Six years ago, Ravi Tiwari bought a house in Thane. While the 37-year-old lived in his own house in Navi Mumbai, he bought the second property as an investment. The move has paid off well: the property’s value has gone up substantially and he is earning a good rental income. However, Tiwari is a worried man these days. The reason? Scouting for tenants every two years is a problem. “It’s a cumbersome process and most of the tenants misuse the house. Whenever one occupant vacates the house, I have to get it repainted. I also have to go through the entire process every two years to avoid legal hassles, which means I have to pay a hefty brokerage fee as well,” he says.
Like Tiwari, many property owners are apprehensive of letting out their houses, fearing that the tenant will refuse to vacate when they want him to. Another worry is that the occupant may sublet the property even though it is illegal. These are some of the reasons many home owners leave their properties vacant instead of taking the risk of fighting a prolonged legal battle.
However, if the owners follow the correct procedure, they can ensure a hassle-free process of leasing a house. Here are the things they should consider.
How to lease a house
The first step is easy enough—advertise to rent out the house. For a small fee, you can post ads in various local newspapers or do it for free on real estate websites like Magicbricks.com and market portals like OLX (olx.in). However, the best option is to hire a real estate broker as this will save you time and effort. The broker will be responsible for vetting potential lessees and will also be able to give you a realistic picture of how much rent your property can earn. The broker usually charges about one month’s lease rental as service fee. He could also help you with other tedious errands, such as police verification of the tenant and registration of the lease agreement. It is compulsory to get the agreement registered if the lease period is more than 11 months.
It is advisable to charge a security deposit from the tenant for any damage that he may inadvertently inflict on the property. If the tenant maintains the property well, you can always return the deposit at the end of the tenure.
You could also take the help of a legal expert to draft the lease agreement. This document includes details such as the tenancy period, maintenance cost, monthly rental, deposit amount that is refundable if all conditions are fulfilled when the tenant vacates the property, payment for damage to the house or furniture, if the latter has been provided. This agreement needs to be signed by both the parties. If the tenant is not comfortable with any aspect, he can ask for a rectification.
After you have finalised the tenant, the next step is to undertake the process of police verification, which is mandatory now. You will have to submit a copy of the lease agreement, along with other details of the tenant, such as the proof of his identification, PAN card, address proof and occupation/service proof. The police will keep a copy of these documents for its reference and check whether the tenant has a history of criminal activities.
How to compute the rent
Amit Goenka, national director, capital transactions, Knight Frank India, explains that the rent for a particular property is the sum of various components. “The first element is the basic rent for the property, which is directly related to its capital value. It is usually 2.5-3% of the annual capital value and differs depending on the location of the house,” he says.