Home Truths . Five ideas to boost your rental income

In the past, investing in a property used to be mainly for capital gains. With property prices stagnating and market sluggish, rental income may make buying a property an option to consider. However, if you stick to purchasing a regular apartment, you may get yields of only 2-3 per cent. But looking beyond that option can help you boost your rental return.

We look at five ideas that can help you get better rental return. While these investments can increase rent, you must also look at the suitability of these for you.

Custom-built

If you own land and capital, designing and building with rent in mind is a good option. For example, in many areas there is good unmet demand for smaller spaces such as single-bedroom houses. Constructing multiple such units instead of larger ones can be a way of ensuring steady rental income. Likewise, when building, you can construct a mix of units — even some commercial ones — based on the local needs, to get a mix of tenants.

While constructing, you must choose materials and designs that ease property maintenance. Keeping this in mind while picking your options can help you save on upkeep and repair costs.

Upgraded houses

If you plan to build or buy a property, you can invest additional amount with the purpose of making the property more desirable to tenants. For example, there may be some modifications and cosmetic changes you can do to attract potential residents and also charge a higher rent.

One common upgrade that pays returns is an improved kitchen. More closet space — in the kitchen and bedrooms — is another improvement that tenants desire. In some cases, making the house fully furnished or installing appliances such as air conditioner can bump up the rent.

These upgrades also help increase the resale value of the house. Note that these may undergo wear and tear and you would have to budget for maintenance or replacement of these improvements.

Right location

If you plan to buy a property from a developer, you must focus on picking the right location based on rental demand. Every city has areas where there is good potential, based on various factors, including affordability, connectivity, social infrastructure, such as schools, and safety. In Pune, for instance, locations such as Undri and Kothrud have good rental demand from IT employees. In Mumbai, as rents are high, locations such as Ulwe in Navi Mumbai are attractive for tenants due to affordability.

You must look at the likely rent, type of property and features that tenants look for by talking with brokers, analysing rental demand from online sites and talking with other owners in the area, before you buy. Also consider the new housing supply coming up in the area; a large influx of properties will dampen rents as tenants have more choice.

Holiday home

If you are a little adventurous, you can consider beach-side properties, houses in mountains, properties in locations with historical or religious significance. Here again, your choice must be based on the type of travellers and their preference. For instance, some factors such as ample parking facility and safety would be things you may not want to compromise on.

You will also have to invest in furnishing the place, including setting up a fully functional kitchen. Overall, occupancy may only average 20-30 per cent through the year. Also, you must look at the seasonality aspects of the area and ways to earn some returns during the lean season. Having a caretaker would be a good idea, and your rental return calculations must factor these overhead costs.

Go commercial

Besides residential properties, commercial spaces are another investment option. Commercial properties tend to give higher rental return (6-8 per cent) than residential ones. And depending on your budget and risk appetite as well as the demand in the area, you can consider a variety of business tenants. You can buy anything from office spaces, retail outlets or warehouses, based on your budget and comfort in dealing with tenants.

If you own land and want to build, there are a few commercial choices. One is building small spaces for ATMs, small outlets or kiosks. Another option is to rent out the land as a parking space. This can fetch good returns as the capital investment is low. Other options include building storage spaces that can be leased out to individuals or smaller companies.

The writer is an independent financial consultant

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