Rent an apartment and not go broke: what the landlord needs to consider

Renting out a home remains one of the most popular ways to generate passive income. How profitable this type of income is and what needs to be considered before renting an apartment, Moskovskaya Pravda found out from experts.

Egor Pugachev, Managing Partner of the Private Projects consulting group, gave some important advice for those who rent or are going to rent their housing.

1. Check out a potential tenant

At the preliminary stage of preparation for the transaction (especially if we are talking about a long-term lease), it is advisable to conduct some verification of your potential tenant, at least at a basic level.

So, using open service Federal Bailiff Service of the Russian Federation, it makes sense to check if the tenant has debts that are in the execution stage, or other unexecuted court decisions.

In addition, you can view information about the existence of cases (both civil and administrative/criminal) involving your tenant on the websites of courts (district and magistrate judges), at least at the place of registration of the tenant. On the website of the courts in the section “Courtwork”, a search is available by full name. Further, if there are cases, you can, depending on their content (at least the category, and at the maximum – the decision / verdict is visible on the site), draw the appropriate conclusions on the feasibility of concluding a contract.

2. Write down all the conditions in the contract

Think in advance what conditions and situations should be foreseen and described in the contract: how many people will live, with or without animals, the procedure and consequences of repairs, if necessary, the procedure for using the land (if we are talking about a private house), the frequency of visits owner and so on.

It is also important to fix in the contract that the tenant is obliged to monitor the condition of the residential premises and utilities on an ongoing basis and, in case of detection of any malfunctions / damage / threats of an accident, immediately inform the landlord.

3. Take care of your valuables

Being right under a contract and actually defending your rights (for example, getting money) are often very different things. Therefore, it is necessary that the clauses of the contract be working. For example, if you have expensive property in your apartment, do not be too lazy to draw up an appendix to the contract and the acceptance certificate with a list of the transferred property and its agreed value, and directly indicate that in case of damage and breakage of the property, the tenant is obliged to pay this specified cost. Do not forget about the security deposit for such cases, so that the money for these needs is at your fingertips, and you don’t have to look for a tenant all over Russia and “run” after him through the courts and bailiffs.

You should also remember the need for proof in any dispute. That is, even if you know for sure that the tenant stole your thing, the mere fact that he is renting an apartment from you (especially if the thing has not yet been transferred to him under the act) will not be enough for the court. Installing cameras in an apartment, of course, is unlikely to suit anyone, but it’s worth considering the presence of legally installed cameras in the entrance.

4. Reflect in the contract meters for water and electricity

Special attention should be paid to the reflection in the contract and the act of acceptance and transfer of the state of metering devices (meters). It is advisable to record specific models and numbers of metering devices, their readings, reflect that at the time of transfer of the apartment they were sealed and the integrity of the seals was not broken. Firstly, it affects the proof of the amount of payment for utilities, if they are paid by the tenant. But more importantly, if the metering devices or the seals on them are damaged, the owner may have serious problems, since in this case (especially if the issue was not dealt with immediately), the question of unaccounted consumption of utility resources may be raised, and the calculation formulas in such situations are many times higher than the actual consumption standards.

5. Reserve the right to terminate the contract

When concluding an agreement, always have a plan on how you can “get out” of it, that is, unilaterally withdraw from the agreement, regardless of the desire of the other party. Circumstances are different, from conflicts with neighbors to the need to sell an apartment, we advise you to always reserve the right to unreasonably withdraw from the contract in a short (but adequate) period.

“Following these rules, the landlord can save time, money, and nerves,” concluded Yegor Pugachev.

Meanwhile, Dmitry Morkovkin, Associate Professor of the Department of Economic Theory of the Financial University under the Government of the Russian Federation, recalled that renting out a dwelling implies generating income, and, accordingly, an individual who has received a profit, in accordance with the Tax Code of the Russian Federation, must pay taxes, namely personal income tax in at a rate of 13% (according to subparagraph 4, paragraph 1, article 208 and paragraph 1, article 209 of the Tax Code of the Russian Federation).

“It is possible to significantly reduce the amount of tax if you apply for self-employment or register as an individual entrepreneur,” the expert notes. – In the case of a self-employed person, the tax rate will be 4% of income, and for an individual entrepreneur, using a simplified taxation system, the tax rate will be 6% of income received (clause 1, article 346.20 of the Tax Code of the Russian Federation). But at the same time, the entrepreneur needs to pay a fixed fee annually. Until 2023, fixed contributions consisted of two parts: for compulsory pension insurance (OPS) and compulsory health insurance (CHI), which were paid separately. As of 2023, there is no such division. The total fixed contribution for 2023 is 45,842 rubles for annual income up to 300 thousand rubles and 45,842 rubles + 1% for income over 300 thousand. Moreover, for contributions of 1% there is a maximum – 257,061 rubles. Total maximum IP contributions: 45,842 + 257,061 = 302,903 rubles. in year.

That is, the option with an individual entrepreneur is suitable for those who do not have an official place of work and do not yet receive a pension. If a person has already gained the length of service necessary for calculating a pension (15 years) and has, for example, a VHI policy, then, of course, in this case it is more profitable to apply for self-employment.

In addition, you need to take into account the fact that you will have to pay for repairs at least every 3-5 years, warned Dmitry Morkovkin.

So the final amount of income from renting out housing in the long run, taking into account the inevitable costs, will be much lower than expected.

– The current situation in the Russian real estate market can be characterized as stagnation with a forecast of further price reductions. And if the location of the rental object is unsuccessful, and the expected cash receipts from the lease are small, then from a potential source of income this object can turn into an “illiquid liability”. Under such conditions, it is advisable to compare the potential profit from renting out housing and from selling it with investing in alternative investment objects, for example, placing it on a deposit, investing in securities or opening a small business, the expert believes. – In the context of the import substitution policy and state support for SMEs, this option may turn out to be more profitable.

In general, it turns out that renting out housing is not as easy and not as profitable as it seems at first glance. And it is worth approaching this issue with all seriousness, so that the income does not eventually turn into a loss. So, perhaps a more reliable option would be to sell the property, investing the money received in a more profitable and less troublesome business.

Alena Bodrienko.

Photo by Artur Novosiltsev / Moskva Agency