Smart new models that can help you max the rental income from your house

We look at co-living and AirBnB versus traditional letting out models to suggest how to best exploit your property

Rental yields in India’s residential real estate market are among the lowest globally. The average is about 2-3 per cent, which means if you have a house that costs Rs 50 lakh, the monthly rental you can expect is between Rs 9,000 and Rs 12,500. But in the past few years, newer models — such as co-living and renting to travellers — have emerged that have the potential to offer property owners higher returns. “The new models, especially co-living, have the capacity to push the effective rental yield to 8 per cent, up from the average of 3 per cent in direct renting,” says Sudhir Pai, chief executive officer (CEO), Magicbricks.

Though these models can help you make more money, each of them has its  own demands, so not all property owners may be able to exploit them to their advantage. Renting to travellers works best if your house is situated in the city centre or at a tourist destination. “In co-living, the property owner needs to have a large space, such as an entire building with at least 50-60 rooms,” says Suresh Rangarajan, founder and CEO of Bengaluru-based Colive.

Between the traditional ways and new models, a property owner has to take a call based on the property’s size, location, the level of control he wants, society rules, the upfront capital he needs to deploy and his involvement in day-to-day affairs.

Earn 50 per cent more with co-living: By opting for the co-living model, a property owner can increase his earnings by 50 per cent or more compared to renting out directly. Says Pratul Gupta, co-founder, Grexter: “Companies in the co-living segment prefer standalone buildings so that they are able to modify them according to their requirements, and have unhindered access to the common areas, such as the terrace.” These companies prefer properties that are close to Information Technology (IT) parks, business districts and office hubs. Property owners who are conservative may opt for a fixed-rental model while those who are risk-takers may opt for revenue sharing. Co-living platforms enter into long-term agreements of 9-10 years with property owners. They usually take responsibility for maintenance and upkeep, and carry out other formalities such as police verification and agreements with tenants.

Income can be inconsistent if you rent to travellers: Companies like Airbnb and OYO that allow renting of property for the short term, usually to travellers, typically don’t have restrictions on size or location of the house. They even allow renting of one room. But for the property to be popular, it has to be located either in the city centre, in a tourist place, or in a week-end getaway.

Airbnb can be rewarding but requires much higher involvement of the host in marketing the house and ensuring that visitors’ expectations are met. Minakshi Dahiya, 37, is a Superhost on Airbnb, which means visitors have consistently rated her highly. She has around 55 rooms in three locations. “It takes time to build a profile on Airbnb. But once visitors give high ratings to the host, her visibility as well as business increases. I used feedback and ideas from visitors to make changes to my house,” says Dahiya.

Many hosts even lease properties for the long-term and rent it out on Airbnb, and still make money. For every booking, Airbnb charges 3 per cent of the payment. Due to her popularity, Dahiya says she has been able to make 140 per cent more than she would have by renting out the entire unit.

PG accommodation bumps up rentals: If you have a two- or three-BHK, one option to boost your return is to convert it into a paying guest (PG) accommodation.  Uma Subramanian (name changed on request) own three flats in Chennai, which she has rented out as PG accommodation. She says that with Chennai emerging as an IT hub, there is a lot of demand for PG accommodation from IT professionals who are willing to pay quite handsomely. She informs that a three-BHK flat, when rented to a family, does not fetch more than Rs 16,000-17,000 in Chennai. But six people can be accommodated in a 3-BHK as PGs. With each one of them shelling out Rs 6,000 a month, she makes Rs 36,000.

In a PG, the owner needs to dedicate time to paperwork before renting out. There’s also the issue of churn. If one person moves out, the rent earned declines until a replacement is found.

 

Direct renting means greater control: While the rental income is not that high in direct renting to a family, the income is usually steady. The owner also has greater control over choice of tenants. Some landlords may not prefer pets or smokers. They have the option to let out to tenants whose preferences match theirs.

With a few modifications, however, property owners can get better rentals than those prevailing in the area. “One sure way is to invest in furnishings. If you can’t furnish fully, at least furnish the property with cupboards, loft, and modular kitchen. You should also consider charging less deposit while hiking the rent a little. Millennials usually suffer from liquidity crunch. A lower deposit could make the property more sought after,” says Amit Agarwal, founder and CEO, Nobroker.com. Gupta of Grexter agrees. “Furnishing the house can fetch you up to 25 per cent better rental as many young families and bachelors prefer not to spend on furniture and other utilities if they are moving into a city for a limited period,” he says. 

Tax provisions for houseowners remain the same irrespective of the model they follow. They have to offer rental under the head ‘income from house property’.
 

Rental yields when letting out as a single unit

City yield rankings  City Locality Average Yield Top 5 cities Kolkata  Garia 4.3% Barasat 4.4% Bengaluru Bellandur 4.0% BTM Layout 4.2% Hosur Road 4.0% Hyderabad Nallagandla 3.9% Toli Chowki 4.3% Ghaziabad Gyan Khand-2 4.0% Vasundhara Sector-1 3.8% Ahmedabad Bopal 4.0% Sardar Patel Ring Road 4.0% Vejalpur 4.2% Bottom 5 cities Mumbai Borivali East 2.4% Nalasopara West 2.4% Napean Sea Road 2.2% Gurgaon Sector-108 1.9% Sector-84 2.3% Thane Ambernath 2.4% Badlapur 2.3% New Delhi Gulmohar Park 1.8% Safdarjung Enclave 2.0% Sarvapriya Vihar 1.8% Navi Mumbai Taloja 2.2% Ulwe 1.6% Source: MagicBricks.com