Tips: Buying to Let

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Buying an investment property can be a great way to not only have a sizable asset in your name but also earn an income on that investment by leasing their property on short or long term contracts. Here are some factors a potential investor needs to consider to ensure they profit from their investment.

  1. Buying the property

For those buying with cash only, they simply need to decide how much they want to spend and ensure they don’t overstretch their budget or dip into emergency savings.

For those that need to take out a mortgage, it becomes a little more complicated. In the UAE, buy-to-let mortgages and end-user mortgages are the same and everyone has to secure approval the same way.

Last year, the Central Bank introduced a mortgage cap to limit how much banks can lend. Under the new guidelines, expats buying a property for under Dh5 million must now produce a minimum deposit of 25%, rising to 35% for properties above Dh5 million. For second properties, the minimum deposit is 40%. For UAE Nationals, a 20% deposit is required for a first home under Dh5 million; this rises to 30% for homes over Dh5 million, and 30% for any second or third properties.

It means mortgage buyers also need a lump sum of cash ready for their down payment.

Factors to consider when applying for a mortgage are your minimum salary, the tenure of the loan and whether you want an Islamic or conventional product.

For the mortgage approval itself, standard paperwork required includes six months bank statements, copies of all your ID such as a passport, visa and Emirates ID card, a salary certificate, proof of address, such as a utility bill, and details of all your liabilities.

  1. Location, location, location

Once the bank’s pre-approval comes through for the mortgage, which generally takes three to five days, start hunting for the property you want. By this stage you will know exactly how much you can borrow and therefore how much you have to spend. This is where you need to think like an investor and not someone buying a home for themselves. Things to consider include:

Location is key.

That’s right, where you buy the property will not only have a big impact on the demand from tenants but also the property’s value when you come to sell further down the line. Prime locations include the Palm Jumeirah, Business Bay, DIFC, Arabian Ranches and the Emirates Hills Community.

What amenities are near by?

It’s well documented that properties located close to the Dubai Metro will attract higher returns as do those near to good schools, medical facilities, malls, local shopping centres, parks, the beach and gyms or children’s play areas.

Apartment or villa?

Villas have traditionally fared better than apartments in terms of holding their price. That’s not to say an apartment, something which can be more affordable, will not earn you a good rental income. An apartment situated close to the Dubai metro, in DIFC or with views of the Burj Khalifa will always attract interest purely because of its location.

What is the rental market you are targeting?

If you have decided to rent out to professionals in Dubai then aim for the Dubai Marina or JLT with its good transport links and easy access to grocery shops, restaurants and shopping malls. If you want to attract a family, pick a villa development such as the Springs, Lakes or Arabian Ranches.

  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. 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.

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.

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.

4. 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.

Source

Comments (4)

  1. Mayradesir

    I’m not that much of a online reader to be honest but your sites really nice,
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    Reply
  2. taralite

    This is a topic that is close to my heart…
    Cheers! Exactly where are your contact details though?

    Reply
  3. Avirup

    If you buy a property as an itnesvor you will probably be getting a max of 80% ltv (loan to value) and your rates will be a bit high. As an itnesvor your score has to be atleast a 720 and you have to already own a home that is currently listed on your credit report. You can try a Hard Equity lender. They will let you borrow money on the equity of the home and they usually only give a max of 65%. They do not check your credit, job etc. All they look at is the value of the home. But their rates are ridiculous. I’m talking about a 15% rate. I don’t know how bad the property is but you can also by the home as your primary residence (if you don’t own anything else) move in and do the renovations while your living there. If you do it that way then you can get a normal rate and you can get 100% financing (a full doc loan).

    Reply
  4. Google

    The info talked about in the report are some of the best available.

    Reply

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