Are You Banking On Regular Rental Income? Low Yields, Other Costs May Play Spoilsport

Making the leap from a tenant to a landlord is one significant feat. However, becoming a landlord from an investment perspective may not be worthwhile because of the associated risks and costs

- Ayush Khar

Indians love to buy real estate it's something tangible, gives the opportunity to express one's personality and build memories, and can be passed on as inheritance. But when it comes to investment in real estate, one of the biggest attractions is the opportunity of getting seemingly risk-free rental yield, without actively having to invest and reinvest the capital. It is also seen as passive income that supplements the main income, again without having to put much effort.

Many also see it becoming one of the main sources of regular cash flow in their retirement years.

But should you invest in real estate for rental yield, or would you be better off having that one house in which you stay, and invest your money elsewhere? We dug a little deeper to find out the answer for you.

Is It Worth It?

As property prices rise, rental yield emerges as a formidable villain. Rental yield compares the annual rental income from a property to its value and expresses the same as a percentage. Rental yield is an important measurement of the return on investment you are likely to get from your rental property.

You can calculate your rental yield using the following formula: Rental Yield = (Annual Rental Income / Property Value) x 100. For instance, if your property is worth ₹1 crore and you are getting an annual rent of ₹2.64 lakh, your rental yield comes to 2.64 per cent.

Earlier in 2024, a report by online real estate portal 99acres found that the average net rental yield for India is 3.30 per cent, which is relatively lower than the 3.50-4 per cent rental yield for Asian countries and significantly lower than the European average of 4.50-5 per cent. On the other hand, the rental yield for India’s metropolitan cities is among the lowest in the world, averaging between 2.44 per cent and 3.96 per cent, as of 2024 (see Rental Yield Across Major Cities).