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Ascertaining Rental Value

Now that you have purchased a property and ready to rent it out, you have to derive the right price range for renting it out. It is mandatory to know the optimum rental value because a lower rent will result in loss to the Property Owner and higher rental value will result in putting off the prospective tenant – discover rental value.

To make sure that you derive at a right price, explore the following factors:

Market Value

The Rental value of the property is in direct proportion to the Market Value of the Property.

Market value of a property is the current value of the property in respect to the infrastructural developments. For example a new fly over or a metro rail link increases the value of the property and will increase the rent of the property.

For properties in demand and developments of infrastructural facilities like drainage and metro water by the Municipality also increase the value of the property along with decreases the recurring expenses eventually you can command a higher rent.

Stalled infrastructure projects, congestion in traffic, depletion of natural resources & availability of essential commodities, increased pollution levels etc decreases the market value and also affects the rental value.

Property’s Desirability

Apart from the location, infrastructure developments, type of property, Sq. Ft. of the property are some of the general factors.

The other specific factors with respect to the unit like parking facility, amenities in the house, design of your unit, size of the bedrooms, storage, location of your unit (in the same street), balconies, view of your property, facing, age of the building – can have different desirability levels compared to the other properties.

Prevailing Rental Rate

It is important to do a research into the market of your area. Look around the neighbourhood for similar properties and enquire about their pricing. You can also contact a local Property Consultant of Property Management Company who can advice on the Rental Value as per the market.

Vacant Properties

It is also important to make a list of vacant properties in your neighbourhood. Vacant Properties for a long time indicate that the demand for the property is less or the pricing of the property is not viable in the market.

In a saturated market, a reasonably priced property will not be rented out quickly. In such a market, the House Owner has to consider offering incentives or additional amenities if required.

Also make sure to evaluate the reasons for a property being vacant for a long time. The reasons could be insufficient parking, storage, location of the unit, physical home size – bedroom sizes, bathroom, furnishing in the unit, etc.

Properties that are rented out quickly have a possibility of fetching a higher rent.

Other Factors

The other factors which determine a slightly rental value are type of fittings and fixtures, clubhouse & facilities (like swimming pool, club house, jogging track, supermarket, visitor parking, etc), schools close by, connectivity, additional balcony as compared to the similar properties in the locality.

Conclusion

Evaluating the above factors will assist you to
1. Respond to the prospective tenants appropriately
2. Minimise the Vacancies
3. Assess the increase or decrease of rent in future.

Need for a Property Management Company

Investment in properties is a major investment and people invest in properties invest it for the two major reason – The first reason is driven by the need of people to own a property for own use. The second reason is for the purpose of investment with an intention to get a rental income and benefit on the appreciation at a longer term.

The need of a property manager is more for the people who purchase properties with an intention of getting a rental income and benefit on the appreciation on the long term.

The requirement for the property manger becomes more necessary when the owners are not able to take care of their properties due to the following reasons:

Property Owners are away from their property – When the property owner is away from their property be it an apartment, individual house or a plot, there is always a question in the mind of the owner as to what is happening around his property. Since the owner is away from his property and not able to monitor it, he takes Property Management Services from a Property Company to professionally take care of his property and receive regular updates.
Property Owners have to take care of multiple properties – This is basically the case of people who invest money in properties at different locations within a city. The distance factor of multiple properties purchased by the investor will make it easier for him to manage his properties with the management of a professional property manager who will take care of his properties at different locations.
Property Owners do not have time to take care of their property – There is an old saying that a busy man finds time for everything. The modern saying is that a busy man finds time for everything and if he is not able to take care of it, he delegates it to proper people to take care of things. An Owner who is busy and does not have time to take care of his property hires a good and professional property manager to take care of his properties the way he will manage it.
Property Owners do not want to get involved in day to day activities of taking care of their property – There have been instances when the owner does not want to get into day to day activities of doing all activities of taking care of the property and want to relax by assigning the job to someone else. Who could be better than a professional Property Manager.
Property Owners do not want to depend on their relatives or friends to take care of their property – There is nothing better than depending on the dependable relatives and friends to take care of your properties but there could be practical difficulties which could arise like
1. Parents getting old.
2. Relatives / friends not finding time to take care of the property.
3. Relatives / friends getting transferred or are at a distance from the property.
  Under such circumstance and other circumstances not mentioned here, it becomes difficult to take care of the properties. It is then that the owner thinks of taking the help of Property Management Services of a Property Manager.
Property Owners do not want to personally interact with the residents – Some property owners feel that it is best for them not to interact with the residents, association, workers and other people for their property upkeep. The reason could be anything ranging from wanting a peace of mind to having a buffer for better negotiation for their properties. These owners are willing to pay for their peace of mind and they hire property managers to take care of their properties.

Want to rent your house – Know tenants priorities

When tenants search for a property, there are certain features that top their list – Want to rent your house Know tenants priorities:

1. Location – The Location of a property always plays a most important feature of the property. Tenants will also pay a higher price for a property at the right location or on the main road. Tenants may also compromise on other amenities if the location of the property is very desirable.

2. Safety & Security – One of the greatest motivator for a tenant is the safety and the security for him, his family and his belongings. This is one of the prerequisite for a long term tenant because the tenant will feel more comfortable when he is in the property and when he is away from the property.

3. Live able conditions – The tenant also looks into how well the property is constructed, maintained, the security, the neighbourhood, water facility, drainage facility and infrastructure and social infrastructure available nearby. Tenants do not prefer isolated properties or with poor infrastructure or amenities to stay.

4. Parking / garage – No one wants to park his vehicle outside the compound in the street or search for a parking on a daily basis (as in some apartments where there is scarcity of parking or no allotted parking). Tenants prefer an allotted car park.

5. Schools Nearby – For tenants with school aged children, this is a first and foremost priority. Every Parent wants the best of education for his child and will want to avoid long distance travels of his child to school saving the time and energy of the child so that the child can concentrate on his studies.

6. Peaceful or quiet place to live in (or Sound Proof Walls) – This is one of the most important factor for a tenant to live for a long term. This means that the property has to offer a peaceful living environment with minimal interruptions and loud traffic or unnecessary disturbance during late night hours. If there are disturbances, tenants tend to move out after some time.

7. Natural Light & Ventilation – Houses that have natural sunlight and ventilation which is bright are preferred than houses that are dull and gloomy. Abundant natural light gives a more comfortable feeling and also saves the electricity bills for the tenant.

8. Storage Space – This is a very important aspect when the tenants are looking for a house. Tenants need space to store their stuff and prefer a house which has enough cupboards to store them. Sufficient storage facilities like lofts, cupboards, wood work or modular kitchen attract the tenant.

9. Internet Connections and Wifi Connections

10. Ready to Move in Condition – If a property requires cleaning, painting carpentry or any plumbing and electrical works, it needs to be done. Repairs in the property and common areas are disruptive and annoying and poor condition of the property can put off a prospective tenant. The first impression that a tenant gets on visiting a property will persist in their mind and will set an expectation that this is how the property is to be maintained.

11. Walk able distance to nearby amenities – It has been seen that tenants feel more comfortable when the amenities like super market and other basic things are at a walk able distance.

12. Age of the Property – Some tenants feel that they should move in a property which is new. The reason for this is that they feel that a new property will not have any issues towards repairs and maintenance but by proper maintenance of the property, the tenants will still be attracted to it.

13. Well Maintained House – The tenants always prefer a house that is well maintained and do not want to get into issues of maintenance and repairs at a regular basis. They would also prefer a house where the repairs and maintenance can be taken care of immediately whenever required.

14. Cooperative Land Lord – The tenant and land lord relationship is a mutual relationship and both the parties should be cooperative, courteous and mutual respect for each other. All the promises and points agreed upon by the tenant and the owner as per the Lease Agreement should be kept up and honoured by both the parties.

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.

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

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.

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.

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