A good landlord need not always get a good tenant and so is the reverse. Having invested in a residential property with a view of earning rental revenue, it is imperative that you find a good tenant. There are many pitfalls here but it would be unwise to lock up the property for fear of losing it or finding it in a damaged condition, after it has been rented out.
Prudence and a bit of luck will ensure that your tenant does not give you any mental strain. After all, having invested your money, you should not carry the tension of worrying about it being a dead investment. Rental revenue is a return on investment and it helps you repay the loan, if the property is mortgaged, or to pay for the maintenance of the property. A steady rental income, after loan repayments, if any, will help you build an asset that is an insurance against any future financial turbulence in your life.
There have been many instances of landlords ruing the day they leased out their property to a tenant. To avoid falling into such traps, it is advisable to do some homework before you rent out to a prospective tenant.
First of all, you need to be clear on why you want to rent out your property. Do you want to rent out your property to repay the EMIs on your loan or do you want to earn income from it. What is the tenure of the lease that you have in mind. Who do you want to rent out your property to: Bachelors, Single women, families (large or small), vegetarians or non-vegetarians, government staff, corporate employees or business people? Some landlords prefer tenants who are on transfer and some prefer long staying ones.
Are you looking to rent out to anyone who is willing to pay the rent you are asking, even if it is on the higher side? You could be in some trouble here. Why should someone pay you a rent higher that what is the going rent in your area. The best way to find out the rental values in your area is to physically check it out in a few properties in your area by pretending to be a prospective tenant.
Having found clarity in your intention of renting out your property, how do you go about finding a good prospective tenant? There are many ways of doing this: Newspaper ads, visiting real estate agents, hanging a ‘to let’ sign on the property or telling friends and relatives about renting out your property.
Newspaper ads and the ‘to let’ sign will get you a lot of inquiries but you will have to check each individual responder by asking some pertinent questions and satisfy yourself that have found the right tenant. You would need to do a thorough background check about the antecedents of the person and it is advisable to get references. It is also prudent to know the reason for the tenant leaving the previous residence. In some cities, like Mumbai, a rental agreement has to be registered and also police verification needs to be done. This could take up to 10 working days but it is safer for the landlord to do so.
An experienced real estate agent will do all the leg work and that is a positive but you would need to pay his fees. At the same time you should check if the agent is reliable and is not a fly-by-night operator. Friends and relatives could also find you good tenants but you must do all the other leg work yourself and insist on background checks and police verification. Registering the document should be mandatory.
Once the documentation part is taken care of, you would need to come to an agreement on the rent, the payable date, the tenure of the agreement and the security deposit (in most cities it is ten months rent), refundable on the tenant vacating the property in good condition. Normally the tenant pays the maintenance and the electricity bill. The tenant also has to abide by certain guidelines, some of which are enforced by the building society. Keeping pets is an issue with many building societies. Loud music and wild parties are not appreciated and therefore the tenant has to be suitably advised. Parking at the allotted space has to be followed. The tenant is responsible for the proper maintenance of the interior of the property and any damage to it will be to the account of the tenant. No sub-letting is to be permitted. The property should not be used for any immoral or illegal activity. All these have to be documented in the agreement, under its various clauses and duly signed by both the tenant and the landlord, and subsequently registered. Do not give or accept any oral instructions or commitment.
It is advisable to rent out the property under the 11-month leave and license agreement. This would prevent a licensee from claiming tenancy rights. You may renew the tenure for another 11 months but under a fresh agreement. Every renewal should be a fresh agreement and the amount of increase in rent should be incorporated in the new agreement. Under no circumstances should you accept the rent after the expiry of the agreement. It is therefore, in your interest, to make timely renewal of the leave and license agreement.
Finally, a good tenant will be as good as your relationship with him. You need to understand that despite your best efforts and all the checks and balances, things may not go as per plan. But as Alexander Pope says “Hope springs eternal in the human breast.”
Stanley Varghese for IndiaProperty.com