Transforming your apartment for rental to willing individuals is one way of generating recurring income. This residential property can be a recently purchased or an older property that became available once you upgraded to a bigger dwelling or moved to a smaller space.
Profitability of house rental business
House rental can be profitable in the Philippines, depending on location, rental rates, maintenance costs, and demand for rental properties.
In areas with high demand for rental housing, such as urban centers and university towns, landlords can earn a good return on their investment. However, high property taxes, maintenance costs, and a competitive rental market can also affect the profitability of house rentals in the Philippines.
Pros and Cons of house rental
- Steady income stream: One of the most significant advantages of the house rental business is its steady income stream. Rental income can be a reliable source of passive income that can supplement your primary source of income.
- Appreciation of property value: Over time, rental properties can increase in value, mainly if they are located in an area that experiences growth and development. This can result in significant gains for property owners.
- Tax benefits: Rental property owners in the Philippines can enjoy tax benefits such as tax deductions for expenses related to the property and depreciation deductions.
- Control over the property: Rental property owners control their properties, including choosing tenants and setting rental rates.
- High initial investment: Starting a house rental business in the Philippines can require a significant upfront investment, including the cost of acquiring or building a property and renovation and furnishing expenses.
- Vacancy rates can be challenging for rental property owners, especially during economic downturns or when rental properties are oversupplied in the area.
- Maintenance and repair costs: Rental properties require ongoing maintenance and repair, which can be costly for property owners.
- Dealing with problematic tenants: Dealing with difficult tenants, such as those who fail to pay rent or cause damage to the property, can be a significant challenge for rental property owners.
- Legal and regulatory compliance: Rental property owners must comply with various legal and regulatory requirements, such as building codes, safety regulations, and tenancy laws.
Overall, the house rental business in the Philippines can be a lucrative investment opportunity for those willing to put in the time, effort, and resources needed to acquire, manage, and maintain rental properties.
However, it also comes with risks and challenges that must be carefully considered and managed.
Things to know about property rental in the Philippines
Rental yield in the Philippines is typically around 6-8% per year, which can vary depending on the location and type of property.
There is a high demand for rental properties in urban areas, such as Metro Manila and Cebu City. The student rental market is also thriving in areas surrounding universities and colleges.
A Mayor’s Permit is required for house rental businesses in the Philippines. It proves the industry has complied with all requirements, including taxes, licenses, and permits.
Lease agreements between landlords and tenants are typically for 12 months, and security deposits are usually equivalent to two months’ rent.
In some areas of the Philippines, rent control laws apply, limiting how much landlords can increase rent yearly.
Property taxes in the Philippines are relatively high compared to other countries, and landlords must pay a percentage of their rental income as tax.
Property management companies can be hired to manage rental properties, which can help landlords with tenant screening, rent collection, and property maintenance.
Landlords need to screen potential tenants carefully to ensure they have a good rental history and can afford to pay rent. This can include checking credit scores and employment history.
Starting your house rental investment
Apart from the little money that goes into renovating the space you intend to give out on rent, you do not need any large capital investment. Having a systematic approach, such as diligence in background checks of applicants and a clever business sense to explore additional income opportunities, you, as an owner, can easily generate a good source of income for yourself within little or no time.
Here are a few renting business basics that you need to be aware of before you start giving out your apartment for rent.
The shortage of capital should not be an obstacle to planning the apartment rental business. To start a rental business, you must have land and the building from the ground up, and for that, you must have capital. For gathering enough capital, here are a few options you might want to look into:
- A loan from friends, relatives
- Your personal savings
- Loan from banks
However, one drawback of bank-financed loans is that they require documents that may need a long time to complete.
It would be best if you chose the land for rental wisely. While purchasing the ground, keep the following things in mind.
- Try to buy one with adequate transport access.
- Choose one near school, establishments, and points of interest
- Purchase land from a legitimate owner
- Make sure that the land is not on a significant fault line
The amount of capital you invest determines whether your renting space will be single-story or multi-story. Before purchasing the property, conduct an intelligent search to make sure that the property has a clean title.
Government licenses and permits
Once you have the capital and the property, ensure you have all the government clearances and permits from the respective government agencies. This will avoid any inconvenience in the future.
Once the house/building is constructed
- Register the business at the Department of Trade and Industry (DTI) if it is a sole proprietorship.
- If you are planning to put up a corporation, then register it at the Securities and Exchange Commission (SEC)
Get insurance for the property
It is always important to be prepared in case of any eventuality.
- It would be best if you got your property insured. It might be an added expense, but that is compensated by the peace of mind you get knowing that your investment is secure.
- Get insurance through an established insurer with a solid track record.
Draw up a lease
Before you rent your property to the tenant
- Draw up a lease by putting everything in writing to protect both parties.
- Use the services of a good lawyer in drawing up the appropriate contract
Ensure you only choose the tenants capable of paying rent and present the least property damage.
Giving your property on rent also requires you to maintain it regularly to ensure it lasts longer and provides a higher return.
- Do a periodic checkup of the property
- Do not ignore the complaints of the tenants
- Get the repairs done as soon as possible
Landlord responsibilities of rental properties
As a landlord of a rental property in the Philippines, one should also be mindful of the following responsibilities:
Maintaining the property
The landlord is responsible for keeping the property in good condition and making any necessary repairs to ensure it is habitable and safe for tenants.
Providing basic amenities
The landlord must ensure the rental property has basic amenities, such as running water, electricity, and proper sanitation.
The landlord must collect rent from tenants on time and keep accurate records of rent payments.
The landlord is responsible for ensuring the rental property is safe and secure, including installing fire alarms and providing adequate locks.
Respecting tenant privacy
The landlord must respect the tenants’ privacy and provide notice before entering the rental property, except in cases of emergency.
Adhering to laws and regulations
The landlord must comply with all relevant laws and regulations related to rental properties, including health and safety, tenancy, and fair housing.
The landlord must be available to handle disputes that may arise between tenants, as well as between tenants and the landlord.
In conclusion, the house rental business in the Philippines can be a profitable venture for landlords, particularly in areas with high demand for rental properties. However, various factors should be considered, including rental yield, location, property taxes, maintenance costs, and tenant screening.
A landlord must know his or her responsibilities and comply with all applicable laws and regulations. Maintaining well-maintained, safe, and secure rental properties will allow landlords to attract and retain tenants and earn a steady income. A house rental business in the Philippines can provide landlords with a stable source of passive income when managed correctly and with due diligence.