Are your rental property returns saturated? Increasing the rent with time is not the only way out.
Rental yields across the major cities in India have remained static for years now, a study shows. Net rental yields in India are one of the lowest in the world, says another report. This is due to the high loan rates that reduce the yields.
Rents have also not increased in proportion to the rise in property prices over the years. Making a few additions to the property and implementing better property management strategies are great ways to earn some extra cash from your property.
When buying a house for investment purposes, the first thing that comes to mind is the rental income. Although the rental return on commercial properties is more than that on residential properties, purchasers choose to invest in residential due to the higher cost and risk associated with the commercial real estate segment.
Typically, every home may be rented to a family, a single person, or even converted into serviced apartments. The owner will receive the least rent from a family among the three rental kinds outlined above. However, the advantage of having a family as a renter is that they will take good care of the home. Thus, lower maintenance expenditures. The monthly rent payment will most likely get made on time. A flat owner might anticipate approximately 40% more rent from a bachelor than from a family. But this rent type is the most time-consuming manner of leasing out your home. A 3 BHK home can get rented out as a PG to six Bachelors, but rent collection can be a hassle, and the recurrent maintenance costs would be substantial.
Any real estate investor’s ultimate objective is to profit from their investment. There are several forms of real estate investments that might help you become wealthy, the most common of which is purchase and rent. A real estate investment generates money on rental properties by collecting rental income. The more the rental income, the greater the profit for the investor. As a result, every investment property owner is continuously looking to increase rental revenue to generate more money in the real estate investment business. So, let’s look at the ways to level up your rental income.
What is rental income from a property?
Rental income from a property gets termed passive income; nevertheless, sustaining the cash flow may not appear to be so. In a perfect world, a landlord may remain uninvolved in the day-to-day operations of maintenance to earn a better return on investment. Real estate property owners have a lot on their plates and should actively participate in the maintenance and improvement process to get a greater rental yield. It is also critical that they actively participate in rent collection and tenant grievance resolution. Here are some tips for establishing a solid passive income basis and ensuring regular rental income flow.
But, how do I calculate income from house property?
Here is how to figure out how much income you can make from your house property:
- Determine the property’s Gross Annual Value (GAV): The gross annual value of a self-occupied residence is zero. It is the rent earned for a property on rent for a rented out property.
- Lower Property Taxes: When paid, property taxes get deducted from the GAV of the property.
- Calculate the Net-Annual Value (NAV): Net Annual Value = Gross Annual Value – Property Tax.
- Deduct 30% of NAV as a standard deduction: Section 24 of the Income Tax Act allows 30% of NAV as a deduction from NAV. Other costs, such as painting and repairs, cannot be claimed as tax deductions above the 30% maximum under this provision.
- Reduce home loan interest: A deduction under Section 24 is also possible for interest paid on a housing loan during the year.
- Calculate your revenue from house property: The outcome is your income from house property. It gets taxed at the appropriate slab rate.
- Loss from house property: If you possess a self-occupied house with a zero GAV, claiming the home loan interest deduction will result in a loss from house property. This loss can get offset by revenue from other sources.
However, when a property gets rented, the gross yearly value equals the rental value. The rental value must be more than or equal to the property’s fair rent as decided by the municipality.
What are the best rental income properties in India?
If you want to increase your rental income, the following suggestions will assist you in sensible rental investment decisions:
- Co-living housing: Real estate in India has a significant untapped demand from millennials searching for co-living solutions. It consists of both students and migrant working professionals between the ages of 18 and 35. Millennials account for over 30% of India’s population, so if you’re wondering about real estate where to invest,’ investing in co-living housing provides both demand and potential.
- Rental housing: The need for rental housing is likewise more severe in the country’s low-income categories. For daily wage earners and migrant workers from the informal sector, rental housing is the sole option. Government estimates show that between 26 and 37 million families in urban India reside in informal dwellings. As a result, investment in India’s inexpensive housing market generates better profits.
- Airbnb Rental: This sort of property might range from a little hut in the woods to a sprawling 6-bedroom mansion in the city. These kinds of residences have grown in popularity in recent years. It offers several advantages over traditional rents, but it also has some disadvantages. One advantage, for example, is that you may charge more rent each night. If you have a hot property and have it booked for most of the month, you may make far more money than if you only have one renter in a typical model.
Ways to Maximize your Rental Property Returns
- Furnish your Rental Property
A furnished house always has an edge over the house with empty walls. If you rent a furnished property, it always attracts higher rents. You can increase the average rental return on investment. From the tenants’ perspective, a furnished house reduces its furniture expenses. It also reduces the costs and burden of moving heavy furniture from one house to another.
Tenants always look for a house that brings a sense of belonging. So, fully or even semi-furnished properties are the tenant’s favorite even if they come at a slightly higher cost.
- Modernize the Property
With the changing demands, there is a need to groom your rental property for higher developments and the latest techniques. If you want to make the most out of your property, you can always go for modernizing it. It brings a brand new look to the house resulting in higher income.
You can go to an open kitchen, or change the tiles and decor of the house. Ask the tenants if they wish to have a reading corner in the house or space for their interests in the arts.
Also, please give them the liberty to use the premises with an additional charge. It could increase the average rental property return on investment.
- Supplement New Amenities
You can include white goods like electric ovens, toasters, air heaters, and air conditioners. You can make a menu of the goods and charge them based on their needs. Please give them the choice to use the goods of their wish.
You can also provide them with amenities like parking lots, and building storage spaces. This lures the tenants, and you can price the amenities to earn higher returns.
- Allow Pets With a Premium Charge
There is a great need for homes in the market that permit pets. Some societies have barred pets. So, pet owners face the difficulty of finding a home that allows pets. You may hence consider this as a potential reason to charge the tenants and earn higher rental income.
But, you should always have a regular inspection to check on any property damage. Please agree with the tenant about the property damage well in advance.
- Have Strong Leasing Policies
Vacancies can be seen as a potential loss if it extends beyond a specific period. To reduce your vacancy period, have a leasing policy where the tenant intimates you a couple of months before vacating the property. So, you can start your hunt for the next tenant, thereby reducing the vacancy period.
You can include the fixed tenure in the leasing policies. This ensures the minimum period during which the property is occupied. It reduces the vacancies, and therefore rental property return on investment increases.
- Increase the Security Standards
Installing a CCTV camera on the premises ensures the safety of the tenants and the property. It creates a win-win situation where both you and the tenants benefit from it.
If your tenants have toddlers or kids, you may go for customized doors and windows that have an upper lock and two-way opening systems for doors. Remember, nothing is done for free. You may charge them but not exorbitantly.
If you have an independent property, check on the fence, and gates, and maintain them.
- Get the Final Touches Done
Repairs are like freckles on flawless skin. Tenants look into the repairs with the magnifying lens. So, it could become a factor of rejection.
There may be repairs that you need to look into before and after renting the house. As an owner, It is your responsibility to maintain the house. Tenants might not like to move into a house with repairs. Hence, you should get the work done before you display the house. At the least, promise the tenants that you will get them done before they move in.
If you maintain the house regularly, you would have a say to increase the rent periodically. Ways to increase rental returns on commercial property.
Although all the strategies mentioned above work for both residential and commercial properties, the following are additional tips that work best for commercial properties.
- Offer additional services
If you own a commercial property, offer additional services like regular maintenance or cleaning services that you state during the lease agreement. They might be willing to pay an extra amount for skipping the responsibilities.
Plan the workspace and storage space according to the requirement. Tenants do not like to pay more for a less utilized space. So, adjust the space according to the need and charge accordingly.
- Reduce Potential Losses by Fixed Leasing Tenures
Implement good leasing policies that have fixed leasing tenures and renew the contract accordingly. This increases the credibility of the tenants.
You incur fewer vacancy losses as the fixed tenures ensure the minimum time for which the property shall be occupied. It reduces the losses created by uncertain vacancies.
- Provide Smart facilities and energy-efficient systems
It is a world of smart gadgets that we are living in. Smart facilities use an automated process to automatically control the building’s operations, including heating, ventilation, air conditioning, lighting, security, and other systems. If you install smart facilities, it reduces energy consumption and also increases sustainability. It helps you to improve asset reliability and performance. It also optimizes how space is used and minimizes the environmental impact of buildings. You can charge them based on the facilities you are providing. Tenants would also love to pay you extra for such facilities. Ensure that your charges for the facilities are not more than their earnings through the energy-efficient systems. Else, the purpose of providing the facilities is lost.
- Utilizing Tax Advantage
A landlord’s rental revenue can get increased by taking advantage of tax breaks. You might be asking how this is even feasible. But, many of the expenses associated with your rental investment property can get deducted, which lowers your costs and, as a result, increase your earnings. Any landlord can deduct maintenance charges for his income property in addition to insurance, mortgage payments, and any travel expenses incurred. When investing in rental income property, Sections 24 and 80EEA provide tax breaks if the property gets funded with leverage. Section 24(b) allows for a deduction of up to Rs.2 lakh on interest paid, while Section 80 EEA allows for a deduction of up to Rs.1.5 lakh on interest paid for affordable housing. You can also pay municipal taxes and receive tax breaks. Under the standard deductions, you can also claim deductions for costs incurred.
Proper property marketing is also essential for maximizing rental income. To market the house, a homeowner should use all available offline and internet platforms. An initial impression of the property allows a homeowner to seek a higher rent. Another advantage of advertising online is that the homeowner may post and exhibit images of their property, which can help an interested party analyze and choose a house before coming on a physical visit. As a result, internet channels help to speed up the process of renting out vacant property.
These are some of how you can increase your rental income on your investment property, whether be residential or commercial property. You may consider one or a blend of the above tactics as per your need. I am sure you might have come across the one that suits you!
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Rental Property Returns FAQ’s
If you stand in the shoes of tenants, you may understand that bagging the best amenities, living in a furnished property with the security standards are some of the concerns. You can satisfy the customers by providing them all and charging them to increase your average monthly profit on rental property.
All the ways of increasing rental returns on the residential property apply to commercial properties. There are ways specific to get a good return on commercial renting property. You can always go for smart facilities and energy-efficient systems and charge them for providing the amenities. It creates a win-win situation as the tenant would get reduced bills for the energy-efficient systems.
Though the rental market shows signs of growth, the rental yield stands static. It is because the loan interests stand at a high rate which reduces the yield. Rental norms also have too much to give tenants and too little to the owners.
Renovation gives the property a brand new look that attracts the tenants. Modernizing the property with the latest trends welcomes higher returns as you can charge for the amenities provided.