Rentals are one of the best passive income earning methods but understanding Rental yield is the best way to ensure that you get the best returns for your real estate investment. The mindset of real estate investors in India is for capital appreciation and not rental amount. The rents haven’t risen in proportion to the housing prices thus making the rental yield low.
Rental Yield is defined as the ratio of the Annual Rent of the property to the Total cost of the property. Generally, in India a 3-5% gross rental yield for apartments is considered an average expectation and is common in most cities. Individual houses usually get a higher rental yield. Commercial properties usually get a rental yield of 6-10%. Along with these two classifications for rental yield now there is a new segment from co-working spaces, student housing and warehousing.
In order to get a higher rental yield, you must consider whether you want to invest into a commercial or residential property first. Depending on the location check the vacancy rates in the area. Some of the major points to remember when you want to get higher rental yields are:
- Invest into affordable home to get higher rental yield
- Invest into co-living situations
- Invest into micro-markets
There are a few cities though where real estate investments have given the highest returns – Bengaluru, Noida, Hyderabad, Pune, Mumbai and Gurugram. But the cities and areas that have given more than 4% rental yields are:
- BTM Layout
- Hosur Road
- Toli Chowki
- Gyan Khand 2
- Vasundhara Sector 1
- Sardar Patel Ring Road
Kolkata and Bengaluru have the highest residential rental yield among the 14 major Indian cities. There has been a slow revival in rental yield since the slump in 2016 but the market has had a lot of positive boosts with the changes in the real estate market rules.