Investing in rental property is popular because it promises a consistent passive income with minimal effort. In fact, now is the best time to make a real estate investment, given the low tax rates, the recent infrastructure boost, and policy pushes from the government.
But here’s the thing. Buying a well-made property equipped with all the basic amenities still requires a lot of money. To that, people usually get a home loan to cover purchasing costs. So, the question remains. Well, here are a few things to consider before going all in.
1. A steady stream of passive income
Leasing out your apartment is an excellent way to generate passive income. The best part? The returns usually increase with time. For instance, most steadily rented apartments today fetch yields of anywhere between 3-6% in the initial years of renting out. And considering a yearly escalation rate of 5-7%, you can expect the yields to increase over time.
Additional Read: Renting Vs Buying a House in Metro City: Know the Pros and Cons
2. Renting out issues
Most prospective tenants are people with small families or those who need temporary accommodation in their city of study or work. They look for three things- basic amenities, connectivity, and adequate space. So, your rental apartment should tick the above boxes.
Pay close attention to the location and the construction of the flat before buying it. As a precautionary measure, check how rental properties fare in the given area. Buy apartments in areas only where properties have a high resale value or where there are upcoming projects by credible developers.
3. Financing your apartment purchase costs with a loan
Buying an apartment to give on rent requires a lot of initial investment. Hence, it’s wise to get a loan to cover the buying cost and reduce any immediate financial stress. The best part? Most lenders offer loans at affordable rates, so you can always comfortably repay the loan. If you’re unable to choose a term, you can always use a home loan EMI calculator to check the EMIs for a particular tenure and choose accordingly.
Keep in mind even though the EMI terms may be favourable to you, there’s still an outflow of money from your account. So, ensure that the EMI amount is offset by the rent you earn. Buying a property in an area where the demand for rental properties is high takes care of this.
4. Maintenance costs
If you aren’t buying a newly developed apartment, you might have to spend money to ready the place before leasing it out. What’s more, unexpected repair or maintenance costs could pop up at any time. So, make sure you reserve some funds to cover them too.
Additional Read: Why Paying Home Loan EMI is Better Than a Home on Rent?
It’s clear that investing in a home for renters is profitable provided the apartment purchased has a good return potential and the loan EMI and maintenance costs do not exceed the rent.
Need a financial partner to get a loan? Tata Capital is right here. We offer loans for all your needs at competitive home loan interest rates and flexible EMI plans.