Renting real estate can be a promising and profitable investment – at least for those who are interested in saving up money for future usages. Some people are looking for ways to own property so they can rent it out, while others are looking at property so they have a place to stay. It’s basically a win-win solution for both.
But before you are determined to spend your money to invest in real estate, there are some things to know about rental property and how to manage it efficiently (and properly). You don’t want to regret spending that money in something that gives you financial burden instead of profit.
Pros and Cons of Renting vs Owning
Although the majority of people believe that owning a property can be a huge step in making their financial condition better, it’s not always the case. You need to remember that every person has a different case and different situation.
If your friend is doing alright by having a house, for instance, it doesn’t always mean that it would be alright for you, and vice versa. If your friend is just fine renting a house (or an apartment), it doesn’t mean that the same situation can apply to you.
For the majority of people, home ownership may be their lifelong goal. But then again, it doesn’t mean that it would apply for everyone. Some people are okay by owning a house, while the others can have a happy (and even fruitful) life by renting. There are renting benefits that people enjoy although it may not be the most ideal situation, including:
- Tenants won’t have to deal with repair or maintenance costs. In most lease agreements, the homeowners or the landlords are the ones responsible for the matter of maintenance and repair, unless the damages are caused by the tenants themselves. If there is plumbing faulty, it would be the landlords’ responsibility to take care of it: calling the plumber, making sure it’s fixed, and such thing alike. But if it’s found out that the plumbing issue is caused by the tenant (trash is being disposed there instead of the garbage bin or they are the reason for the leak to happen), the cost of the repair would be taken from the tenants’ security deposits.
- Tenants won’t have to deal with down payments. Tenants do have to pay for the security deposit, but if they are able to care for the property and not cause damages to the premises, they can get their deposit back.
- They don’t have to deal with real estate taxes.
- They can enjoy access to amenities. In most cases, apartments are already coming with general appliances, such as AC/heater, kitchen set, and others. Tenants won’t have to buy all of these things.
Pros and Cons
So, some people are doing alright with renting real estate. But then again, will it be the perfect option for you too? You should know the pros and cons of renting vs owning before making any decision.
Renting a House
So, if you are thinking about renting real estate, here are some of the basic perks:
- You have the flexibility to move around quickly. Because property can’t ‘bind’ you, you are free to move locations; moving from one place to another until you find the one that suits you just perfectly.
- The process (and management) to rent a property is faster and pretty straightforward than the process of buying a house. If you like the fuss-free arrangement, then renting one would be ideal for you.
- Because you don’t own the house, renting has lower (financial) risks when compared to buying.
- You can live within an area that you may not afford to buy.
Naturally, not everything is always peachy and great. There are some downsides to the renting as well:
- You won’t be able to enjoy any (financial) benefit if the property has increased value (which usually happens over time)
- The property isn’t yours, obviously, which means that you won’t be able to make changes or decorate as your heart desires
- You are basically paying off the landlord’s mortgage, although not many tenants realize it
- It would be more difficult to settle or put down roots within the area (where you rent)
- You should be prepared for increased rent, anytime (and possibly how often the landlord wants)
Owning a House
For some people, buying a house is still their number one priority instead of renting real estate. The benefits of having a house are:
- You basically have a future investment through property purchase
- You are able to enjoy capital growth (for the house) for long-term coverage
- Because it’s your house, you are free to change or decorate it to your own preference or like
- The mortgage may actually be lower than having to pay for the rent
Again, it’s not a 100% ideal option as owning a house still has its own disadvantages, such as:
- You need to remember that there would be many finances being involved in the caring and maintenance of the house, which makes homeowners stressful
- Moving out quickly can be an issue because selling a house will take time. Moreover, it’s actually easy to sell a property like a house
- When you buy a house, be ready to deal with tons of extra costs
- The interest rates are always possibly increasing, which means that you may have to pay more for the mortgage
- Owning a house can be quite complex and complicated when it’s related to spousal break-up, provided that you have a spouse. But for singles, it may not be an issue.
The Importance of Rental Agreement
Pay attention to the lease agreement in renting real estate. Also known as lease agreements, this is basically a written contract (or a written agreement) between a landlord and a tenant. If you are a landlord wanting to rent out your property, you will have to make this agreement to lay out the details of the agreements.
- Advertisement -
Basically, the rental agreement contains the regulations (concerning the property and how to manage it), the tenants and landlords’ rights and obligations, and such details. If you are a tenant wanting to rent the property to stay, then it’s imperative that you read the contract thoroughly and carefully, so you really know what to expect from it.
Lease Agreement Types
There are actually different types of lease agreements, and they aren’t limited to properties only. In fact, there are lease contracts for boats or cars. Some of the real estate lease agreement types are:
- Family member lease, applies for family members that lease property
- Commercial lease, which can be used by commercial properties, such as offices
- Lease to own lease. This kind of lease provides option to buy the property (from the landlord)
- Condominium lease, refers to a (residential) property sharing some of the building amenities with the other tenants
- Standard lease, which is often used for single family apartments, homes, and other standard and regular residential properties
- Room lease, applicable to leasing one room in a house or apartment
- Hunting lease, applicable for using a private property especially for hunting
- Weekly lease, which is often used for vacation (and holiday) properties
- Month to month lease, which is a short term agreement
- Sublet lease, which is applicable for having a sub-tenant to the already existing lease
- Short term lease, which can be used for only short term rent
- Parking space lease, which is used for parking the vehicle within a private property
Creating a Lease Agreement
Don’t forget that lease contract is needed when renting real estate. When it comes to creating a lease agreement, landlords can be confused and don’t know what to do, especially if this is their first time.
- Advertisement -
However, they can actually make use of the rental agreement templates that are available on the net. There are many of these templates available for free, although some sources may offer the paid templates (but they generally have more complete format or complete lease types (you can enjoy different types of lease contracts, like month to month, room, sublet, etc).
There are some basic (and general) things that should be included within the lease agreement, regardless the types. The included basic information for renting real estate is:
- Contact info. It should include the information of the landlords and the tenants. In the event there would be more than one (adult) tenant within the property, all of them must be included in the agreement.
- Property details. It should include the property’s description, along with the square footage and address. It should also include the amenities, the furnishings, and others.
- The lease specifics. Landlords should explain the lease type (such as commercial or residential) and also the terms, like the end date.
- The rent tails. It refers to the amount of the rent and the due date on the monthly basis
- Obligations and rights. The contract should include the obligations and also rights of both parties (landlord and tenant), such as giving notices, sending maintenance requests, or entry requirements.
- Deposit and fees. It should include the information about security deposits and other kinds of deposits (if any). It should also contain extra fees that tenants are responsible for
- Dispute resolution. The contract should outline the resolution steps in the event there is dispute over the lease agreement or the property.
- It should include the information of who should take care of the utilities.
- Occupancy limits. It should include information about who and how many people can live within the property
- Repair and maintenance. Although landlords are generally responsible for the maintenance, the contract should also mention what to do when the tenants are responsible for making the damages.
- Restrictions and rules. Landlords should list what tenants can and can’t do while living on the property, such as changing the permanent fixtures or having extra appliances, and what consequences they will have to face if they violate the contract.
Don’t forget about notices, disclosures, and addendum. Some lease agreements need extra documentation for renting real estate. It’s quite general that disclosures would be included within the initial lease, while notices and addenda would be included in the lease contract later.
- Advertisement -
- They are basically official announcements. For instance, a tenant may provide a notice about their intention not to renew their lease or about an early termination
- They are typically needed to make sure that tenants understand the property and all of its aspects. For instance, they should know that there is an old lead paint within the house that was built before certain time period.
- It’s an extra to the lease, such as documenting the change about one of the tenants or adding pet terms.
Lease Agreement Crucial Role
As a written contract, this agreement has a legal binding power that actually protects both the landlords and the tenants. With a contract that lays out all the rights and responsibilities of both parties, this contract can be helpful when issues arise.
When there is a dispute and everything should be taken to the trial, this contract can be a helpful ‘weapon’.
That’s why it’s advisable that the lease agreement should be as thorough as possible. It should be effective, and yet, it should be able to protect all involved parties throughout the tenancy.
Many tenants don’t know that they can actually negotiate with the landlords about the terms and agreements before they sign the contract. It’s true that it’s the landlords that make the agreements, but it doesn’t mean that the contract is set on stone.
When tenants disagree with some of the terms, or if there are some clauses or terms that tenants can’t do, then they can always talk it out with the landlords.
At least they should try their shot and have a discussion with the owners before they sign off everything. Most landlords would be open to it; they are ready to negotiate. They may change some of the clauses or terms. In short: try to discuss things first before the tenants feel ‘forced’ signing off the contract for renting real estate.
Besides the lease agreement, landlords should also be open and transparent about tenant screening to avoid misunderstanding or unfair treatment. Landlords don’t want to deal with discrimination, so it’s best to be transparent.
The same should also go with the lease agreement. Landlords should include everything: security deposits, lease renewals, rent collection (and the fine for late payment), and such thing alike. When renting real estate, all the details are crucial, so don’t underestimate it.