INVESTMENT WISE - The diligence dictum

July 19, 2015

Jul 18 2015 : The Times of India (Pune)

Santhosh Kumar, CEO operations and international director, JLL India, offers tips for renting out a property

India's cities are growing and creating a wide spectrum of opportunities. This means there are a lot of people flocking to cities in search of jobs, higher studies or just for a more cosmopolitan lifestyle.In other words, today's real estate market is flooded with prospective renters.The sky-high property prices in larger cities are keeping 'buy' option out of the reach of the common man, so the rental market is booming.Not surprisingly, countless people have either invested in or are entering the rental real estate segment. Their objective is to purchase homes and rent them. The problem is that many first time landlords are unaware of the potential risks associated with renting out a property particularly a residential one. Renting out a house in India does not always result in smooth sailing; if not approached diligently, it could become a serious headache and sometimes, even a nightmare.
The most common problems that first-time landlords encounter are as follows.
Finding new tenants, especially the right kind Delay in payment of rent Misuse of property by the tenant Tenants refusing to vacate Tenants not paying maintenance charges (if the agreement requires them to) As the rental season has just begun in India, time is right to examine the points, which a first-time landlord should keep in mind while renting out a house to avoid hassles later.
DECIDING ON RENT
It is always essential to ascertain the correct rental amount for your property. In such a competitive scenario, you cannot ask for more than the prevailing market rate. To ascertain this, you need to do a thorough check of the area's current rental rates, and price your rent competitively. Only if your property is well-maintained, fully furnished and offers that extra 'luxe' factor can you can charge a consummate premium. And even that needs to be logically calibrated.
GETTING THE PROPERTY INSURED
A savvy landlord gets his rental property fully insured. A landlord is always at risk because he is not the one controlling the property, but the tenant. Landlords should consult with their insurance agent to ensure they have the maximum amount of liability coverage for their property.
LISTING THE PROPERTY
Once you have decided the rental amount for your property, the next step is to list the property on the market. You can do that by either listing on online portals or by contacting local agents. If your rental property is an upscale apartment or a bungalow that will fetch a higher rental, a property consultancy should be roped in to help you with the leasing.
DRAFTING THE RENTAL AGREEMENT
Every rental agreement should be in writing and registered. A rental agreement should provide the term of the lease, monthly rental amount and security deposit. It should also specify all the terms and conditions such as who will pay for utilities water, electricity and maintenance charges. The purpose of tenancy should be clearly mentioned, like whether the property is being used for commercial or residential purpose.If the rental agreement is set to expire and you and the tenant agree to extend the term of the lease for a specific period, the extension should be in writing.
REGISTERING THE AGREEMENT
After preparing the agreement, the most important task is to get it registered. It is necessary to register the rental agreement because only then it can be used as evidence in the court in case of any legal action. The amount to be paid for registration and the stamp duty may be borne by the landlord, or it can be paid mutually depending on the situation.
POLICE VERIFICATION
This is one of the most essential parts of the process, which helps in background check of the tenant. Not running a background check is a punishable offence under Section 188 of the Indian Penal Code. The landlord has to fill the verification form, obtainable from the state police department website. It must then be submitted to the local police station along with identification proof of the tenant. The local police then conduct the background check and give their approval.