Home on loan for rent? The math fails in 2025, says finance VP in sharp reality check
This financial imbalance is sharpest in cities like Delhi (3%), Kolkata (3.3%), and Hyderabad (3.5%), where rental income struggles to cover even half of the EMI burden.
- Jul 18, 2025,
- Updated Jul 18, 2025 10:30 AM IST
Buying a flat on EMI and renting it out may seem smart but in 2025, it’s one of the costliest personal finance mistakes many Indians are making, says Aditya Kondawar, Partner and Vice President at Complete Circle Capital.
In a post on X, Kondawar warned, “Buying a flat on EMI at 8–9% interest and renting it out at a 3–4% yield — with maintenance and other charges, it is a paltry 2–3% yield. It is better to invest in financial assets and make an annuity out of it.”
The mismatch is clear: net rental yields in India’s top metros currently fall well short of average home loan interest rates. According to public data, net yields — after accounting for taxes, maintenance, vacancy, and repair — hover around 3% to 5% annually. Meanwhile, home loans from leading banks cost borrowers around 8–9% a year.
This financial imbalance is sharpest in cities like Delhi (3%), Kolkata (3.3%), and Hyderabad (3.5%), where rental income struggles to cover even half of the EMI burden. Even in relatively stronger markets like Bengaluru (4.8%), Pune (4.5%), and Gurugram (4.3%), yields trail borrowing costs.
The core issue, Kondawar explains, lies in how property prices have surged faster than rents, compressing yields further. Add in regular costs like society dues, insurance, and property taxes — typically 1–1.5% of property value — and the returns shrink even more. Vacancy periods also erode returns, making rental income unreliable.
In comparison, financial instruments like debt funds, high-interest FDs, and balanced mutual funds currently deliver post-tax returns of 6–7% or higher. These options also offer liquidity, lower risk, and require far less active management.
Unless a property delivers exceptional capital appreciation or is located in a high-rent, high-occupancy zone, Kondawar argues that financing a flat for rental income is a suboptimal strategy in today’s economic landscape.
Buying a flat on EMI and renting it out may seem smart but in 2025, it’s one of the costliest personal finance mistakes many Indians are making, says Aditya Kondawar, Partner and Vice President at Complete Circle Capital.
In a post on X, Kondawar warned, “Buying a flat on EMI at 8–9% interest and renting it out at a 3–4% yield — with maintenance and other charges, it is a paltry 2–3% yield. It is better to invest in financial assets and make an annuity out of it.”
The mismatch is clear: net rental yields in India’s top metros currently fall well short of average home loan interest rates. According to public data, net yields — after accounting for taxes, maintenance, vacancy, and repair — hover around 3% to 5% annually. Meanwhile, home loans from leading banks cost borrowers around 8–9% a year.
This financial imbalance is sharpest in cities like Delhi (3%), Kolkata (3.3%), and Hyderabad (3.5%), where rental income struggles to cover even half of the EMI burden. Even in relatively stronger markets like Bengaluru (4.8%), Pune (4.5%), and Gurugram (4.3%), yields trail borrowing costs.
The core issue, Kondawar explains, lies in how property prices have surged faster than rents, compressing yields further. Add in regular costs like society dues, insurance, and property taxes — typically 1–1.5% of property value — and the returns shrink even more. Vacancy periods also erode returns, making rental income unreliable.
In comparison, financial instruments like debt funds, high-interest FDs, and balanced mutual funds currently deliver post-tax returns of 6–7% or higher. These options also offer liquidity, lower risk, and require far less active management.
Unless a property delivers exceptional capital appreciation or is located in a high-rent, high-occupancy zone, Kondawar argues that financing a flat for rental income is a suboptimal strategy in today’s economic landscape.