Entering into a lease agreement provides the most common
platform for renting a house which is further treated as
a single business, even if you rent out more than one property.
Contrary to this, if you let out several properties, you
get an opportunity to balance losses from one against profits
from another.
What Is Meant By Residential Property?
Properties meant for the purpose of personal dwelling
fall under the category of “residential lettings”.
If you are letting out a part of your own home, this will
also be counted as residential lettings, but you have
the prospect to take the advantage of renting the room
instead if you let furnished accommodation to a lodger.
Purchasing the residential property or premises is certainly
a smart investment if you are truly considering the advantages
of making it your investment property.
Leasing a residential property can be financially rewarding
and otherwise it offers you the prospect of sitting back
at home and collect rental income year after year without
undertaking any extra effort on your property except for
its maintenance.
Things to remember
Nevertheless, finding the rental property that you can
actually make your investment property is not very difficult
but maintaining a sound return on your investment surely
is.
So hereon we discuss some of the major factors that you
should consider while searching for a potential investment
property.
Distances from your House - Try to scout
for the premises near to your own house. It will offer
you the ease of maintenance, as well as visual enhancement
of your property. Also, it is much compatible to deal
with an emergency if you are within easy reach of the
property.
Supply of Potential tenants –
Choose the area where there is a good market for rental
property that means a location, which makes a preferred
residential location of the city.
Generally, areas near city centers, schools, colleges,
universities, and corporate offices are good locations
as there is always an ample supply of prospective tenants.
Say 'NO' to Exhausted Hotspots
- When you are searching for the area to buy your investment
property in, it can be luring to opt for a location touted
as a current happening destination. Remember, everything
that glitters is not gold. Once an area is being regarded
as a hotspot, you will probably have already missed out
on the biggest gains in the price value of properties.
Local knowledge - Gather the required
knowledge about the area in which you are going to buy
the rental property. Take some time to get to know the
people there before you move ahead and spend out money.
Participate in on line forums that discuss the pros and
cons of buying rental property in that particular area.
Aside from considering the points mentioned above, you
must take a look at the bigger picture too and think about
some of the broader issues affecting the area as a whole.
Valuation of Property
Often, rental value of the flat is a function of capital
value of the flat. A lessor always desires to get return
of around 75 to 10% of the capital value of the flat.
As such, there is no fixed criterion to evaluate the rental
value but still you can do it by yourself.
Outlined are the factors that are generally taken into
account while determining the actual value of the property.
- Age of the Building - Needless to say,
newly constructed buildings generally contain high price
tag than the old concrete structures. This makes age of
the property a factor too hard to ignore.
- Maintenance of the building - Nice upkeep
of the things naturally adds to their cost and become
one of the factors to determine the marketability and
the existing market value of the property.
- Layout of Premise - Here, we are concerned
with the facets like optimum space utilization and upkeep
of the premises where the building is located.
Legal Documentation
It is a matter of critical importance that you prepare
the lease documents as per the provisions laid under the
Transfer of Property Act. The agreement must specify the
terms and conditions for both a lessor and lessee and
needs to be signed by both the parties and their duly
authorized agents. This legal document is known as rental
agreement or a lease deed.
Lease Structure
While budgeting for leasing a property it becomes necessary
to understand various ways a lease transaction is structured.
There are broadly three different structures for a lease
transaction
There are different ways to structure a lease transaction
which are necessary to understand to evaluate the budget
for leasing a property.
Deposit and Rentals - In case
of monthly rentals, a tenant is required to make a payment
to the landlord as security deposit in addition to the
monthly rent he has agreed to. The amount of the security
deposit is evaluated on the basis of rent, city, and the
location where the premise is situated. This security
deposit is returnable at the end of the tenancy period
provided the rent is paid on time and following an acceptable
inspection of the premise by the landlord.
Monthly Rentals - A tenant is
required to make a fixed payment every month which is
known as rent if the transaction is based on monthly rentals.
The rent may be paid either in advance or at the end of
every month depending on the terms and conditions decided
between the tenant and landlord or as laid in the lease.
Advance Rentals - The lessee pays
rent for the entire term upfront.