
Real estate investment is a diversified way to increase wealth. Rental yield and property appreciation being the most common measures or factors in consideration while calculating the value of a property. Both are highly significant in analysing investments which begs the question as to which one to lay more focus on in order to reap more profits.
We will look at gross rental yield in depth with the aid of examples, articles, and other supporting material. In the end, you will get these two metrics at work together, and what Property Souk will do to help you achieve increased margins for sounds that you call for.
Understanding Rental Yield
Rental yield implies the amount of rent earned through a property as a proportion of its value. This is usually very useful for persons who would wish to have a consistent flow of money. Rental yield is normally calculated using the formula.
Rental Yield = (Annual Rental Income / Property Value) × 100
For instance, if the property is valued at ₹1 crore and earns rental income of ₹6 lakhs in a year, the rental yield comes to 6%.
Rental Yield and Its Forms
Gross Rental Yield:
This does not take into consideration some other expenses such as the ones for tax, maintenance, or management. This is a bare figure and is suitable for superficial calculations.
Net Rental Yield:
This takes into consideration all the expenses incurred in respect to the property and presents the most realistic figure on the possible income to be derived.
Concept of Property Appreciation
Property appreciation is the enhanced value of the property over a period of time. Factors such as location, demand for a market, development of infrastructure, and end economy influence this appreciation. It can be said that property appreciation is a strategy of wealth creation over a longer time.
Types of Appreciation
Market Appreciation:
This is induced by external market factors in the form of demand and supply, the existing interest rates, and the status of the economy as a whole.
Forced Appreciation:
This is when a property owner makes significant upgrades to a rental property with the sole motive of boosting its resale value.
Which is More Profitable?
To assess the profitability of either rental yield or capital appreciation, we will analyse their advantages and disadvantages first.
Benefits of High Rental Yield:
Regular Income:
High rental yield makes sure the property as an asset is always generating returns and this makes it convenient to the investor who wants quick returns.
Less Exposure:
Expensive properties, especially those in developing or major commercial areas, often retain their value even if the market crashes.
Ideal for Short-Term Investors:
If you want to achieve more returns in a shorter period without having to wait for optimal market conditions, then the rental yield strategy will serve you well.
Benefits of Appreciation:
Build Wealth Over Time:
A strategy focused solely on appreciation is best suited for people who intend to invest for the long term hoping to gain bigger capital returns. An instance of this is the increasing value of a property that is within a strategic location.
Tax Credentials:
More than often it is observed that the appreciation of real estate investment gives a favourable tax on the capital gain especially as the investment ages.
Investments with High Profitability:
In cities with a lot of growth, property costs in the prime areas have shot up creating an almost unbelievable appreciation rate.
Let’s take the ever-expanding urban landscape of Greater Noida. Here, we believe steady income opportunities arise for those who prioritise high rental yield. One such case study would be of an investor who, in 2017, purchased a 3BHK apartment in the Pari Chowk area at the cost of ₹65 lakhs, a hub of commercial activity and growing rental demand. This region has a good number of tenants because it is near Yamuna expressway and IT hubs which makes it appealing to young professionals. The flat was put on rent for ₹25,000 per month giving a gross rental yield of about 4.6%. Thereafter the net yield came down to about 3.8% after factoring in maintenance, management fees, and other expenditures.
The value of the property appreciated moderately by 8% over a period of 5 years meanwhile the regular rental income availed to the investor provided positive cash inflows. The rental income further supplemented the mortgage payment ventilating any normal property to an income generating asset even when there was little appreciation.
Now, let’s take another instance of a purchase in the promising locality of Noida’s Sector 150, the potential for capital growth is evident there, driven by infrastructure developments and increasing demand. Suppose an investor who bought a 2BHK apartment in 2015, banking on the area’s long-term appreciation for say, ₹80 lakhs. It was a growing green zone as it was coming up with several upscale investment projects which made the area likely to develop with the expansion of metro and road links.
Since the sector became popular and developments in the infrastructure matured, in 2023 the value of the property increased to ₹1.4 crore indicating a rise in capital appreciation of 75%.
Now, if we talk about investors seeking a balanced approach, Noida Extension offers a compelling case for both rental income and appreciation.
Economic Conditions
When there is economic expansion and the interest rates are low, there is a high probability that appreciation of purchases will take place.
When there are adverse circumstances in business, yield on rent will help suspend or alleviate depressed value of properties.
Maximising Your ROI While Maintaining a Balanced Approach
Prudent investors tend to search for equilibrium between property yield and property appreciation. Here are some tips to get the best returns on investments:
Set Sail For New Territories
In moderate rental areas like Noida Extension, very high rental appreciation is expected as infrastructure is put in place.
Exterior And Interior Upgrades To Increase Rent And Rates
Improvements to a unit can increase the prospect’s rents (forced) and the unit’s market value as well as many years.
There is always more than one strategy
Investing strategies shouldn’t be single corded. You can take established properties to hold appreciation and commercial properties to earn returns.
Which Strategy is Right for You?
There is no universal answer to the question whether to prefer property yield or property appreciation. Both measures have their advantages in proper real estate investment plans. If you want steady cash flow, then rental yield might be the best bet for you. However, if long-term capital growth is your aim, investing in appreciating properties will be more profitable.
At Property Souk, we understand that every investor’s needs are different. Whether you’re looking to maximise rental yield or capitalise on appreciation, we offer bespoke solutions tailored and best suited to your investment goals. Contact us today at 9090311311 for a personalised consultation and property recommendations that will help you make informed and profitable real estate decisions.
Disclaimer: The content provided on this blog/Website is for general informational purposes only. We do not offer any specific advice or recommendations. The information presented here should not be considered as professional advice or a substitute for professional consultation. Always seek the guidance of a qualified expert with any questions you may have regarding your specific situation. The opinions and views expressed in the blog/ Website are those of the authors and do not necessarily reflect the official policy or position of Property Souk