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Putting a price on your spare room

Priya Nair / 17 Apr 17 | 03:29 AM

A large three-bedroom house can be difficult to maintain for an elderly couple living on their own, especially in a metro like Mumbai or Delhi, where the cost of living is higher. But, if they rent out the extra room, it can be an additional source of income. 

With your housing society’s permission you could rent out the room to a student who cannot afford to pay high rent. Or if the building is close to a commercial area, you could rent it out for a commercial activity. Running a bed and breakfast scheme is another option, provided you get all the approvals. 

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Renting for residential purpose

The easiest way is to rent out your extra rooms to a paying guest (PG). While doing so, one will have to include the cost of facilities like electricity, water, etc, in the charge because it is difficult to fit separate meters. “If you are letting out only one room, it is difficult to get a separate meter because the ownership is with one person. Unless it is an independent house, where you can show more than one owner and a separate entrance, and try to get separate meters,’’ says Siddhart Goel, senior director, research services, India, Cushman and Wakefield.

Typically, water and electricity charges are applied on a proportionate basis, and other charges including cable, internet, maid, etc. are charged on actual usage. An owner keeping a PG invariably charges deposit which is generally lower than the usual deposit charged for an entire house. These conditions must be mentioned in the agreement.

“An agreement is not necessary but both parties involved generally get such a deal in writing to safeguard their respective interests," says Ashwinder Raj Singh, chief executive officer - residential services, JLL India.

In many cases, the owner might not want to register the agreement because it will involve additional cost like stamp duty, says Ghulam Zia, executive director, Knight Frank.

“An agreement is more important when the entire house is given on rent, as it gives the owner control over the house, in case the tenants refuse to vacate. But, in the case of PG, the landlord is living in the same premises. So, he still has control over the property,’’ he points out. 

And, tenants will not be able to claim tax exemption if the owner does not provide a rent receipt, which is what usually happens in case of paying guests.

The rent in this case will depend on the kind of room, facilities, etc. For instance, if the rent for a two BHK (bedroom, hall, kitchen) is Rs 30,000, for renting out one room you can expect Rs 15,000, provided the tenant gets access to  common areas like kitchen and living room, in addition to the bedroom, and if it includes services like cleaning and so on. Otherwise the charge could be Rs  7,000-10,000, says Goel.

Renting for commercial purpose

Another option is to let out the room for a commercial activity, again subject to permission from your society. But, first check which commercial activities are permitted to be carried out in residential areas by the municipal corporation. There have been instances where owners have gone to court for renting out their property for commercial activities like a yoga centre, or offices for chartered accounts, lawyers and doctors. “Commercial activities that are non-polluting and do not put a strain on infrastructure such as water or sewage are usually permitted, according to municipal corporation rules. These vary from city to city," says Goel. Running a commercial kitchen might not be permitted in a residential building. 

If your house is in a gated community, chances are the society might not permit a commercial activity. Too many outsiders coming into the building could prove to be a nuisance for others. It could also impact the valuation of other houses. But, if it is a mixed-use building and your apartment is on the ground floor, letting out part of the space for commercial activity is easier. 

While certain commercial activities are exempt from tax, some could be charged the commercial charges on property, water and electricity rates. Keep this in mind. 

Bed and breakfast

One could also run a bed and breakfast service. For this, a licence from the tourism department is required. It is available for a certain fee and after all the no objection certificates and documents that are mentioned on the respective state’s tourism department website. 

For example, Maharashtra Tourism Development Corporation seeks documents such as property card, 7/12 abstract, identification from two local respected persons like special executive magistrate, sarpanch, talathi etc; rate of rooms and menu rates; NOC from Grampanchayat, Nagarparishad, Nagarpalika, Mahanagarpalika, photograph of rooms, receipt of property tax, water, electricity bill, etc. 

“Since a bed and breakfast is closer to hospitality, one has to follow the rules and regulations. One may not find too many takers if your house is in a city, but in a tourist destination it can do well," says Zia.

While letting out that extra space

Include charges for water, electricity in the rent Take permission from municipal corporation for any commercial activity  If the commercial activity is not eligible for exemption, you will have to bear higher tax Licence from tourism department is a must for bed and breakfast service

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