Owning a home is a dream for everyone. However, many people are now purchasing an additional property not just for living, but also for extra income. They believe that by buying a second home and renting it out, they can earn additional income. In fact, real estate experts say that while thousands of people already own homes in Hyderabad, the trend of buying another property for rent has grown significantly. But is it a good idea to take a bank loan to purchase a property and rent it out? Will this financially work out? Let’s take a look at what financial experts have to say on this matter.
In Hyderabad, many people who already own a home are now purchasing another property. With good-paying jobs in sectors like IT, people are easily able to get bank loans and are purchasing a second home to rent it out. Many believe that buying a house and renting it out will generate additional income. However, there is a growing doubt among many whether taking a bank loan to buy a property and renting it out is actually profitable. Experts suggest that those looking to buy a house should consider factors such as rent income, the EMI, and the potential appreciation in property value. For example, if a house is bought for Rs 1 crore, the monthly EMI could be around Rs 1 lakh. However, if that same house is rented out, the rent could range from Rs 25,000 to Rs 30,000, and if it’s in a premium area, it could go up to Rs 35,000, according to real estate marketing experts.
The total amount spent on purchasing a house, the EMI to be paid for the bank loan, and then the income that comes from renting out that house – when calculated monthly – often doesn’t seem worthwhile. This is because if you spend one crore rupees on purchasing a house, the monthly income you would get from renting it out is only around 25,000 to 30,000 rupees. In our country, rental income from properties is generally around 3-3.5%, while the interest on home loans ranges from 8.25% to 9.5%, depending on the bank. In such circumstances, buying a house with high interest rates might not be beneficial. However, experts in the real estate field say that it’s not right to think in just one way in all situations and regions. They give an example to explain this.
They suggest that the value of the house you purchase should also be considered, because the value of real estate generally increases over time. How much it increases depends on the location and the type of house.
Let’s assume today that a house worth one crore rupees will be worth two crores in the next five years. Even if you don’t get half of the EMI amount as rent, the appreciation in the value of the house will cover it. In other words, if the house worth one crore increases to two crores in five years, the monthly income from rent would be equivalent to 1.6 lakh rupees, according to real estate financial experts. That means, combined with rent, it would be like earning two lakh rupees per month. Therefore, investing in a house can generate two types of income: rent and the continuous appreciation of the house’s value.
Now, the rent that currently brings in 25,000 to 30,000 rupees could increase to 40,000 to 50,000 rupees over five years, and the value of the property could rise to two crores. If you calculate this, buying a house and renting it out could yield a good profit. However, experts recommend that when purchasing a house, one should consider factors like the location, the project, the price of the house, and the potential increase in rent and property value.
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