Rental income: not easy money
Rental property is not just about the cash flows. Due consideration should be given to maintenance and quality of tenants in order to maximise returns
Rental property,from a financial standpoint,stands at the top of the list of assets which one should own,as it promises a great deal of benefits. First and foremost,it guarantees you a certain amount of income every month after retirement . The rental property can surely provide the owner a steady source of income in his/ her later years,after the mortgages are paid off and if one stop working.
However,sometimes,it may also prove to be the biggest headache,if we do not take care of a few basic things like screening properly for the right tenants,buying in a location which consistently attracts poor quality of tenants etc.
SOME PITFALLS
As a property owner,you will incur certain unavoidable and unexpected expenses. You will need to pay property taxes and insurance on the dwelling. If you have a mortgage on the home,you need to make sure you are prepared in the event you have a lapse in tenancy. You will still owe on your mortgage regardless of anyone living there. Having several tenants increases wear and tear on the property. Repairs and getting the place ready for the next tenant will be your responsibility and has the possibility of being costly.
That said,over the years,we have seen that that the improved quality of construction,enhanced market transparency,and availability of suitable options have made real estate a good asset class to invest in. Rental property has the benefit of capital appreciation,besides assuring a stable and predictable income yield. While residential markets in India have already witnessed a rapid bounceback,commercial markets had touched a cyclical low but are expected to recover.
Rental property is the ultimate means of protection against inflation,as well as the ultimate asset to make money during inflationary times,from a cash flow and real asset appreciation perspective.
SOME CONSIDERATIONS
Rental income can also be described as passive income,which doesnt require lot of effort,but still enables us to obtain money for our day-to-day expenses. However,one has to take note that,prior to and even during the time you are earning income,setting up the property to be rented and maintaining it in good condition are some of the things you will have to contend with.
No matter what your needs are and what type of rental property you own,there are some important ingredients that every rental agreement should have:
Terms stating the formal relationship between the landlord and tenant
Exact address of your rental property
Names and details of the landlord,tenant and occupants
If you have a fixed term tenancy,your agreement should state the starting and ending date of your rental period
If you have a periodic tenancy,your agreement should include the starting date and type of rental arrangement week to week,month to month or year to year
Amount and frequency of rent payments.
The author is MD,Bajaj Capital
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