If you are the owner of multiple residential properties in a city, you can stay in one of them, while the others can be used as an inflow of income. Nevertheless, your earnings would be dependent on the manner in which you choose to give your property on rent. You can either lease it, or operate it as a paying guest lodging or let it out in the form of a serviced premise. The latter classification is the most popular among home owners recently. It provides lucrative profits, but is the input worth the income it generates?
To begin with
The biggest hurdle is obtaining the permit to run a commercial activity in a residential complex. “You need a good rapport with your society members. Very few residential societies allow serviced apartments,” says Sajan Abraham, who operates six serviced flats in one compound in Mumbai.
Apart from a NOC that is to be granted by the society, a police sanction is also a needed. It is also mandatory to get authorization from the municipal authorities. Higher the number of apartments, higher is the requirement of approvals for fire safety. A restaurant license to operate a community kitchen is also compulsory.
After permits have been given, the procedure of harnessing the premises begins. Ravi Kumar (not real name), who put on rent his 1,000 sq ft flat in Powai area of Mumbai in 2014, had to shell out Rs.8 lakh to make it presentable. Even though he wished to rent out his flat as a paying guest abode, he didn’t like the idea of tackling individual tenants.
“Serviced apartments are treated at par with three-star hotels and should boast similar amenities. Cots with mattresses, wardrobes, fitted kitchen, air conditioners, refrigerator, washing machine and television with cable connection are a given. A Wi-Fi connection is also important,” says Sanjay Chugh, Head, Residential Services (Chennai), JLL India. A chef, launderette facilities, pick up and drop, 24-hours driver, car park area, swimming pool, gymnasium and club house comes at an extra cost.
If an in-between (serviced flat operator) is involved, then additional services are simpler to offer. The handlers fancy a clump of houses in a society or zone that helps provide the same facilities to everyone.
Chugh’s choice is the operator route. A third-party operator or an intermediate, who is neither part of maintenance of the apartment and is just linked to its advancement and bringing customers, generally charges 15-20 per cent of the card rate as his cut. If the operator has prepared the apartment and looks after its upkeep then he will give a fixed percentage (20-30 per cent) to the owner of the apartment. Nevertheless, the ravages of time on such properties is significant. Consequently, maintenance is expensive. Approximately 15 to 20 per cent of the yearly earnings can be taken up by maintenance costs.
According to Shveta Jain, Executive Director (Residential Services) at Cushman & Wakefield a serviced apartment brings in 10-15 per cent more than flats rented to the normal tenants. “However, this needs to be set off against the maintenance and other costs, the taxes one has to pay,” she says.
After using up Rs.8 lakh, Kumar gets an income of Rs.1 lakh every month from his Powai flat. He charges Rs.3, 000 from every guest, per day.
Dev Anand, who runs a serviced apartment from Chennai, opines that it takes three years normally to strike a balance. “A typical contract says a maximum of eight occupants can be kept in a 3-BHK flat. The rent can be increased by 10 per cent from the third year. Society maintenance charges has to be taken care of by the service operators,” he says.