Letting an apartment on rent is quite a lucrative option for many. Renting a house gives regular income and protects the property from squatters. The introduction of SEZ and the development of affordable housing had led to a boom in the real estate sector. Skyline of Tier 1 and Tier 2 cities is filled with towers of apartment complexes, offices, and shops. Even the investor group had found investing in real estate safe. As the value of houses and apartments seldom depreciates, they emerge as an attractive option.
A good investor never loses an opportunity to make the investment generate income. Before earning from an investment property, it is better to pay heed to these tips.
Mathematically, people usually calculate the rental value of the property at 2.5% to 3.5% of the market value of the house. Then based on the location, amenities, and the condition of the house, the base rent can be increased. At times, demand and supply also play a pivotal role. Before putting your apartment on rent, it would be advisable to study the rent in the area.
In this digital age, it is not difficult to get an idea of the rent in the area. Sites like Magicbricks, 99Acres, Housing, are good resources. Local real estate agents can also give a fairly good idea about the rental rates in the region. This exercise is necessary as asking for too much rent can turn off good tenants and asking for too low is not feasible. There is a lack of good valuation tools in the market therefore one has to rely on research online to figure the best rent.
Type of Tenant
Students do not have high rent-paying capacity. Parents are usually looking for affordable options. So if you have a 3BHK apartment on rent or 2BHK apartment on rent, then it would be feasible to lease it out room wise. When letting out to students, it is best to not do fancy interiors. Bare apartment with lights, fans, and some basic furniture is more than enough. In this case, the apartment converts to more of a mini-hostel.
Working professionals prefer a structured and clean apartment. Again, if the offices nearby are in the outsourcing industry, and you have a 1 BHK on rent or 2 BHK on rent, then stick to the student apartment set up. In case you have a 3BHK apartment for rent or higher than make sure you add some basic amenities. Complete the woodwork, electrical work, and plumbing work.
Depending on the type of tenant that you are targeting, make adjustments to the offer and apartment. Asking rent also varies accordingly. If the asking rent is high but the target tenant segment is of the lower rental capacity, then offer rooms for rent.
As a homeowner, it is necessary to get the police verification done. In Noida, the police verification form can be filled online at the Noida Police website. People in the business suggest going through offline mode. To get the police verification done through the offline process, follow the steps below:
- Obtain tenant verification form from Senior Superintendent of Police (SSP) office in Greater Noida. Office address, Gautam Budh Nagar, Sector 14A.
- Submit the filled forms and make 3 copies of the Bank Challan form. Submit the filled bank challan form along with Rs. 50 at the SBI branch at the Collectorate complex on Main Road in Greater Noida.
- Make a set of 3 copies of the tenant verification form, tenant’s ID like Aadhar and add it to the Bank challan copy.
- Submit the same in the SSP office.
There are brokers and agents who can help you with this process. For example, Instant Home takes care of the entire tenant verification and rent agreement formalities for the homeowner.
Rent/ Lease Agreement
The most important and the only document maintaining a relationship between the landlord and the tenant. The rent agreement is made for all types of rental contracts, be it, short term, around 1 year or more than 1 year. Landlords face a problem with tenants in situations where lease agreement was not drafted before giving the apartment on rent or was drafted but did not mention all the details. A lot of residential landlords and tenants are at a fix these days because in their rent agreement, the force majeure clause was not mentioned. Model lease agreements are easily available online or you can also discuss it with your local broker/ agent. Usually, for residential rental agreements, the term is 11 months. Rental agreements of 1 or more than 1 year are required by law to be registered. In Noida, the stamp duty payable is 2% of the average annual rent if the rental term is of 1 year.
The lease agreement that Instant Home makes covers all the points and safeguards interests of homeowners and tenants. An ideal rent agreement would cover details of the property, movable and immovable fixtures inside the property, move-in condition of the property, repairs responsibilities, mode of rent payment, penalties in case of delay, and conditions for return and usage of security deposit.
Rental income is taxable, but it is also eligible for certain rebates. Taxable rental income is calculated by deducting municipal taxes, and standard deductions under Section 24 from gross annual rental value.
- Gross Annual Rental Value is the rental value that can be attained from an apartment or house in a year. So for example, if the rent of the apartment is Rs. 10,000 per month, then the gross annual rental value would be Rs. 1,20,000 (10,000 x 12). As per Tax laws, if someone owns two residential properties, then the second property is considered as rental. So, in case the property is vacant, then the fair market value is calculated by finding the rental value of a similar property in the same area.
- Municipal taxes that are paid are deducted from the gross annual rental value to achieve net annual rental value.
- Standard Deductions under Section 24 can be divided into two categories.
- Repair and Maintenance – calculated at 30% of the net annual rental value.
- Interest on Loan – actual interest paid on the loan amount is deductible from the net annual rental value.
In case there are two properties, the homeowner has the flexibility to state which of the two properties they want to mark as an apartment on rent and which to mark as self-occupied. So for example, you own two properties A and B. You live in ‘B’ and have put ‘A’ on rent as it has a higher rental value. But while filing returns, you can mark ‘B’ as rental and ‘A’ as self-occupied.
Most people like to purchase multiple properties in their lifetime as rental income is a safe and stable income for many years to come. If one follows the above steps then it is easier to manage your rental properties. There is also an option to get your property managed by professional rental management company like Instant Home. This way the hassle of finding good tenants, getting their verification done, getting the paperwork done, is all taken care of by the company. Many older people and NRI’s are preferring this service as they are not physically present to manage.