Real estate: Other ways to earn besides rent, giving away a house without paperwork can be risky

Everything was going fine for Vermaji until about six years ago. The problem was exaggerated when, due to the COVID-19 crisis, his tenant left the house without notice in literally a very short period of time, failing to pay the dues. At the same time, he went through many health issues and had to get the house repaired within a period of six months. This affected his financial position. His children had also moved to the cities, and he had a very low pension. He was in a situation where his wife suffered from kidney problems and had to go for dialysis quite frequently. The costs were increasing continuously and rent of the first floor had become an extremely important part of his regular expenditure.

Two years ago, a buddy of his wanted a house for his son. Since it was the son of a friend, Vermaji did not press for any registered agreement. Both of them signed a plain paper formally and exchanged bank and other necessary ID details. All was well till the lease came up for renewal. But his friend's son refused any hike in rent since it was not mentioned in the agreement.

Now, Vermaji is worried and has tried to involve his friend in this matter, but he is not helping either. Such instances are common nowadays in big cities, where tenants can be tough and the landlord finds it difficult to deal with defaulting tenants. The biggest drawback is depending on a real estate for rental income at a later age. One of the best examples is real estate as a source of income, but it may not necessarily yield good returns in the form of rent all the time.

Mostly, the rental income is received only for 10 months in a year; almost a month's rent goes out in repairs and taxes. Then there can be a headache if a tenant refuses to leave your home easily. That can cause anxiety. Real estate as an investment, especially rental income, is something that becomes a fallacy and needs deep looking into. There are cases where individuals want to sell their property, but it becomes difficult to find a buyer or even sell it in the way they want. So, can a person be released from such problems related to real estate? Yes and no. Yes, there are loads of ways through which one can benefit from investing in real estate other than the principal house of residence.

Now there are, you know, real estate investment trusts you could invest in. And then there are also real estate managers who manage properties for a fee. In other words, these are all new avenues and it will take some time for people to get used to such ideas.

All these factors, however, bear an implication on tax, which most house owners would not like to give up. Therefore, rent is generally accepted partially in cash, and the rest in account to evade TDS as the monthly limit for the same is Rs 50,000. Through real estate, the only benefit is the capital gain. This, again, brings you into the mix of tax and liquidity issues. You make some money and then begin managing, which really becomes very hard for most people. This then results in another real estate investment to offset some of the gains, and in doing so, the problems continue. It is high time that people rose from thinking in terms of just a roof over their head. View the real estate investment as a financial instrument for everything else. There are now new financial instruments for real estate investment. Until then, if you are like Vermaji, you need to be careful with the real estate rental options. Make sure you have a clear and registered agreement with the tenant.