An Explainer: Rental Yield
Many of us invest in a second home to let it out on rent and earn great returns on investment. Now, when you give your property on rent, you earn a monthly income from it. This income is known as monthly rent. But what is rental yield? It is your annual earning from rent as a percentage of the cost of your property.
For instance, if you are getting an annual rent of Rs 2.4 lakh on a property that you purchased for Rs 50 lakh, your rental yield is calculated by dividing Rs 2.4 lakh by Rs 50 lakh and multiplying it by 100. In this case, the rental yield comes to 4.8 per cent.
In Dubai, for example, one can earn a rental yield in the range of 10 per cent. But, rental yield in Indian cities is much less when compared to major global cities. In bigger Indian cities, the yield ranges from six to seven per cent and smaller ones two to three per cent.
However, by improving your property, you can earn a better rental yield. It should be noted that rental income is taxed under income from house property. In case you use this house for services like homestay, your earnings are taxed under business income, at a higher rate.