Max­imis­ing your rental in­come is easy

To earn a good amount from your leased apart­ment, you need to un­der­stand the dy­nam­ics of this prop­erty mar­ket

HT Estates - - HTESTATES - Ash­winder Raj Singh

If you have some sur­plus funds and are look­ing to in­vest in a prop­erty purely for gen­er­at­ing rental in­come, your high­est chances for suc­cess lie in ed­u­cat­ing your­self about the right op­por­tu­ni­ties and avoid­ing the wrong ones. Among many other things, you need to know how the dif­fer­ent rental mar­kets (read ‘cities’) are per­form­ing across the coun­try, and how you can make your po­ten­tial rental in­come grow faster than the mar­ket trends. How­ever, be­fore do­ing this, you need to un­der­stand how the rental prop­erty busi­ness works in the first place. A cen­tral con­cept here is rental yield.

Rental yield

In sim­ple terms, rental yield is the ra­tio of an­nual rent of a prop­erty to the to­tal cost of the prop­erty. For ex­am­ple, if your an­nual rental in­come is ₹ 1.20 lakh and the value of your house is ₹ 50 lakh, the rental yield will be 1.20 lakh di­vided by 50 lakh, or 2.4%. Rental yields vary across the globe, but an av­er­age of 2% of rental yield is con­sid­ered a good deal for res­i­den­tial prop­er­ties in In­dia. The next in­gre­di­ent in a suc­cess­ful rental in­come strat­egy is to be up to speed on which the cities to in­vest in are.

Best cities f or rental in­come gen­er­a­tion

In In­dia, the cities which cur­rently of­fer a higher rental yield are Mumbai, Pune, NCR-Delhi, Ben­galuru, Kolkata, Chen­nai, Hy­der­abad, Ahmed­abad. All th­ese cities of­fer a rental yield of 2% and above, and you can be as­sured that the av­er­age is not go­ing down any­time soon. In­vest­ing in th­ese cities will of­fer you the max­i­mum re­turns on in­vest­ment in prop­er­ties bought for gen­er­at­ing rental in­come. Th­ese cities do not rank high by pure chance – there are sound mar­ket fun­da­men­tals driv­ing their rental mar­kets:

Em­ploy­ment op­por­tu­ni­ties

All the above-men­tioned cities are driven by a lot of em­ploy­ment op­por­tu­ni­ties for both skilled and un­skilled labour. In other words, in­ward migration in th­ese cities hap­pens not only from dif­fer­ent cities, but also out­ly­ing towns and vil­lages. This in­vari­ably re­sults in higher de­mand for hous­ing.

High prices

One defin­ing as­pect of most mi­grants into th­ese cities is that they do not im­me­di­ately want to in­vest in self-owned homes to live – of­ten be­cause they can­not im­me­di­ately af­ford such an in­vest­ment. They are also not sure whether they will ac­tu­ally want to con­tinue living in the city over the long haul. This causes the very healthy de­mand for rental homes in th­ese cities.

Low sup­ply

The sup­ply of res­i­den­tial apart­ments in the pri­mary work­place hubs of th­ese cities is in­vari­ably lower than the de­mand. Both near the busi­ness dis­tricts as well as the pe­riph­eries, ten­ants are ready to pay higher rents for flats which al­low them some de­gree of ease in the daily com­mute to and from work.

Re­alty sec­tor pres­sures

In the past cou­ple of years, de­spite var­i­ous res­i­den­tial projects com­ing up in th­ese cities, not enough have been sold. This has led to a lot of un­sold in­ven­tory and a pres­sure on de­mand-sup­ply equa­tion, which even­tu­ally leads to higher rentals for a few prop­er­ties on the block. In terms of rental de­mand, no sin­gle type or size of prop­erty spec­i­fied. Since there is a short­age of space, all kinds of res­i­den­tial flats have po­ten­tial ten­ants vy­ing for them. This re­sults in a very favourable equa­tion for land­lords.

How­ever, to com­mand a good rent from your prop­erty com­pared to other res­i­den­tial units on the mar­ket, there are cer­tain vi­tal guide­lines to fol­low:

Make sure your prop­erty is in the right lo­cal­ity, mean­ing that it should have the right kind of lo­cal ameni­ties nearby. The con­ve­nience of hav­ing a school, hos­pi­tal, bus and train sta­tion and a mar­ket nearby has a lot of im­pact on the kind of rentals you can earn.

If your prop­erty is in a build­ing, the floor it is on and the kind of win­dow view it of­fers also play a role in how much rent you can ask for. This is an im­por­tant thing to keep in mind while pur­chas­ing a rental prop­erty.

How well is your prop­erty main­tained can earn you brownie points, and has a di­rect cor­re­la­tion to the size of the rental cheques. Make sure the floor­ing, plumb­ing and paint job of the unit is good or­der to at­tract the kind of ten­ants who are will­ing to pay a pre­mium for living in well-kept homes.

The size of a flat is of­ten not as im­por­tant as much as its con­stituent parts. For ex­am­ple, bed­room, kitchen and bath­rooms should be, on scale, as spa­cious as the living rooms. This sim­ple fac­tor can tilt the odds in your favour when it comes to at­tract­ing ten­ants.

SHUTTERSTOCK

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