Things to consider before renting out a property

Are you the happy owner of a flat or house? Great! But, whoops, life happens and suddenly you need to rent out your flat or house, or maybe just a room there in. What should you consider before putting it on the rental market? Here are six points you need to remember to avoid any nasty surprises:

Remember the tax credit on deeds!

In order to reduce the fees associated with buying a home, the Luxembourg government has introduced an allowance, known as a tax credit, for registration and recording charges that is available to anybody wishing to buy a property for personal occupation. The tax credit is capped at €20,000, applies individually to each buyer – in the case of a joint purchase, the amount will be doubled – and can be used as and when required for other purchases, until it runs out.

In order to receive the tax credit, you have to commit to occupying the property for a continuous period of at least two years. During this time, you are not permitted to rent out your home, even partly, sell it or move out of it. Failure to comply with these terms will result in being ordered to repay the allowance in full.

Is your energy performance certificate still valid?

When you became a homeowner, you received an energy performance certificate. This certificate, also known as an energy passport, provides information on the building’s energy consumption and CO2 emissions. It rates energy performance from A (the best) to I (the worst) and was designed specifically for residential properties by experts (members of the Order of Architects and Consulting Engineers approved by the Finance Ministry). The energy performance certificate is valid for 10 years. Once this period has expired, if you wish to rent out your property you can order another certificate (at your own expense) from an approved expert. Any real estate rental advertisement (be it in the media or through an estate agency) must indicate the building’s energy performance category, and potential tenants are entitled to ask to see the energy performance certificate before making a decision.

Get a sense of current prices before setting your rent

Before setting your rent, get a sense of the rental market in your local area. Which is greater, supply or demand? What is the rental price range for properties like yours? Are vacancy rates high? Are rents rising or falling?

This information will be helpful as you look to set a rent for your property and avoid problems down the line. If you have placed the bar too high and fail to come to an amicable agreement with your tenant, he/she is entitled after six months to submit a rent reduction request to the municipal (or regional if the property is in a town or village with fewer than 6,000 residents) Rent Commission. If you refuse to accept the Commission’s decision, you may find yourself in court.  The same thing applies if you realise you are undercharging and wish to put up the rent.

You should also remember that Luxembourgish law puts a cap on rent. You are entitled to increase your rental charge every two years, provided it does not exceed 5% of the initially invested and re-evaluated capital.  The law states that the owner of a property can charge to the tenant only the fees incurred for him or her.

Furnished or unfurnished?

If you choose to rent your property out furnished, the rental charge absolutely cannot exceed double the legal rent for unfurnished properties and will depend on the value of the furnishings. Furnished means fully kitted out, not merely a bed, a table and a chair. The lease agreement must also contain an inventory of furnishings provided to the tenant. The main advantage of furnished renting is that it tends to be short term.

Make sure you have all the documents you need to be a landlord

The main documents you will need are the lease agreement and the inventory of fixtures. Do not waste your time drafting them yourself. If you rent out your property via an estate agency, they will have their own templates. If you are doing it privately, go online to the Luxembourg government’s administrative website where you can download a lease agreement template under Citoyens/Logement/Location, or visit here , where you can freely download an inventory template produced by Luxembourg’s Ministry for Small Businesses, Tourism and Housing.

Don’t forget taxes!

Any resident or resident for tax purposes who owns a property that is rented out in Luxembourg or abroad is subject to certain tax obligations. The taxable income from the renting out of real estate corresponds to the amount of rent received, minus acquisition costs (maintenance and repair costs, interest expense, amortisation and depreciation, management fees, etc.).

All you need to do now is find a good tenant who pays their rent on time, does not present you with any particular problems and is easy to communicate with. This may end up being the hardest part of all!

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