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Factors affecting Rental Property Cash Flow

Factors affecting Rental Property Cash Flow

Rental Property Cash Flow (RPCF) is the money that is moving in and out when you are managing and maintaining your property. As a Property Management Company, offering Property Management Services in Chennai, RPCF is a factor that we have to pay attention.

Factors affecting Rental Property Cash Flow

The RPCF (Rental Property Cash Flow) is affected by the following factors:

1. Property is Vacant

Vacant properties put a biggest dent in the cash flow for the owner. The longer the property is vacant, the greater the loss. Property being vacant for a month or two is understandable but for more than a couple of months will have a significant effect on the RPCF. Excess funds have to be pumped in to compensate the reduction of cash flow for the vacant period.

2. Delayed Rental Payment / Missed Rental Payment

When there is a delay in the monthly rent payment, it is like a hiccup which will eventually stop. Though the payment will come in, there is a hold up and the finances need to be adjusted to meet the gap.
When there is a month where the tenant does not pay the rent for the entire month, and he offers to pay it the next month together, though the money will eventually come (or will be adjusted in the Security Deposit), the RPCF is affected.

3. Maintenance and Repair Cost

The cost for the maintenance and repairs are not consistent and when they occur they reduce the cash flow. There will be moments when the cost will be high and other times when the cost of repairs and maintenance will be negligible. It will always be wise to have an amount set aside for any unexpected repairs and maintenance.

4. Reduction in Rent

There could be a possibility when there are other properties available for lesser rent or some change in the job availability in the location or people moving away from the area or scarcity of water or any other factor that will reduce the rent. The tenant if he has an option, he will move to a place with reduced rent. If he moves to a place with reduced rent, then the vacancy will produce a dent in the cash flow and the other way around the cash flow is reduced.

The other costs that reduce the cash flow are the expenses like the brokerage fees, property management fees, taxes, insurance costs and other hidden costs.

Considering the loan EMI remaining constant and the other financial commitments are either constant or on the increasing end. The ideal situation for Property Owners is a consistent cash flow for most of the months. There are some precautions that can be taken to minimise the reduction in RPCF.

(i) Find a tenant during the notice period.

(ii) Keep the tenants happy so that they may refer some good tenant when they leave.

(iii) Plan to rent out with Lease Agreement for longer periods with increase in rent after regular intervals.

(iv) Screen the Tenant so that there are no delayed or missed payments.

(v) Select properties that are well constructed and the price will increase over a period of time.

Can Housing Societies Restrict Bachelors

Can Housing Societies Restrict Bachelors

Housing societies too have been in the news for discriminating based on religion, community, food habits and Marital Status. Out of these, the most common issue is the issue of permitting the stay of bachelors. Some societies allow working executives but do not allow students where as a few others do not allow both.

Can Housing Societies restrict the members of the society from renting it out to Bachelors? Is it legal?

Consumer Act

Under the Consumer Act, the Society is classified as a Service Provider. The Society’s responsibility is to provide Common Services & and to provide and take care of the Common Amenities to its members, which also include the tenants of the members. The society does not have ownership of the property. Therefore they do not have any say on the type of tenants that can be allowed to stay in the property. It is the sole discretion of the owner to rent out his property to any type of tenant.

As per the Fundamental Rights, under the Indian Constitution, all citizens have the fundamental rights to move or stay anywhere in India except for Prohibited or Restricted Areas. Housing Societies and Apartments do not come under the Prohibited or Restricted areas. Therefore for no reason, can there be any restriction on a Bachelor Tenants from moving into society. By not allowing bachelors it is a gross violation of the Article 19(1) of the Constitution of India.

The societies have the power to make bye laws and resolutions approved by the majority of the votes for smooth functioning of the society. These provide specific guide lines for the registration of the society, Do’s & Don’ts, common area maintenance, rules regarding leasing and selling of houses in the society, fines for non payment of maintenance on time and other practices. There is a tendency of the housing societies to deny tenancy to bachelors based on their byelaws / resolutions.

Can Housing Societies Restrict Bachelors

The Legal Experts say:

1. The Society cannot discriminate against bachelors and cannot charge any extra fees / fine for renting it out to Bachelors. The society can impose fine on non payment of the maintenance charges.
2. The Society can only impose restrictions on whether the property can be let out for commercial purpose.
3. The Society can fix conduct rules for the safety of the dwellers.
4. There is no law in the Constitution that a property cannot be rented out to Bachelors.
5. Any regulation which infringes on the fundamental rights of an individual can be challenged in the court of law.
6. Even if your society takes a decision based on the majority of the votes, these decisions are not valid in the court of law.
7. The Housing Society regulations do not have the same stature as that of a law.
8. The Societies cannot overrule the fundamental rights or create a rule which is against the constitution.

Steps to Get Your Property Rent-Ready

Prepare Your Property for Rent

Before you go on to advertise your property, show the property to the prospective tenants, be sure to do the basics of preparing the property for rent.

In my personal experience, we visited a property which was not cleaned for several months. We visited the property and my executive told me. The property needs to be cleaned and painted. On having a closer look, he realized that the house was painted but due to the dust all over the house, the impression perceived is that the house is not painted.

Steps to Get Your Property Rent-Ready

The impression or the feel that a prospective tenant gets when he enters the house influences him to take a decision about the property (and of course the Owner / Care Taker). Nothing will turn off a prospective tenant than a dirty place.

A clean and presentable property with all electrical fittings in place, no leaks, no dirty walls or kitchen or toilets will influence the prospective tenant to confirm the property immediately.

No doubts that the property will be made ready before handing over to the tenant but the advantage of getting it ready before showing the property is not to miss a prospective tenant and the advantages of showing a prepared property to a prospective tenant are:

  1. The tenant gets a positive impression of the owner and the property.
  2. The tenant is clear of the condition of the property and all the things that have been provided by the owner and gets a message that anything extra may have an impact on the rent.
  3. It gets an indirect message to the tenant that he should return back the property in the same condition.

Steps to Get Your Property Rent-Ready

Each house is different and will have unique things to pay attention to. The steps mentioned below will be a guide line to prepare your property for rent and can be implemented:

  • Once the house is vacated by the tenant, it may be messy at times. First clear the unwanted stuff from the house from both inside and outside the house.
  • Inspect the house thoroughly and make a list out the list of repairs and classify them as Major or Minor Repairs. Fix the Major Repairs first.
  • Pay attention to the fittings and fixtures and appliances inside the house and see that they are in good working condition. Replace any broken switches, plug points, rusted towel rods, rusted curtain rods.
  • Pay attention to the toilet – stained toilet seat covers, stained toilets put off a prospective tenant and turns him away from the property and he may prefer another property.
  • Give special attention to the kitchen – remove the oil stains and repair any damage to the wood work or the modular trays, handles, hinges if rusted are to be replaced.
  • Freshen up the walls by painting or touch up painting as per the condition of the walls. The condition of the walls can make a difference between renting it out and renting it out faster.
  • Thorough cleaning of the house is most essential. This includes walls, floors, fans, lights, cupboards, doors , windows, grills and special attention needs to be given to the toilet and kitchen.
teant screen

Tenant Screening Part 2

Showing the Property

Once the tenant signs the rental agreement, you will have many interactions with them during their period of stay in the house. Irrespective of how perfect they sound during the first contact, it is always better to meet them and get a feel of their personality. This is a good opportunity to screen the tenant before any paperwork is done.

The tenant will be more concerned in looking at the property in details and its suitability for him and his family. Some watchful observations by the Landlord will be extremely helpful when considering the tenant’s application.
(i) Did the tenant arrive on time?
(ii) Is the tenant neat and clean?
(iii) Did the tenant take off the shoes or wipe his feet shoes when entering the house?
(iv) His attitude and manners – Does he show any signs of being difficult to deal with in future?
(v) Are the children well behaved?

Know your Tenant Form

The tenant who does not give any red signal and is interested, can be given an application. The rental application process will further determine if they will be good tenant. You can collect a sample application form from Agile Property Management (Know your Tenant Form) or can create your own application. You have to make sure that the form contains all the details that you need to know about the tenant – his personal, financial and employment information.

(i) Personal Details

You have to include in the form all the basic details that you need to know about the tenant like name, age, number of family members, contact details, native, how long has he been in the current city and all the relevant data that you feel you need to know about the tenant.

(ii) Employment Details

Make sure to include the current employment details of the tenant – company, designation, contact numbers, length of service.

(iii) Financial Details

You need to check on his income and check whether it is sufficient to cover the rent and the normal living expenses. Some indirect questions like – Do you have any permanent address? Or Do you have your own house in native?

(iv) Previous Owner Details

The contact details of the previous owner, contact number, rent paid, reason for leaving and duration of stay with the previous house.

(v) Reference

Names, relationship, period of acquaintance, contact numbers.

Tenant Screening Part 2

You have to carefully read all the applications to check for any inconsistencies or disqualifying factors. For example if the tenant is unemployed and has other source of income, then you may need more information. You can have direct reference checks with the house owner or employer or the references that are provided in the application by the tenant.

Search on Google to confirm the existence of the company that he has mentioned in his application. Look for ways to confirm his income, such as letter of employment from his company. There are also other ways to check on his employment for instance telling him to send a mail from his official ID with company id. Checking in from Social Media like Facebook, Twitter, Google+ are a few of the ways to get more information and confirmation about the tenant.

We do not mean you to become a detective when you meet a new prospective tenant. Use your instincts and try to get a feel for the tenant cross verifying them with the facts given in the application along with the facts that had come to surface when you had a conversation with the tenant. Also do not overstep your boundaries which can put you at a risk of losing the tenant if he feels that you are intruding in to his privacy.

Conclusion

Summarising up the entire process

1. Prequalify the tenant.
2. Show the Property to the Tenant.
3. Get the feel of the personality of the tenant.
4. Get the application form filled in by the tenant
5. Check in for any red flags or discrepancies
6. Do reference checks / employment checks / house owner checks
7. Fill in the Police Verification Form
8. Draft a Proper Lease Agreement
9. Collect the Security Deposit
10. Handing over the Keys to the Tenant.

Tenant Screening Part 1

Tenant Screening Part 1

Tenant Screening Part 1

Whether you are a Rental Agent or a Property Management Company or Landlord, it is not difficult to screen the tenant and do back ground checks by following some basic and right steps. The Tenant Screening Process starts when you decide to rent your property and start thinking of the next process to rent out your property.

There are standards set in your mind on the rent, security deposit, type of tenants and their backgrounds, other terms and conditions. Based on these preferences, you start to look for a tenant. There are various ways to find a tenant – through print ads, online ads, references, word of mouth, social media, hoardings or display boards at the entrance of the house.

Tenant Screening Part 1

First Contact

The first contact with the tenant is usually through a mail or a phone call. From the very first contact, the screening process has started. Communicate the features of the property in a detail and effectively to the prospective tenant. Simultaneously you have to qualify the tenant by asking proper and appropriate questions. The questions can be like:

  1. Name
  2. Phone Number & Email ID
  3. Occupancy Date
  4. No of Family Members
  5. Details of Family Members who will live in the property
  6. Occupancy Date
  7. Reason for leaving / shifting
  8. Discussion on the Rent & Security Deposit & will you give the security deposit before moving into the house?
  9. Do you have any pets?
  10. Do you have relatives or friends who frequently spend the night at your house?
  11. What is your typical day look like?
  12. Do you have any questions?

Do not waste your time showing the property to people who will not qualify. Discuss with the tenant your expectation for property upkeep of the property. So you need to ask the correct questions to qualify the tenant before proceeding to the next step of showing the property.

Tenant Screening Part 2