Unlock the Value of Your Property; Give it on Rent and Add to Income

Vidyalaxmi shares some tips on how to rent out your vacant apartments and what necessary safeguards one needs     Real estate is one of the favourite investment avenues for investors with deep pockets. However, many of them only think about the future value of the property while making the investment, rue investment experts. That is because they don't even want to consider the possibility of renting out the place. If you want a proof, check the number of permanently locked houses in any new building 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 as rental income to make up for the huge investment and its comparative illiquidity 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 loan interest rates, house rents are also going up," says Pankaj Mathpal, CFP, managing director, Optima Money Managers. He is hinting that many prospective buyers are postponing their decision to buy home and instead are settling 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 earnings from the property," he adds.  But no amount of financial reasoning is going to convince some of these investors to give their property on rent. Most of them fear that a troublesome tenant can make their lives miserable, and any legal hassle could damage their investment plans beyond repair. However, these fears may be exaggerated, according to experts. You don't have to fear much if you ensure the documents are in order, do a background check on the prospective tenant and draft an appropriate rent agreement.  DOCUMENT CHECK  A tenant may not insist on all the documents, but it is in your interest to ensure that property papers, which include the occupation certificate and title deeds, are in order before renting out the apartment. "A landlord has to 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," Shveta Jain, director, residential services, Cushman & Wakefield.  VALUATION OF PROPERTY  The 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 overall market trends in terms of appreciation and depreciation. "If you are renting your 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 by two or three brokers to get an accurate quote," suggests Gulam Zia, director, national advisory services, Knight Frank.  BACKGROUND CHECK OF TENANT  It is important to get the basic background information on a tenant and verify it for accuracy. "The purpose behind the background check is twofold --- to ensure that the tenant is a suitable fit for the property and to preempt any legal complication at a later stage," says Om Ahuja, CEO (residential services), Jones Lang LaSalle India. Doing a thorough check would also ensure that a tenant has no criminal background. Many cities and localities in India now require tenants to undergo police verification. Ideally a landlord should personally meet the prospective tenant and get firsthand details about his occupation, permanent address, documentary proof of identity and, if possible, local references. Apart from that, you can do a personal background check by asking for references of previous landlords along with contact details, and a letter from the company in which he or she works.  DRAFTING THE RENT AGREEMENT  Pay close attention to the terms and conditions in the agreement and to have the agreement registered or notified. The type of agreement would depend on whether it is a straightforward rental arrangement or a lease. "Again, there are two types of lease – company and personal. Most landlords prefer a company lease; but whichever is used, it should mention the duration of the lease," says Om Ahuja. "In the case of a personal lease which spans for 11 months, the landlord should have the agreement notified. In case of a company lease, which extends for more than a year, the landlord should have it registered with the help of a lawyer. The landlord should complete all paper work before the tenant actually moves in," he adds.  Drafting Rent Agreement: A Checklist  The rent agreement should specify that the property is being given on 'Leave and License' and not on rent to ensure that no tenancy rights are given  The property is to be used only for residential purposes, and the tenant can't sub-let it or use it for any other purpose  No additional  construction/modification can be done without a written approval  Details about the duration of the licence agreement and that on expiry or early termination of the agreement the licensee shall vacate the flat and shall not claim any tenancy rights  List of all furniture and fixtures being provided along with the property  Details about when and how the rent is to be paid, the security deposit and its refund, and penalty for late payment  Ensure that the agreement is signed by all parties, witnesses and duly registered so that it is recognised by a court of law