Mistakes landlords should avoid when renting a property

Renting out a property can be seen as a smart move as property owners get the opportunity to earn additional income through rentals. However, every landlord has certain responsibilities to fulfil. More importantly, there is a checklist of things landlords should have even before they select a tenant to rent out their property. Without proper planning, some landlords tend to make serious mistakes that could lead to legal or financial issues. We discuss some common mistakes landlords make and should be avoided if you are planning to rent out your house.

#1. No Tenant Screening

Owning a property is a significant investment in one’s life and renting it out to unreliable tenants could lead to problems such as unpaid rent, property damage, legal hassles, etc. Screening tenants is crucial as it helps on identify red flags. However, in India, many landlords make the mistake of not conducting background checks on prospective tenants. Usually, the selection of tenants is based on their appearance, friend’s references, basic conversation during property visits, etc.

In several cities, it is mandatory to conduct tenant police verification to ascertain tenant’s credibility and prevent potential conflicts. Another important tip is to ask the prospective tenant to fill out a rent application form by providing relevant details. Landlords should get complete details from potential tenants, including their employment details, rental history and past residence. If possible, landlords can get the contact details of former landlords and speak to them.

#2. Lack of a clear rent agreement

When renting out a property, a landlord should ensure that a proper rent agreement is drafted and registered if the tenancy is more than 11 months. The tenant generally bears the expenses of rent agreement and registration. However, some landlords share the expense. In India, it is common among landlords to rent out their property after drafting a vague contract or having a verbal discussion with the tenants regarding the rent amount, duration, etc. This is where the problem arises, as there is no written document specifying the responsibilities of the tenant. Tenants then take advantage of this situation, resulting in challenges for the landlord, such as absconding tenants, non-payment of rent, property damage, etc.

Thus, landlords should make sure to prepare a comprehensive rent agreement covering various aspects of the tenancy. More importantly, it should have some key clauses such as the rent amount, payment method, grace period, security deposit, rent increase and penalty for late payment. Further, there should be clauses related to eviction terms, property usage, subletting, etc.

#3. Neglecting regular maintenance

One of the common reasons for disputes between landlords and tenants is the lack of maintenance of the property. The landlord is the owner of the property and is responsible for undertaking necessary repair works. Failing to ensure the upkeep of the property could lead to deterioration, decrease the property’s value and turn off potential tenants. Thus, it is crucial to create a schedule for regular inspections and maintenance or repair works. Delaying this will only lead to huge expenses later. Landlords can devise a strategy for property maintenance. The foremost step is to inspect the property and identify urgent repairs. They can hire professional services for property inspection.

#4. Overlooking hidden costs

Most landlords, especially first-timers, ignore the hidden costs of renting out a property. Landlords not only gain rental income from a property, but they also incur significant costs during the process. Among these expenses, maintenance costs form a major portion. Undervaluing these expenses can lead to financial challenges. Whether it is painting the house or fixing plumbing or lighting issues. There is a list of other expenses landlords may incur, including brokerage charges and home staging expenses. Proper budgeting is crucial for landlords to avoid financial problems later. Before renting out the property and fixing the rent amount, landlords must estimate the total expenses, including unforeseen expenses. The rent should be fixed after considering these expenses, among other factors such as market research, property type, amenities, etc.

#5. Ignoring legal obligations

In India, there are tenancy laws that safeguard the interests of landlords and tenants. The state-specific Rent Control Act and Model Tenancy Act are important laws. Property owners should stay updated with local tenancy laws, which will help them avoid major legal issues. The legislation provides a formal structure for resolving conflicts between landlords and tenants. In addition, landlords should be aware of their legal obligations, such as payment of property taxes.

#6. Setting unrealistic rent

Landlords should avoid overpricing or under-pricing the property for rent. Setting the right rental rate for the property based on thorough market analysis will fetch them attractive rentals. For this, landlords should consider hiring professional property valuation services or approaching a local broker to understand the trends. They should be aware that rental rates are based on several factors, such as amenities available in the property, access to social infrastructure, connectivity to transportation and workplace, etc.

#7. Poor communication with tenants

Landlords should regularly check on their tenants to ensure a smooth landlord-tenant relationship. Lack of proper communication could result in misunderstandings and unresolved issues. Landlords must establish a professional communication channel, especially if they reside in a different location, such as NRI property owners. They should promptly address the tenants’ concerns, ensuring a safer rental experience. It will prevent disputes and lead to longer tenure that will ultimately benefit the landlord in terms of returns on investment (ROI).

#8. Ignoring property insurance

Many homeowners in India are becoming aware of the importance of property insurance. A home insurance policy will safeguard the property owner against unforeseen events such as theft, fire or structural damage to the property during any man-made or natural calamity. If the property is located in areas prone to specific risks such as flooding or earthquake. The insurance policy will serve as a protection against financial risks arising out of rental ownership.

#9. Not maintaining documentation

Renting out a property without maintaining documentation could have legal implications. The tenancy cannot be merely based on verbal communication. Several landlords make the mistake of ignoring the documentation, which includes signing a formal rental agreement and other paperwork. It could even have a negative consequence for the landlord, as getting the property vacated could become difficult. In the absence of relevant documents, the landlord could be in a disadvantageous position in terms of rent appreciation.

Property owners planning to rent out their property must get a rental agreement signed by the tenant and get it registered.  In case of any disputes, the landlord will have a valid legal document to prove their case. They should keep records of all the rent payments, maintenance expenses and communication with tenants. Similarly, landlords should maintain necessary financial and taxation-related documentation to avoid hassles.

#10. Handling eviction improperly

Delaying the eviction process is another mistake landlords should avoid. This is a common challenge landlords face if they are located in a different city. It is crucial to start the eviction process immediately when the landlord realises they are dealing with a difficult tenant. They must provide sufficient time and get the property evacuated. Meanwhile, they must start searching for potential tenants to avoid incurring losses.

Following unlawful eviction practices could lead landlords into trouble. In India, tenancy laws protect the interests of tenants. They can move court and seek under Section 5 of the Specific Relief Act. Moreover, tenants can approach the rent controller and tribunals. If the tenant violates the terms of the contract and refuses to vacate, the landlord should follow the legal procedures. They must first send an official notice asking the tenant to vacate the property. In the next stage, the landlord has the right to register a complaint against the tenant with the Rent Authority. They can serve them with a legal notice and later file an eviction suit against the tenant in a civil court.

Click to read in detail about how landlords can evict a difficult tenant

Housing.com News Viewpoint

Property owners rent out their property to earn substantial rental income. The ROI is calculated by considering the various costs, including the operational costs such as maintenance and repair. Landlords should avoid the common mistakes that could increase their expenses and impact their ROI. They can seek the help of a financial advisor for budget planning.

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