Although they may have bought a home of their own, many homeowners prefer to rent out their new house & continue to live in rental accommodations. We examine the reasons for the same & the benefits & drawbacks of doing so.
Many homeowners, who have invested in properties located in the outskirts, prefer to themselves live on rent. Consequently, they put their house/apartment on the lease. Such people let out their premises on rent, for different reasons.
However, some of these areas still need proper connectivity & necessary facilities. For some, living nearer to their place of work is a necessity, while others may wish to live nuclear.
Many people who have spent in new apartments, still prefer to live in central areas, as the new regions are badly inhabited. People are also worried about law & order problems in these new regions. So, they prefer to rent out their properties, with minimal furnishings.
Whatever be the reason, homeowners should understand the merits & demerits of putting their flat on rent.
If you rent out your flat & start living nearer to your workplace, you may pull an income tax, if the tenant stays for more 12 months or more.
The tax implication: By rule, there is a straight financial benefit. As a standard deduction, 30% of the net yearly value is deductible. For example, consider that your yearly income from home property is Rs 8 Lakhs. If you have paid a municipal tax of 2 lakhs rupees on the property, the net seasonal income will be Rs 6 lakhs.
Other than tax, owners require safeguarding their property. This includes making sure that tenants do not cause problems in leaving the property or damaging portions of the estate. Owners should also make sure that their renter is not involved in anti-social or criminal activities, as this could debark them in bigger trouble.
The most prominent advantage of renting out one’s flat is the additional income that you get.
The amount left after deduction of tax from the net seasonal value is your additional income. This income can be collected as a pension fund, for your post-retirement expenses.
Moreover, an increase in estate prices will also add to your asset might. However, over the last 2 years, property rates have mostly remained regular, while some markets have even seen a small correction. Nevertheless, industry specialists point out that these movements are cyclical & there ought to be a hike in rates too. The overall increase in property price can also serve as a fence against inflation.
If you plan to lease out your house & also live in rented accommodation, calculate the rent you will be paying, versus the rental income that you will earn & the costs that you may conserve on commuting, before coming at a decision.
Also, be cautious of letting out your premises to prospective occupants, who may have got your number from several sources. Instead, try to look for occupants through trusted sources, like friends and family. Homeowners should also run a background check on their planned tenants, via social media channels, police verification etc.
A well-informed decision about occupants will make the process easier & safe.
Once you have zeroed-in on a property or occupant, ensure that you sign a rental agreement. While lawyers have a template for the rental agreement, it is advisable to look at all the clauses & change it according to your needs. Terms about repair work, payments to the residents’ welfare association (RWA), etc., should be explicitly specified, to avoid confusion and disputes.
See Also: Owing a Home versus Living on Lease