How to Maximize Rental Yield on Your Property
When one looks at investing in a property, most times, it is with the intent of renting it out or waiting for a suitable appreciation and selling it off. There is a good mix of both kind of investors across the country. If your focus is to earn a rent from your property, here are some tips on maximizing your rental yield.
Calculating rental yield
While ‘property rent’ is a simple rental income, one should calculate the ‘rental yield’ in order to maximize the rental yield from a property. A rental yield is simply the annual rental income divided by the property cost. This indicates the rate of return earned (% of return) by renting the property. The annual rental income also takes into account the annual costs of the property. Therefore,
Rental yield = (Annual rental income – Costs)/Cost of property
Hence, there are two ways of maximizing your rental yield: one way is to increase your rental income and the second way is to reduce the cost of the property. According to reports generated by several real estate consultancy firms, the rental yields on residential property in India especially tier-I cities is low. For example, in Mumbai it is around 3.5% and in Delhi it is about 2%. This is significantly lower than that of several developed and developing countries.
Maximizing rental yields
There are several factors that help in improving the rental yield of a property. Here are some of them.
1. The right area/locality and position of property improves yields. This includes the kind of infrastructure, the civic amenities and proximity to the work location. In certain cases, a good view can also command a good rental income. The convenience of staying on a certain floor also helps in improving the yield. All these factors must be considered while purchasing a property.
2. Proper maintenance of the property also plays an important role in improving the yield. For example, the floor must be clean without chipped tiles, there must be no paint peeling off the wall or no stains of water seeping inside the bedroom. Good maintenance means that sufficient care has been taken to provide the best facilities for the tenant. In turn, a tenant will be more open to pay a higher rent.
3. The size of the specific areas in a residential unit is important. For example, while the size of a living room may not be much of a concern, the size of a bedroom and bathroom are important. The apt size of these units can yield a higher rental than the normal cases.
4. Other amenities in the complex such as a swimming pool, a club house and adequate parking space may help improve the rental yield of the property.
A rental yield is an important consideration while investing in a property, especially when you want to compare it to the returns from other forms of investing. Hence, if you want to improve the rental yields from a property, do consider the above mentioned factors.
