Buying rental income property – pros and cons  

For most people a property is a building for the family and a store of value rather than an active investment. However, prices and rents especially in metro cities have increased at a very fast pace. As a result, more and more Indians have started considering it as an active part of their investment portfolios.

A lot of people have also started seeing it as a second income. A second income comes in handy to lead a decent and comfortable lifestyle. Retirement is another concern for all, and especially those who are not covered by retirement benefit schemes. In such cases a rental income becomes one such avenue.

Buying a house and renting it out sounds good, but there is more to it. Let’s look at the advantages first:

1. Along with rental income one can also expect appreciation in property’s value over a period of time.
2. Property is comparatively less volatile. But there is a misconception that property prices never go down, which is not true. Even today, there are various pockets of real estate, which are earning below par. But for long term it is not a bad option.
3. Interest and Principal on home loan are eligible for deduction u /s 24 and 80C of the Income Tax act respectively

But there are disadvantages too. Sometimes property bought solely for renting out might backfire on the investor.

1. There are times when property remains vacant and owner finds difficult to get regular income out of it. If rental income drops, it may seriously hamper ones financial planning and lifestyle.
2. It is also possible that the property market could be headed for a bad time and one could be stuck with low rental yield. In times like these getting a rental specially from commercial is not very easy.
3. The interest rates are at highs and mostly all loans nowadays are on floating rate basis. Imagine a situation where rent remains same but interest outgo on loan for property goes up. So buying a property for rental would not be sensible if you don’t have a regular income to support the EMIs.
4. 
Real estate is less liquid as compared to other assets such as FD, gold, etc. So buying a property for your daughter’s wedding or retirement or making a huge investment during working years may not be a sensible option. Also it is not possible to partially withdraw from real estate as it can be done in other assets.

According to Mr. Anil Mithas, CMD of Mithas Group, “After looking at the pros and cons, you must plan keeping in mind your own financial position and not what others are doing.” Mithas Group, which has several residential, commercial and retail developments across the NCR region has made it easier for many buyers to invest in a rental income property. They have several investment options that secure rental income, offer an assured rate of return and provide flexibility of liquidity of investment through buy back schemes.
Apart from traditional options, one can also look at studio apartments, SOHO set ups, retirement homes, etc. for higher rental income. But a few basics need to be kept in mind if you are entering the world of rental income. In a residential property, additional bathrooms and decent parking areas are attractive features and that can result in higher rental. Vicinity to schools, colleges, shopping areas is a must. Basic amenities like geyser, electrical fittings etc. have a low cost to it but have a high impact on tenant’s mindset. It is also important to know the maintenance cost before buying flats for rental purpose.

In the final analysis, rental income is a good source of second income but do not go overboard on the same.