Know your property value: Give for rent and get extra income

One of the most preferred investment options for investors with deep pockets is real estate. Considering only about the future value of the property, most of the investors make investment.  Most of them don’t even consider about renting out the property.

According to investment advisors, making huge investment in a property and keeping it locked is not being wise. Real estate investment is expected to procure capital appreciation as well as rental income to make up for the huge investment made and its reasonable illiquidity as an investment. However, rental income will not be much, but even if you are getting about 4-6 per cent, it can take care of your maintenance costs.

Rental prices have been increased due to the high property prices and home loan interest rates. Owing to this, various prospective home buyers opt for rented houses pushing up rental prices in the suburbs. Since the rental prices are soaring, it is a good idea to give the property for rent and get some earnings rather than locking it up.

Why are people reluctant towards renting properties?

Most people worry about troublesome tenants, who can make their lives miserable. They are also worried about the legal hassles which can damage their investment plans beyond repair. However, an owner does not need to fear if  he/she has all the legal documents, just need to do a proper background check on the tenant and draft the rental agreement.

Document check:

Although a tenant might not insist you to show all the legal documents, it is the owner’s responsibility to ensure that all the property papers such as occupation certificate and title deeds, etc are in order before renting out the property. A property owner should ensure that his/her name is clearly mentioned in all the documents as this serves as good authentication in case of any dispute in the future.

Valuation of property:

Renting out a property depends on factors such as location, size of the house and amenities offered, market trends in terms of appreciation and depreciation. Also get a surveyor or a couple of brokers to confirm the rental value.

Background check of the tenant:

An owner should ensure that he/she does proper background check on the tenant. It is required in order to ensure that the tenant is a suitable fit for the property and to preempt any legal complication in future. This will also ensure that a tenant has no criminal background. There are various cities and localities in India require tenants to undergo police verification.

It is important that the owner should get first-hand information about the tenant’s occupation, permanent address, proof of identity and some local references. Also, you can do a personal background check by seeking references through previous landlords along with contact details and a letter from the company the tenant works.

Drafting rental agreement:

Ensure that one pays close attention to the terms and conditions mentioned in the rental agreement before it is registered and notified. Agreement type depends on whether it is a straightforward rental arrangement or at lease.The lease agreement is further divided into two; company and personal lease.

Checklist for drafting an agreement:

• The rental agreement should have details about the property being given on leave/license and not on rent. This will ensure that there are no tenancy rights being given.
• The agreement should state that the property will be used only for residential purposes.
• The agreement should state that any sort of additional construction/modification will not be approved.
• The agreement should state the information about the duration of the licence agreement, expiry and early termination. The tenant should vacate the apartment and will not claim any tenancy rights in any of the above cases.
• The agreement should list all the furniture and fixtures which will be provided by the owner.
• The agreement should state details about the rent paid along with the security deposit, refund and penalty for late payment.
• The agreement should state that the agreement is signed by all parties, witnessed and is duly registered and recognised by a court of law.