When Will My Rental Income Actually Start Looking Like Profit?

Ankit Sirohi, 44, bought his second property in Noida with an aim to capitalise on the benefits offered by the city's thriving rental market. After all, Noida, a popular information technology hub in the national capital region, is seen becoming home to more and more people because of the availability of a large number of newly constructed apartments at affordable rates. For three years now, Sirohi has been earning a rent between Rs 13,000-Rs 15,000 from the property while he is paying Rs 35,000 as the EMI (equated monthly installment) for the loan he took to buy the property. This gap between income and investment looks even wider when he considers the taxes he has to pay for the property. The loss cuts deeper when his tenant demands certain repairs in the unit. The whole purpose of the investment seems failed in a situation like this. Much perturbed at this, Sirohi often thinks to himself: When will my investment start making profits?

Sirohi is not the only landlord who might be caught in a situation like this. Many of us put in our savings in buying a second property in expectations that the rental income will be our sure shot to get easy money without thinking it through. In reality, it might take a lot of time before your investment bears fruit, and that would depend upon several factors. However, the two of them would be more crucial than any other.

Sirohi's example shows that mortgage would be a decisive factor.

In case a large part of the value of your property is paid using a mortgage, you may have to wait longer before your investment turns profitable. In such cases, it is highly likely that the difference between the monthly rent that you receive as rent and the monthly payment that you have to make to your bank would be huge, as in case of Sirohi. In case of all-cash deals, your property should start making money for you from day one.

Also read: 5 Tips To Pick The 'Right' Among Multiple Rental Options

Suchita Sinha, who lives with her parents in Ghaziabad, bought a resale home in Delhi's Mayur Vihar for Rs 60 lakh, with the help of a bank loan of Rs 40 lakh. The property is rented out for Rs 30,000 per month while Sinha is paying an EMI of Rs 48,000. In the past two years, there has been an appreciation of Rs 10,000 in the monthly rent, as the Metro connectivity in the area improved.

Sinhas' example shows the location of your property would be another decisive factor.

Areas that are likely to see large-scale urban developments will certainly witness swift appreciation in their values — the faster the progress of large-scale projects, the larger the rental income of properties in that area. This is the reason why Sinha's property will start earning profits for him sooner than Sirohi's would do for him.  

However, if Sirohi is able to pre-pay his home loan and bring down the EMI amount to some extent, he might succeed in making his investment profitable sooner, too. As his is a new property, he is also likely to spend less in maintenance and repair of the property than Sinha.

Also read: Navallur, Medavakam Among Top Rental Destinations In Chennai