Is Rental Home Worth The Headache?

Owning and maintaining a rental property is not as easy and profitable as it sounds. As rents rise in many metros and big cities, property tax and an EMI might eat up most of your profits. Additionally, the responsibility of preserving the property and being answerable to tenants can add to the headache associated with owning a property or new apartment in India.

However, many people have tasted success in running a rental property for many years. Like investments in under construction properties in India, rental property also takes time to mature.

Here are a few advantages that makes rental property attractive and a few new ways to ensure that you enjoy the spoils with the least amount of effort:

1. Appreciation and cash flow: A rental property will turn your savings into a monthly cash flow. After subtracting the taxes and other costs involved, a rental property might not give you much on a monthly basis. But do realize that what you get out of it is merely interest of your investment, which is safe and sound in brick-and-mortar. The cash flow is for you to spend and enjoy if not save. That makes it the best kind of investment among all the ones in the portfolio.

The real value of a rental property is not in the cash it doles out every month. It is in the value appreciation. Without counting the rent, a rental property in a good location might appreciate 10 times over 10-15 years or more. It is this windfall that is worth the effort.

2. Tax breaks: The government allows for tax breaks for a residential property. It offers 30% tax deduction of the annual value, in respect of repairs and collection charges. There is also a deduction for interest payable on loan taken for acquisition, construction, repair, renewal or re-construction of the property. These advantages will help you save the net outflow in the form of tax.  

3. Property management companies: For those who do not want the headaches of maintaining a rental property like fixing ceiling or broken bathrooms, there are property management companies. They might add to the costs but they ensure that your rental home remains as new as it is without regular efforts from your side. They can ensure that your tenants do not do any serious or irreversible damage to the ready to move in flats in India.

Though these companies mostly target high-end rental properties, they are especially handy when you have more than one rental property, and if your villa or plot in India is in a different town. A good set of brokers and agents can also ensure that your property is always rented out and does not stay empty for long periods of time.

4. Home insurance: A homeowner's insurance can help protect you from damages and other disasters. Some policies cover fittings and fixtures of the home as well. This will give the extra assurance that your rented property is safe even as it is in someone else's hands.

(The writer has been working as a business journalist for the last nine years, and has covered beats across banking, pharma, healthcare, telecom, technology, power, infrastructure, shipping and commodities)