Friday, December 14, 2012

Should You Rent Out Your Real Estate?

People are getting smarter these days. Instead of buying several houses and make each of them serve one purpose (e.g. vacation house, guest house, actual residence, movie house, etc.), they have their real estates rented out. The trend now is not to invest money in banks totally but in real estate.

You can earn passive income by renting your properties to tenants. This does not require that you completely have paid for the real estate property, although some deals to some degree are more unfair (the total amount must be paid for). The basic idea is that while you pay the real estate company, your tenants pay that same amount monthly to you. You will gain profits when tenants continue to pay while you have already finished shelling out for the desired payment.

Question is, is this an appropriate approach in entering into a real estate rental agreement?

To answer this later, here are five things to watch out for when you rent our your real estate:

1. Maintenance Responsibilities

As the landlord who's not living in the same house as the tenants, you won't have 24-hour monitoring on what your house has become. When you got a tenant who does not keep up with cleaning and maintaining things in proper form and order, your real estate may just be in trouble.

The worst thing is that when your house is damaged without your knowledge. The rented premise may lose its value and depreciate in time. You will have to have it reconstructed and renovated thus requiring to pay a huge amount of money to keep it fit after the stay-in period.

2. Collection of Payments

What if the tenant won't pay on time or simply does not want to pay the rental bill at all? You are renting your real estate out to obtain profits and not for charity. You must be patient in collecting rental fees and maybe charge them with problems encountered with basic amenities. You will not be responsible to solve their issues with electricity, water supply, garbage disposal system and safety features of the house once you turn the house over for their temporary stay.

3. Amount of Rent Fee

If the tenant consistently pays at the frequency you demanded but you are not getting the ideal amount of rent you declared, you will be at a loss as well. You need to consider the current real estate value and purchase price versus the rental fee charged. Then subtract the expenses further with the maintenance costs and tax payments. Evaluate these before putting your real estate property for public rental use.

4. Ideal Tenant

Don't assume that all is well when you find a good tenant that pays all the time and does not cast any physical damage to the house. You also have to examine the background and lifestyle of the tenant. What if he is a drug lord, a murderer, an assassin, or a wanted criminal? Police officers will go chasing after you since the property is in your name.

So when you post ads and media to search for the ideal tenant for your real estate, make sure to ask for a third party company or service provider to check on the personal details and incidents record of your tenant before saying yes and signing the lease contract.

5. Making the Contract

A real estate lease contract must inhabit the proper terms and conditions that are acknowledged by a lawyer. When any problem arises, you have to go to proper legal procedures and face the problem against your tenant through the court. The contract binded by the laws will make your real estate rental business more legitimate. Somehow you should include there that the tenant must take care of your property like his own. He should be responsible of the house, while not providing annoyance and shame in the neighborhood.

End Notes

If you have the money, investing it on real estate is a good move. The real estate business is not all about just buying and selling of properties. Renting out spaces is great to earn more revenues passively. You just need to be aware and cautioned about these pertinent details. Do your homework and study about your prospect tenants and follow everything in this article and give yourself a pat on the back.