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Have a Vacant Property? Tried & Tested Ways To Maximize Rental Income
Do you have a vacant property? If yes, then why not rent it out? The whole point of renting out your vacant property is to earn a sizable rental income from your renters' pockets. Sounds greedy? But, rental income is critical to your bottom line and long-term return on property investment. But, how do we maximize the rental income from your vacant 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’s 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 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.
How to further maximize rental income from your property?
So, learning how to generate money from real estate by renting out your investment property using the appropriate technique is the most secure approach to ensure maximum rental revenue.
- Choosing the best rental strategy: It is critical to assess the possibilities of your rental property. If you possess investment property, such as an apartment in a more central position in a metropolitan city, you may consider renting it out on Airbnb. It is because tourists and business travelers in cities are often seeking short-term rentals. Another relevant indicator is the area’s occupancy rate, which reflects the average percentage of the month or year that rental properties get occupied. These real estate investment indicators are a potent weapon that all landlords must increase their rental revenue. So, the more your rental revenue, the greater your cash flow and cash on cash return. Meanwhile, having high rental prices, which increases your rental income, might lower occupancy rates. And it reduces your rental income.
- Amenities improvement: There are several methods to improve a rental income property. A landlord should never lose sight of the primary goal of his investment property, which is to create revenue and profit from real estate. You might raise the rent on your real estate asset to improve your rental income by renovating it. Here are a few tips to help you improve your rental income property: Paint the walls, improve the kitchen, focus on the bathroom, and clean the floors professionally.
- 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.
- Maintaining your rental property’s occupancy: When you have an empty rental property, you are losing the rental income that the property might be earning for you. If you’re a real estate investor with a vacant unit, it’s always a good idea to reduce the rent by an amount to attract a tenant. A 5-10% reduction in rent will help you locate a temporary renter, as a vacant investment property costs you money and reduces your yearly rental revenue.
- Marketing: 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 ideas for increasing the rental income on your investment property, whether residential or commercial. You can choose one or a combination of the strategies based on your specific requirements. Want to own property? Check out Assetmonk, a new-age wealth-tech portal that assists you in locating the finest property offers.
Best Ways To Maximize Rental Income FAQ'S:
A few deductions, such as municipal taxes, might be claimed before arriving at the net yearly value. It can get done whether the property was empty or rented out for a portion of the entire prior year. Municipal taxes must get paid by the landlord, not the renter, and must pay throughout the fiscal year.
Here are six strategies to increase your rental income revenue without spending a fortune.
- Conduct some market research and choose reasonable pricing.
- Thorough screening of tenants.
- Employ a (good) property manager.
- Consider permitting pets.
- Consider short-term rentals.
- Include laundry facilities.
- Be inventive.
Rental income from an empty plot (not attached to a building) does not get taxed under the item Income from the home property. But it is taxable under Profits and profits of business or profession” or “Income from other sources,” as applicable.