Choose the right tenant

Home-owners beware: Choose the right tenant

Outlook Money 

The prime motive behind investing in a residential property is capital appreciation and, so, it’s a bit unwise to keep it vacant having taken possession of the same. While residential property rentals are low, typically around 4-6 per cent (pre-tax), it, however, does not mean that you should not let out your property. After all, rentals not only add to your overall return from the investment, but a steady flow of rentals can also be used to take care of the equated monthly instalments (EMIs) of your property, at least, even, partially. 

In case, you have bought the house without any mortgage, the rentals can be used for the maintenance of the property. But to get a steady flow of rentals, besides the condition of the property, you have to keep in mind the kind of tenant to whom you have let out your property. 

Know your tenant.

If you have entrusted the task of finding a tenant to a real estate agent, then try to gather as much information about him/her from the agent prior to your first meeting with him/her. The more information you have, the better is your chances of finding a good tenant.

Some of the common things you should know about your tenant are his/her age, martial status, job or business profile, the place of the present tenancy and, more importantly, the reasons for shifting the present residence. It will also help your cause if you get a fair idea of the permanent address of your future tenant. On the other hand, if you are planning to rent out the house to a group of individuals, then you should know how many people plan to stay in your house. 

The important details. 

The first thing you should find out is the rent your proposed tenant is paying at his present residence. It will give you a fair idea if he/she can afford to pay the rent you are expecting from your property. 

Typically, the difference in rent should not be more than 10-15 per cent than what the tenant is paying at his current residence. While there are factors that determine the rental value a property can command, get an idea of what your future tenant is paying as his current tenancy will help you gauge the appreciation in rental that a tenant can pay if he/she moves to a new house.

Get to know where the proposed tenant works. 

This will, to a great extent, ensure if you will get your rent on time every month. The reason for this is that if an individual works for a reputed organisation, then you can also go for a company lease. If the tenant is married then get to know if both are working or not. 

Do keep in mind that when a tenant takes a property on rent, then, in most cases, it’s a stop-gap arrangement before he buys a property of his own. 

While most rent agreements are for 11-month duration, it’s better to ask your future tenant in advance how long he/she wishes to take your property on rent. If he/she plans to stay in your property for at least two-three years, then it will be in your interest to agree for a slightly lesser rent and have a decent tenant rather than get a bad tenant who may agree to pay you a much higher rent.

While it is in your interest to know the necessary details about your future tenant, do not grill him/her to such an extent that he/she loses interest in your property. It’s never easy to get a property of your choice when you look to buy one, but it’s even more tough to find a good tenant. 

In brief:

While it is in your interest to know the necessary details about your future tenant, do not grill him /her to such an extent that he/she loses interest in your property. It’s tough finding a good tenant.