9 Pitfalls when renting out your home (and how to avoid them!)
Renting out your home can yield a nice return, provided you do it right. Successful renting is the specialty of Koops Real Estate Agency. We are happy to assist you with renting out your property by warning you about the nine pitfalls that novice landlords often fall into – plus tips on how to avoid them!
1. Not asking for permission from the lender
When you buy a property with the intention of renting it out, you automatically take out a rental mortgage. But what if you, for example, have bought a new house yourself and want to rent out your current home?
Owner-occupancy clause prohibits renting
Because the bank takes on more risk with a rented property, almost every mortgage includes an owner-occupancy clause. You must live in the property yourself, unless the bank gives you permission to rent it out. However, this almost never happens in practice. Do not be tempted to secretly rent out your house or apartment. If the bank finds out, they can demand that you pay off the remaining mortgage amount in one go. This is a pitfall you definitely want to avoid, as it often means a forced sale and possible residual debt for you.
Renting with a rental mortgage
Didn’t get permission to rent out your house? Switch your mortgage to a special rental mortgage. You can read more about this in our article on renting out your house with a mortgage.
2. Not considering the points system
Before you start counting your rental income, it’s wise to familiarize yourself with the Housing Valuation System (WWS). The WWS assigns a number of points to each rental property, based on factors such as size, amenities, and energy efficiency. If your property scores below the 'liberalization threshold' of 142 points, it’s considered a social housing unit, and the rental price is determined by the points system. For a rental property with the maximum of 142 points, you can charge a maximum rent of 763 euros. Does your property score more points? Then it’s a free sector housing unit, and you can set the rent yourself.
Changes to the points system
Most prospective landlords are aware of the ins and outs of the WWS, but did you know that the points system will be changed? To accommodate middle incomes, the liberalization threshold will likely be raised to 187 points. For properties with this maximum number of points, the maximum rent will be 1,100 euros. If you want to achieve higher returns and charge a higher rental price, you’ll need to ensure that your property scores more than 187 points. When the new points system will come into effect is not yet known.
3. Not properly assigning responsibility for damage
Household items sometimes break, and the same goes for houses. What damage is your responsibility and what should the tenant cover? Many landlords fall into the trap of not clearly specifying this in the rental contract, assuming they will work it out with the tenant in practice. But this can lead to disputes.
Handover report for the rental property
You can avoid many problems by including a detailed handover report of the rental property in the rental contract. This report should describe exactly how the property looks at the time of signing, including photos. The tenant is responsible for any defects or damage that does not fall under normal wear and tear.
4. Allowing payment delays to drag on
Of course, you have asked your tenant about their income, but it can still happen that a tenant suddenly stops paying. In such cases, it is crucial to take immediate action:
Inform the tenant of the overdue payment and request that it be paid as soon as possible.
Make clear, written agreements about a (short) extension of the payment deadline.
Send a reminder asking the tenant to pay within a specified period.
Notify the municipality of the overdue rent so that they can offer debt counseling to the tenant. This 'early detection of debts' has been mandatory since January 1, 2021.
After three months of rent arrears, engage a judge to legally terminate the lease agreement.
5. Forgetting to index the rent
You can increase the rent each year by a fixed percentage (plus 1 percent inflation) set annually. The pitfall, however, is that you cannot do this automatically unless the rental contract includes an indexation clause, with which the tenant agreed at the time of signing. If the contract does not contain such a clause, you must notify the tenant of the indexation with a written proposal – two months before the rent increase takes effect. Although it is not mandatory, it is advisable to include an indexation clause in the lease agreement.
6. Insufficient investment in the property
Maintenance on your rental property reduces your return. It is therefore tempting to postpone maintenance. However, the government is heavily focused on sustainability and is setting rules accordingly. For instance, homes with an energy label E, F, or G may not be rented out from 2030 onwards, according to current government plans. Do you rent out such a home? Then you will need to invest in maintenance in the coming years.
7. Having to buy out the tenant
Tenant protection ensures that you cannot evict your tenant if you want to sell the property. Selling, therefore, always happens in rented condition, which is not always desirable.
Temporary renting during sale
Do not fall into the trap of temporarily renting out your property while it is for sale, at least not without including a watertight clause in the rental contract. Without such a clause, you will run into problems if you sell the property to people who want to live in it themselves. You may have to buy out the tenant, pay a penalty for late delivery, or, in the worst case, cancel the sales agreement. Read more about how to temporarily rent out your house while it is for sale in our article on the conditions for renting out your own home.
8. Not being well informed about tax rules
Real estate investment involves several important tax rules that you need to be aware of to accurately calculate your potential return:
A rented property is considered part of your assets and is taxed in box 3. However, you can deduct the outstanding mortgage debt.
The mortgage interest on a rented property cannot be deducted from your income in box 1. This benefit only applies to the house you live in yourself.
For the purchase of a property to be rented out, you must pay 10.4 percent transfer tax – significantly more than for an owner-occupied home.
There is also a major tax advantage to renting: as a private landlord, your rental income is not taxed. Do you rent out many properties? The Tax Authority may consider you an entrepreneur and move the properties from box 3 to box 1. This can be avoided by outsourcing the rental of your properties, so the Tax Authority does not consider it your 'work.' Read more about the five most important changes in the tax system that have taken effect this year.
9. Allocating too little time or budget for renting out the property
According to research by the Homeowners Association, landlords spend an average of three hundred euros per month on the maintenance of their property. This maintenance must also be done immediately, as you cannot leave your tenants in the cold if the heating stops working. Many landlords underestimate the time and money required for renting. Ensure you have a substantial buffer for unforeseen costs, choose a rental property close to you, or let Koops Real Estate Agency completely take care of the rental process for you!
Are you still worried that you might miss something? No worries, we are happy to help you get started.
