­fore you de­cide to ren­o­vate the house, see if it makes sense for you. “You need to weigh the cost of ren­o­va­tion ver­sus the po­ten­tial in­crease in the rent amount,” said Puri.

LOOK AT TENANT, TEN­URE

An­other thing you should have clar­ity on is the type of tenant you want.

Si­mul­ta­ne­ously, you need to fig­ure out how long you want to let out your prop­erty. “It’s im­por­tant for a land­lord to un­der­stand whether they have bought the prop­erty as an­in­vest­ment or for per­sonal use. This helps them in iden­ti­fy­ing the kind of ten­ants they would­like to en­gage,” said Sau­rabh Garg, co-founder and CBO, NoBro- ker.com.

For in­stance, home­own­ers who have pur­chased prop­er­ties in high-growth ar­eas purely from an in­vest­ment stand­point are more will­ing to let it out to stu­dents and/or work­ing pro­fes­sion­als for a cou­ple of years, while peo­ple who view their prop­erty as a home for per­sonal use gen­er­ally pre­fer rent­ing it out to fam­i­lies for longer du­ra­tions, ex­plained Garg. This is also true if you are rent­ing out a floor in the house in which you live your­self.

DRAFT A RENT AGREE­MENT

Many home-own­ers are re­luc­tant to put prop­erty on rent be­cause they don’t want to put their as­set at risk for a nom­i­nal re­turn. Typ­i­cally, rental yield from res­i­den­tial prop­erty in In­dia is be­tween2% and3% of the prop­erty value per an­num. “Let­ting ahouse­on­rent­toa­com­plete stranger has cer­tain in­her­ent risks, such as prop­erty dam­age, de­lay in rent trans­fer or com­plete non-pay­ment, and re­fusal to va­cate the prop­erty after the ex­pi­ra­tion of the pre-estab­lished time­lines,” said Garg.

To avoid prob­lems and mit­i­gate the risk, land­lords should draft a ro­bust rent agree­ment. “A lot of the risk can be re­duced by an air-tight rental agree­ment which clearly enu­mer­ates the rights and re­spon­si­bil­i­ties of both the land­lord and the tenant,” said Puri.

“Land­lords should in­clude rel­e­vant clauses into the rental agree­ment and col­lect a se­cu­rity de­posit,” said Garg.

GET VERIFICATIONS DONE

Once you find a suit­able tenant, dis­cuss the terms and con­di­tions, and in­sist that she goes through the clauses men­tioned in the rent agree­ment you have drafted. If need be, make the changes as per mu­tual un­der­stand­ing and draft a fi­nal rent agree­ment for regis­tra­tion. Re­mem­ber, “rental agree­ment should al­ways be reg­is­tered with the lo­cal au­thor­i­ties in or­der to be­come a valid le­gal doc­u­ment,” said Puri.

In case the tenant starts trou­bling youbynot­pay­in­grent or not agree­ing to va­cate the house when you need it, a reg­is­tered rent agree­ment would be the only weapon that will help you.

Be­sides, even if you con­duct de­tailed back­ground­checkof the per­son tak­ing your­house­on­rent or the tenant was re­ferred by a known per­son, it is wise to go for po­lice ver­i­fi­ca­tion.

DO REG­U­LAR IN­SPEC­TION

Your work is not over as soon as youlet out the house. Youshould visit the house once in a while ( monthly or quar­terly), to in­spect whether the tenant is keep­ing the house prop­erly or not.

It also works to in­ter­act with neigh­bours and take feedback about the tenant. You should also keep an eye on whether the tenant is pay­ing util­ity bills, so­ci­ety main­te­nance charges and other ex­penses on time.

MINT/FILE

In the cur­rent mar­ket sit­u­a­tion, rent­ing out a prop­erty makes sense

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