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give it on rent and add to income


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give it on rent and add to income

  1. 1. Unlock the Value of Your Property; Give it on Rent and Add toIncomeThe Economic Times:Vidyalaxmi shares some tips on how to rent out your vacant apartments andwhat necessary safeguards one needsReal estate is one of the favourite investment avenues for investors with deeppockets. However, many of them only think about the future value of theproperty while making the investment, rue investment experts. That is becausethey don‟t even want to consider the possibility of renting out the place. If youwant a proof, check the number of permanently locked houses in any newbuilding in big cities. According to investment advisors, this is a bad strategy,as a real estate investment is expected to fetch capital appreciation as well asrental income to make up for the huge investment and its comparativeilliquidity as an investment. Sure, rental yields are not much; but even at 4-6%, they are good enough to take care of the maintenance costs. The surplus,if any, is the icing. “With the increase in the cost of property and home loaninterest rates, house rents are also going up,” says Pankaj Mathpal, CFP,managing director, Optima Money Managers. He is hinting that manyprospective buyers are postponing their decision to buy home and instead aresettling for living on rent, pushing up rental in many pockets in the suburbs.“It is a good idea to rent a house than have it locked up. It gives some earningsfrom the property,” he adds.But no amount of financial reasoning is going to convince some of theseinvestors to give their property on rent. Most of them fear that a troublesometenant can make their lives miserable, and any legal hassle could damage theirinvestment plans beyond repair. However, these fears may be exaggerated,
  2. 2. according to experts. You don‟t have to fear much if you ensure the documentsare in order, do a background check on the prospective tenant and draft anappropriate rent agreement.DOCUMENT CHECKA tenant may not insist on all the documents, but it is in your interest toensure that property papers, which include the occupation certificate andtitle deeds, are in order before renting out the apartment. “A landlord hasto ensure that his or her name is clearly mentioned in the property documents.This acts as a good authentication in case of any dispute in future,” ShvetaJain, director, residential services, Cushman & Wakefield.VALUATION OF PROPERTYThe rent from the property depends on several factors, such as the location,size of the house, other amenities offered by the housing society and the overallmarket trends in terms of appreciation and depreciation. “If you are rentingyour property, get a surveyor or a couple of brokers to confirm the rental value.Apart from checking out with your neighbours, get the property evaluated bytwo or three brokers to get an accurate quote,” suggests Gulam Zia, director,national advisory services, Knight Frank.BACKGROUND CHECK OF TENANTIt is important to get the basic background information on a tenant and verifyit for accuracy. “The purpose behind the background check is twofold --- toensure that the tenant is a suitable fit for the property and to preempt anylegal complication at a later stage,” says Om Ahuja, CEO (residential services),Jones Lang LaSalle India. Doing a thorough check would also ensure that a
  3. 3. tenant has no criminal background. Many cities and localities in India nowrequire tenants to undergo police verification. Ideally a landlord shouldpersonally meet the prospective tenant and get firsthand details about hisoccupation, permanent address, documentary proof of identity and, if possible,local references. Apart from that, you can do a personal background check byasking for references of previous landlords along with contact details, and aletter from the company in which he or she works.DRAFTING THE RENT AGREEMENTPay close attention to the terms and conditions in the agreement and to havethe agreement registered or notified. The type of agreement would depend onwhether it is a straightforward rental arrangement or a lease. “Again, there aretwo types of lease – company and personal. Most landlords prefer a companylease; but whichever is used, it should mention the duration of the lease,” saysOm Ahuja. “In the case of a personal lease which spans for 11 months, thelandlord should have the agreement notified. In case of a company lease, whichextends for more than a year, the landlord should have it registered with thehelp of a lawyer. The landlord should complete all paper work before the tenantactually moves in,” he adds.Drafting Rent Agreement: A ChecklistThe rent agreement should specify that the property is being given on „Leaveand License‟ and not on rent to ensure that no tenancy rights are givenThe property is to be used only for residential purposes, and the tenant can‟tsub-let it or use it for any other purpose
  4. 4. No additional construction/modification can be done without a writtenapproval Details about the duration of the licence agreement and that on expiryor early termination of the agreement the licensee shall vacate the flat andshall not claim any tenancy rightsList of all furniture and fixtures being provided along with the propertyDetails about when and how the rent is to be paid, the security deposit and itsrefund, and penalty for late paymentEnsure that the agreement is signed by all parties, witnesses and dulyregistered so that it is recognised by a court of law