Buying a second property to earn steady rental income often sounds like a smart and secure investment strategy. In India, real estate has long been seen as a symbol of stability and wealth creation. Many investors believe that purchasing an additional home and renting it out can generate regular cash flow and long-term financial security. However, the reality of rental income from a second property is far more complex—and often less rewarding—than it appears on the surface.
Recent reports and expert analyses suggest that the dream of easy rental income may turn into an expensive proposition once all costs, risks, and taxes are taken into account.
One of the biggest challenges with rental income in India is low rental yield. Rental yield refers to the annual rental income earned as a percentage of the property’s market value. In most Indian cities, rental yields typically range between 2% and 3%.
For example, if you purchase a flat worth ₹1 crore, the annual rental income is usually around ₹2–3 lakh. After factoring in expenses such as maintenance, property tax, repairs, and brokerage costs, the effective yield often drops further to 1.5–2%.
When compared to alternative investment options like fixed deposits, debt instruments, or mutual funds, these returns are relatively modest. In many cases, financial products offer better liquidity and comparable—or even higher—returns without the hassle of property management.
Another major concern is vacancy risk. A property does not always remain occupied throughout the year. There can be periods when the house stays vacant due to tenant turnover, market conditions, or location-specific demand issues.
During vacancy periods, rental income drops to zero, but expenses continue. Homeowners must still pay society maintenance charges, property tax, utility minimums, and repair costs. In metro cities, where tenants often relocate frequently for jobs, vacancy risk can be especially high.
For investors relying on rental income to service home loan EMIs, even a few months of vacancy can significantly strain finances.
Taxation further reduces the attractiveness of rental income from a second property. Rental income is fully taxable as per the individual’s income tax slab, after standard deductions.
Moreover, owners of a second property are subject to the “deemed rental income” rule. Under this provision, even if the second property is lying vacant, the government assumes that it generates notional rental income and taxes it accordingly. This means you may end up paying tax on income you never actually received.
In addition to income tax, property owners must also bear recurring costs such as property tax, repair expenses, and insurance, all of which eat into net returns.
Many investors buy a second property driven by emotional comfort rather than pure financial logic. Owning real estate is often seen as a sign of security—“a physical asset you can see and touch.” However, from a practical investment standpoint, emotions can cloud judgment.
Low yields, high upfront capital, illiquidity, tax implications, and ongoing management responsibilities make second-property investments far less attractive than they appear. What seems like a safe and prestigious investment can quickly turn into a financial liability if not planned carefully.
If the primary goal is to generate regular income, financial experts suggest exploring alternatives such as mutual funds, bonds, fixed-income instruments, or Real Estate Investment Trusts (REITs). These options often provide better diversification, higher liquidity, and more predictable returns without the burden of managing tenants or properties.
REITs, in particular, allow investors to earn rental-like income from real estate assets without directly owning physical property, making them a more efficient option for income-focused investors.
Buying a second property purely for rental income in India requires careful evaluation. While real estate can play a role in long-term wealth creation, rental income alone may not justify the investment due to low yields, vacancy risks, and significant tax burdens.
Before taking the plunge, investors should assess their financial goals realistically and compare returns with other investment avenues. A second property is not just a status symbol—it is a long-term financial responsibility that demands clear-eyed planning and informed decision-making.
