Hidden costs landlords incur when renting out a property

Renting out a property has many benefits. Many homeowners decide to sell their house at a stage in life, such as retirement, to earn a steady rental income. This is a widely seen trend in locations with significant rental demand due to the presence of IT or educational hubs. A property owner should thoroughly analyse if renting is feasible or not. In unfavourable market conditions, renting could be disadvantageous and pose a vacancy risk for extended periods. There are some fixed costs that come with owning any property, such as property taxes and home loan EMIs. Besides, there are ongoing maintenance costs the landlord must bear. In addition, it is crucial to understand the various costs involved before a property owner rents the property to a tenant. In this guide, we will list the various expenses a landlord incurs when renting out a property.

Initial costs of renting out a house

#1. Repair and maintenance expenses

There are significant expenses a landlord may have to incur for their property. These include expenses related to lawn, plumbing, painting, etc. Tenants are only responsible for basic maintenance, such as daily cleaning of the house and small repairs. There could be unique maintenance needs depending on the age or size of the property. A bigger house will have more space and possibly more amenities. So, the maintenance costs are likely higher than a small house in a standalone residential building. Landlords can allocate a significant portion of their monthly income to the repair and maintenance of their property.

#2. Home staging expenses

Home staging refers to preparing a house before putting it up for sale or rent. Home staging usually involves decluttering, deep cleaning, reorganising the interiors and decorating the house to attract potential buyers or tenants. Landlords can go for professional home staging, a popular concept in the West and gaining significance in India, by hiring professionals. The cost of home staging may vary depending on factors such as location, property size, layout, etc. and could range from a few thousand to a few lakhs. A major benefit of home staging for landlords is that the property will find many prospective tenants and could fetch them a higher rental income compared to other properties in the same area.

#3. Costs of brokerage

Property owners should plan for the potential costs of tenant search. This may also include brokerage costs if the landlord has sought the help of brokers to find tenants. The brokerage charges in India vary depending on whether the property is sold or rented. Again, the charges vary based on the city, broker services, property type, etc. However, the standard brokerage fee for residential properties in India is equivalent to one month’s rent. In some cities such as Bangalore and Mumbai, brokerage fees may be up to three months’ rent, while Delhi-NCR could be up to two months’ rent. Rental brokerage may also be based on the rental tenure. So, if the rent agreement is drafted for more than one year, the brokerage charges of one month may increase to 45 days or two months.

#4. Costs of advertising or listing the property

With the growth of real estate portals, finding buyers and tenants has become seamless and quick for property owners. A significant number of property owners now prefer to list their properties online and find suitable tenants from the comfort of their homes. There are paid services one can avail, which involves some expenses. At the same time, there are traditional methods of advertising a property through newspapers. These costs must be considered if an owner rents their property.

Legal expenses involved in renting out a house

#1. Tenant verification costs

In many cities, landlords must complete tenant verification before renting the property. Property owners can get tenant verification done through the official website of the local police. However, the offline mode of tenant verification is also available by visiting the local nearest police station. There is a specified fee to complete the tenant verification. For example, the tenant verification fee is Rs 50 in Noida and Rs 250 in Delhi. 

#2. Rent agreement

A rent agreement, a legal document mentioning the terms and conditions of the tenancy, is signed between the landlord and the tenant when the property is rented out. As per the law, property owners should register the rent agreement. In most cases, the cost of drafting the rent agreement and stamp duty is borne by the tenant. It can also be borne by the landlord or shared between both parties. Stamp duty and registration charges are applicable. The cost of registration of the rent agreement depends on the rental period. For example, for a rental period of less than five years, the stamp duty is 2% of the consideration value and the registration fee is Rs 1,100.

Click to read more about who pays for registration of rent agreement

#3. Dealing with tenant disputes

Landlords should be aware of their rights and responsibilities to avoid potential disputes with tenants. In India, each state has its own Rent Control Act regulating tenancy agreements, rental rates, eviction procedures and tenants’ rights. Besides, the Model Tenancy Act was enacted in 2021 to bring uniformity and transparency in the rental housing market. There are several provisions under the law that protect landlords. On their part, landlords should ensure there are some clauses included in the rental agreement about lease terms, termination of the tenancy, eviction and dispute resolution. However, there could be scenarios where a landlord may have to deal with a difficult tenant. This could include issues such as non-payment of rent or damages caused to the property. In such cases, landlords can take legal recourse and even approach the rent authority. This could involve significant expenses that must be borne by the landlord.

Click to read more about rent agreement clauses landlord, tenants must include to avoid disputes

Unforeseen expenses landlords may incur

If the property is vacant for some months, the landlord may be required to do safety checks on the property and bear the utility bills and other maintenance costs. This could be challenging for landlords but they should be financially prepared such scenarios.              

Moreover, property owners should make provisions for any unexpected expenses they might incur. These could include pest control or damages to property during the unoccupied period.

Tips for landlords to reduce costs of renting out a property

• Allot a maintenance budget: Landlords can plan their finances and learn some maintenance skills expenses. A smart way to cover the maintenance cost is allotting 1% of the property value to maintenance expenses every year. This way, one will prevent overspending and protect their savings.
• Find tenants online: One can list out their property online on real estate portals and avoid using brokers’ help to search for tenants. This way, one can save on the broker costs.
• Communicate effectively with tenants: Landlords should ensure a clear communication channel with their tenants to avoid potential disputes. They should ensure the rent agreement has all the important clauses to protect their interest.
• Conduct regular property inspections: Landlords should conduct quarterly inspections on their property. This will help them identify potential structural and maintenance issues at an early stage, thus preventing any major expenses later.

Housing.com News Viewpoint

Property owners consider renting out a property to earn a steady rental income. However, they should also evaluate the costs of owning the property and the expenses they would incur once they rent out the property. The calculation of property maintenance expenses is essential for determining the rental value of the property.

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