Renting out a home might seem to be a recurring source of income for many individuals. With the Indian real estate industry progressing on a positive note, the demand for rental properties is growing quickly. Renting out a property in India is appealing as it can earn you a steady flow of income. Although rental incomes from just one home wouldn’t cover all your expenses, many smart investors have taken this up as their means of livelihood. With a large number of properties put on rent, they earn a sizeable income to support a standard livelihood and can leave behind some assets for their children. But this sector also comes with several risks, including losses. At this point, you might be wondering if rental income is even worth the headache. This article will help you get an overview of the pros and cons of owning a rental property.
Why should you consider investing?
- Easy income: There aren’t many ways to earn a steady amount of money every month without working hard. When you rent out a property, all you have to do is take care of the paperwork and the maintenance. You can focus on other things while earning revenues. One can perform a full time-job while owning several rental properties. This makes earning from rental homes a good passive income. Even if you don’t get tenants round the year, having tenants for even 75% of the year can earn you an alluring income.
- Reliability: Investing in a property in India is a reliable source of income. Unlike other jobs, your health condition won’t affect the income much. No matter how old or sick you get, you can continue earning from these properties. If you fall too sick to take care of the properties though, you might consider hiring a property manager. But in most cases, a property manager is not necessary. Rental income stays relatively steady, even during a slump. This is because people would still need accommodation, even if the market crashes. Therefore, this is comparatively a safe investment.
- Low investment: Another factor that makes this sector appealing is low investment requirements. Termed as ‘sweat equity’, you mostly have to spend your time and labour to maintain the properties. These are the things like getting the property in India repainted, getting the plumbing system fixed, etc. Upgrading the home with some better features would make it valuable and earn more rent without incurring much cost for you. Moreover, if you decide to sell off the home in the future, a home that has been upgraded would earn a higher price.
- Cost optimization: Putting a property on rent is a good way of holding on to it if it starts generating losses. It would prevent the property from foreclosure and generate the revenue to pay off the constant costs like taxes. It is also a good alternative to selling off the property if you don’t get your desired price. You may not be able to get a good price if there is a slump in the market, but as discussed earlier, rent from a property in India would still be relatively constant. Moreover, it is hard to sell off a property that’s running on loss than one that’s earning a steady income.
- Appreciation: Savvy investors observe a location in a detailed manner before buying a property. It is profitable to invest in a property in a neighbourhood which is likely to witness a land value appreciation. This is because you can purchase a property before the prices rise too high, and then earn lucrative rent as the costs keep rising. Proper planning into a real estate investment can help you generate a lump sum amount of wealth.
- Independence: You don’t have to work for anybody while investing in a rental property. The main advantage of earning by this means is that you can work on your own terms. Such property in India is usually self-managed and doesn’t need a property manager. At most, you’d probably need to hire a plumber or a home painter sometimes and get the job done. So, you wouldn’t really have to rely on others to optimize your income.
That being said, it is evident that owning a rental property is a good investment. But like any other investment, it has its cons. Let us take a look at those:
- Damages: It is a usual occurrence that a homeowner has to conduct some repairing, repainting and maintenance work after a tenant leaves and before he can hire a new tenant. Most people leave home in a mess because they don’t take care of it as they would take care of their own homes.
- Risk: When you own a rental property in India, it becomes a concentration of your wealth. You have to make certain expenses to ensure that it attracts proper tenants. But if the locality faces a depreciation in the land cost value, or if something happens to your home that the insurance money wouldn’t cover, the money you spent on it would get wasted.
- Legal problems: Using your property in India for rental income involves considerable paperwork and other taxes. You would have to go through several legal processes before you can out the home for rent. Moreover, you might get entangled in legal trouble because of the tenants. If they commit any illegal activities in your property, you might be held as the property owner.
- Time consuming: Although renting out your home is to earn without much effort, it still is time consuming to an extent. If you own several properties, you would have to spend considerable time looking after them, keeping up maintenance and finding desirable tenants. However, most people who own a lot of rental properties take this up as their primary means of livelihood and this isn’t a big problem.
Considering all the factors, investing in a rental property can be lucrative and risky at the same time. Nevertheless, it is worth owning a rental property in India if you can manage it properly, or if you hire a good property manager.