This is the second in our two-part guide to buying investment property in the UAE. You can read the first post here.
So, the buying process is complete and you now have a property in your name. But with mortgage and maintenance costs to take care of, you will want to rent out the apartment or villa as quickly as possible.
But before you dive in headfirst, consider two questions; how best to rent the property out and what laws do you need to adhere to while managing your tenants?
1. The letting game
Agent or do-it-yourself?
To let your property out, you can either do it yourself by advertising on property classified websites or leasing it out to friends. While doing it yourself might save on agent’s fees, you may be unaware of all the laws you need to follow and the process might be time consuming.
The best way to secure the highest market rate is to approach a real-estate agent. Their marketing will be far superior to yours, meaning they can drum up the maximum interest from tenants. The first step is to find a reputable agent (and this is important because not all agents have your interests at heart and there have been cases of agent’s ripping off both landlords and tenants). Do your homework here and research which companies are rated highly.
A good agent will offer a lease-only package that includes marketing your property, finding a tenant, drawing up a tenancy contract, rent collection and handing over the keys. This is the basic requirements for a lease-only agreements.
If you want full property management because you live overseas or travel regularly and cannot be on hand to help out if a tenant calls – then the agent will sign you up for a management package.
This includes everything offered in the lease-only agreement as well as registration of the tenancy contract at Ejari, detailed property inspections and the arrangement of maintenance and repairs.
These services will cost though. Agents will typically charge you a percentage of the annual rent for their service so shop around for the best rates.
How much to let for?
To secure the best rent, you want to ensure the property is clean and well-maintained with freshly painted walls and any maintenance issues resolved.
When you let the property out, an agent will advise what the market rate is at the time of letting. If you are doing it alone, use the RERA rent calculator to help you evaluate what the current rate is. Alternatively look at property websites to see what similar properties are being leased for. You will quickly know if you have set the price too high because no one will approach you for a property tour.
When offers come in, be willing to negotiate. Yes, you want the highest possible rental income to ensure the mortgage is covered but be willing to compromise on the number of cheques the rent is paid in – whether it is 12 or one.
You can also set a series of conditions as to the type of tenant you want such as no pets or smokers. And clauses can be added that prevent a tenant making any changes to the property without your permission such as adding a patio in the garden or even painting the walls a different color.
2. Renting out your property lawfully
Once you have a tenant in place, then you need to ensure you, as a landlord, stay on the right side of the law. Here are some issues to consider:
- The paperwork – Contracts are on an annual fixed-term basis, which means a tenant cannot break the contract and leave early unless you give them permission to do so. You can get contracts drawn up at typing centers. If you have an agent, they will do this for you. It might help to form a relationship with your tenant, so meet them to sign the contract either at your letting agent’s office or in a public place.
- Register the contract – Tenancy contracts need to register at Ejari – a RERA initiative to regulate and facilitate the Dubai rental market. Although this can be done by a tenant, it is wise to do it yourself as having the contract registered will protect you in the event of a dispute. Again, if you have an agent, they will do this on your behalf.
- Notice period – Once the tenant has moved in and the rental cheque has cleared, there is no more work to do until the contract comes up for renewal. Tenants must give you 90 days’ notice of their intentions i.e. whether they want to stay or leave the property. Similarly, you must give 90 days’ notice if you would like to raise the rent in line with the RERA rental calculator. Remember you must comply with the rent calculator; if it says you can only raise the rent by 10 per cent then that is the law. Failure for the tenant to give notice means they are obligated to stay in the apartment/villa for another year. Failure to alert them of your plan to raise the rent means the contract will roll over at the same rate.
- Eviction – you can only evict your tenant if the property requires demolition or extensive modernization that would mean a tenant could not remain in the property while the work was going on. In both these instances a landlord would need documentation from the Dubai Municipality to support the eviction. The other two instances where a landlord can legally evict a tenant is if he or his next of kin wants to move in or if he wishes to sell. In these last two instances, a landlord must give the tenant 12 months’ notice in the form of a notarized document that is delivered by registered post. You cannot evict a tenant because you want to demand a higher rent – this is illegal. Nor can you ask a tenant to sign a non-renewable contract. This is also illegal and will not be recognized in a Rent Committee hearing.
- Resolving disputes – If you know your tenant is behaving unlawfully, i.e. they refuse to agree to a legal rise in rent or refuse to move out, take them to the Rent Committee. For the hearing, the tenancy contract must be registered at Ejari and the cost of the process is 3.5 per cent of the rental amount.