So you want to be a landlord. Maybe you see buying and renting property as a great business model. Or perhaps you bought an apartment in a Dubai skyscraper and you can't sell it, so now want to rent it out.
It sounds so easy. Sign up a tenant and watch the money flow.
That's the fantasy.
In reality, renting property is a job fraught with frustration, anxiety and sleepless nights. An array of quirks unique to the UAE can quickly complicate the rental process, turning a lucrative-sounding investment into a seemingly bottomless money pit.
But it is possible to avoid the landmines. Solid business practices, a few smart moves and attention to detail can make the job relatively painless, maybe even profitable, industry experts say.
"It's really about preparation," says Jane Irvine, the business development director for LLJ Property, the Abu Dhabi real estate company.
These are particularly tough times for the landlord business in the UAE. The market has been flooded with rental properties, driving prices down by 40 per cent in the past two years in some neighbourhoods.
At the same time, the laws on rentals are changing at a rapid pace. And increasing expenses, from building service charges to utilities, can quickly scuttle the best rental budget.
"It's the little things that kill you," says Ian Mackie, a property executive who owns two apartments in Abu Dhabi's Al Raha Beach area.
Mr Mackie bought a one-bedroom apartment in Al Bandar for Dh850,000 in 2008 and a three-bedroom flat in nearby Al Raha the following year for Dh4 million.
He was able to quickly rent the one bedroom for Dh120,000 a year in 2010, with the tenant paying with one cheque.
But he might not be as lucky if he decides to leave the area and rent the three-bedroom flat. Mr Mackie is paying Dh300,000 a year for the mortgage on the three-bedroom property and may only get Dh200,000 in rent, "provided I can get a tenant and rents stay up".
Buying in the right neighbourhood is the essential first step in any landlord's plan. In Dubai, rental prices have stabilised in such areas as the Burj Downtown, Palm Jumeirah and Emirates Hills, according to Asteco, the property management company. But average rates dropped 7 per cent in Jumeirah Lake Towers and 4 per cent in the Springs in the last quarter of 2010.
In Abu Dhabi, prices actually rose in the Golf Gardens development at the end of last year, even though the overall market declined 7 per cent in the final quarter, Asteco found.
Units in well-maintained, master-planned neighbourhoods with views; adequate parking; amenities such as fitness clubs and extra storage; and on-site security will attract and retain tenants more than other properties, rental experts say.
From the start, it's essential to judge whether the property is properly maintained. Developers are still responsible for management in most buildings until homeowner's associations formally take over the responsibility, under guidelines of new strata laws in Dubai. Abu Dhabi is in the process of developing similar laws.
"You have to take a tour of the property and consider the common areas," says Michael Ryall, the director of Place Strata Management, a Dubai-based strata law consultancy. "That will give you a guide if the property is well managed or not."
Buyers have the right to inspect maintenance records kept by the homeowners' association, he says. And in some cases it might be worth the money to hire an engineer to inspect the property.
Once you decide on a purchase, it's important to do the maths to decide if renting the unit can be profitable - or at least cover expenses. When calculating the potential yield, you must factor in rising service fees, maintenance costs and the likelihood that the property may sit empty for one or two months a year, agents say.
Pricing a rental can be the biggest stumbling block for landlords. Many try to calculate the asking price using their mortgage payments and expenses as a guide, which is a mistake.
"It's what the market is willing to pay and how quickly you want to rent it out," says John Stevens, the director of property management for Asteco.
Before renting, landlords must also decide if they want to offer the unit furnished or unfurnished. Unless it's a short-term rental, it is usually easier and more efficient to offer a unit unfurnished.
"If people are going to be there for a period of time, they want to furnish it the way they want," Mr Mackie says. "That's why Ikea exists, right?"
Landlords can employ a property management firm to handle every phase of the process, from finding tenants to moderating disputes. But they also charge anywhere from 5 per cent to 12 per cent of the rent.
"Dealing with problems can be aggravating," says George Watkinson Yull, who hired Better Homes to manage eight properties he and his wife, Jacqueline, own in Dubai and Ras Al Khaimah. "The last thing I want is to be in Europe at a business conference and have to deal with some problem in Dubai."
The Yull's units have been steadily rented, in part, because they "never charged exorbitant rents", he says. "We've always been fairly modest."
Another key is spending Dh5,000 to renovate and paint each apartment every three years, says Mr Yull, adding that the expense is small compared with the overall income. "Nobody wants to come into an old-looking apartment."
In an increasingly competitive market, landlords need to woo good tenants. That means everything is negotiable, including the staple of UAE rentals: one cheque in advance.
In Dubai, two to four cheques is the norm. Abu Dhabi hasn't reached that point yet, but one or two cheques is more common.
"We're getting so competitive, we are getting to the point landlords have to think about going month to month on leases," says Brent Baldwin, a property specialist with Hadef & Partners, the law firm. "People don't want to commit to 12-month leases."
Landlords can often charge higher rent in exchange for flexibility on the number of cheques, he says. They can also negotiate "out" clauses, giving tenants the right to move out early in exchange for a two or three-month penalty, which can be spelt out in the contract.
In Dubai, a contract template is available through Ejari (www.ejari.ae), the rental site established by the Real Estate Regulatory Agency to oversee the industry. All property managers and owners must be registered through Ejari, and all rental agreements must be submitted to the site.
When a contract is entered, the system produces a bar code, which serves as a reference for the life of the contract.
Abu Dhabi last month launched a similar system, Tawtheeq (www.adm.gov.ae/tawtheeq), which tracks contracts. It will also create a database of all registered rental properties in the capital, providing both landlords and tenants detailed information on the rental market.
But the contracts supplied by the Government agencies are only templates. Language can be added to protect both the landlord and tenants and address specific issues.
One of the keys is who pays for damage. Contracts generally allow for "wear and tear", but they may not spell out what constitutes acceptable damage.
Some contracts make it clear that tenants are responsible for all repairs under, for instance, Dh250. And it's not unusual for a contract to stipulate that the property needs to be returned in the same condition as the tenant rented it.
"Our recommendation would be for all tenants and landlords to insist that all possibilities are covered in their tenancy contract," says Ryan Mahoney, the chief executive of Better Homes. "Most contracts state that the landlord keeps the security deposit if there are any damages to the property."
Bhartendu Vyas, a London-based landlord, is likely to include a no-smoking provision in his next contract after he was surprised to find his two-bedroom rental in Dubai smelt of cigarette smoke when the tenant left. The contract didn't specifically address smoking, leading to a negotiation about who should pay for repainting the apartment to get rid of the smell.
"We're still in conversation," Mr Vyas says. "I'm not sure how successful it will be."
Mr Vyas, who also owns rental properties in London and Turkey, began renting the 1,300-square-foot apartment in the Burj Views tower in 2009, when rents for two-bedroom flats were averaging Dh130,000 to Dh140,000 a year. Now, he is charging Dh105,000.
Attention to detail in the contract is key, Mr Vyas says. Many agreements don't cover what happens if a tenant abandons the property, he notes, or specify how many people are living in the apartment, which can cause trouble if one of the tenants leaves.
"You need to make very clear that the contract is with the people living there," Mr Vyas says. "If something goes wrong, you're covered."
Resolving disputes can be a tricky business in the UAE. If a tenant bounces a cheque, it is a criminal matter and the tenant could face jail time.
But in Dubai, other conflicts over rent are heard by Dubai Municipality's Rent Committee, which was established to moderate disputes. Decisions are binding and can't be appealed to the Dubai courts.
Abu Dhabi established its own version last year, the Abu Dhabi Committee for Settlement of Rental Disputes, a panel of three judges who address contract disputes.
With so many expatriates involved, the Emirates is growing increasingly involved in the rent process. Both Abu Dhabi and Dubai have put a 5 per cent cap on annual rent increases.
But that may be a moot point these days. With so many units available, raising rents can be difficult, even for the most attractive units.
"My attitude is I will be flexible to keep a good tenant in place," Mr Mackie says. "There's no point in being silly."
10 steps to attracting good tenants
1. Study the market and finance options and decide on how much you want to invest
2. Contact a few reputable agencies who can handle the sale, the lease and the renewal of the lease and start viewing properties
3. Speak to leasing consultants to find out what tenants are looking for and what will give your property the edge in the current market, for example, a property with a study or a balcony, extra storage, car parking or a great view
4. When listing your property, choose an agency that will market it in as many ways as possible, such as open houses, print media, HTMLs, signage, website
5. Sign a maintenance agreement with a reputable company who can attend to maintenance requests promptly
6. You will need to provide the agency with your passport copy, title deed, keys and sign a listing agreement
7. Choose a strong listing consultant who will provide you with regular feedback and updates on the status of your rent or sale listing; knows the product and is able to price your property competitively and correctly
8. Review a copy of the agency’s tenancy contract to ensure it meets all your requirements
9. The amount of time that it takes to lease your property typically depends on the pricing. Do your own research, but make sure your listing consultant knows your time frame in which you would like to lease the property and decide on the price accordingly (some landlords price too high and can end up chasing the market down)
10. Make sure the property is cleaned and painted before viewings begin and fix as many maintenance issues as possible. Tenants are looking for landlords who are reliable and provide good maintenance. A spotless property is an indication of this
Source: Better Homes