Owning and leasing a property is generally a smart financial move, generating a useful income with limited time and material investment. However, it isn’t entirely hassle-free and there are some important factors to remember in order to make the process as smooth and simple as possible. Ultimately, taking some simple steps will make life easier for you and your tenant.
If you are leasing a property, you have responsibility towards your tenant and drafting a sensible and clear leasing agreement is the foundation of this. You can easily construct residential leasing documents at Legal Vision at a far more affordable cost than hiring a real estate lawyer. It is vital that you agree and sign an agreement in writing, which clarifies any vagaries which might occur. It should include the following:
- Clear payment arrangements: Make sure that both parties understand not only how much should be paid in rent, but how often it should be paid, through what payment method and what the penalties are for failing to comply. Include thorough details of the security deposit which is owed and the policy on its return. Be careful to note that state laws differ regarding security deposit and first month’s rent.
- Clarify who pays additional costs: Beyond rent itself, set out who will pay for additional bills. These should include not only utility bills but also local taxes. Make sure that the agreement also covers who pays for repairs when things go wrong and need fixing or replacing.
- Policies on various scenarios: Clarify exactly what is and isn’t permitted in any number of situations. Think of as many instances as possible which might occur and try to cover them in writing. Two common examples are policies on pets and sub-letting.
- Penalties for breaking lease: Ultimately, the lease sets out a series of rules. They are worthless unless there are penalties for breaching them. Your leasing agreement should make clear exactly what the penalties are and under what circumstances they will be paid.
In addition to your tenant though, you also have responsibility towards the tax and regulatory authorities. It is important to understand the various rules and regulations that you are bound by, including the following:
- Must declare your income: You are legally bound to state the income you receive through renting via an annual tax return. However, if you are leasing property, you are not liable for GST on the rent you are charging.
- Note all expenses: It may be possible to claim money back in tax deductions for some expenses. There is an important difference here between money spent on repairs, which you can claim back and money spent on improvements (which alter the value of the property) and cannot be claimed back.
- Capital gains tax: If you decide to sell your property, it is crucial to understand that any profit you make is subject to a capital gains tax. Make sure that you factor this in when calculating a sale price.
- Holiday apartments: If you own a property which is not income-generating and is purely used as a holiday apartment, then you are not liable for GST credits when you make related purchases.
The most important aspect of complying with all these regulations is to make a clear note of absolutely everything. This way you can document all financial transactions related to your property and calculate exactly what you owe and what you’re entitled to.
A professional post from Legal Vision