Traditionally, purchasing a property in India has been mostly limited to buying a house for oneself. People used to buy homes to for financial and emotional security. But trends in the last two decades, especially in the major cities, state a paradigm shift.
Investing in real estate, now, is not just confined to the purchase of a house for self-occupation. Property, in the present times, is considered a lucrative investment vehicle, one that has high ROI. It is not just a safe harbor of additional funds anymore; it is a long term high-yielding asset.
Here is a 360 degree view on real estate as an investment vehicle:
Why Real Estate?
For the simple reason that real estate produces one of the highest returns compared to other types of investment. In 10 years, post tax returns (CAGR) of equity is about 17%, gold is 12.9%, bank fixed deposit is 5.2%, and property is 13.4%. Plus the fact that property is a tangible, usable asset. All along the years it would fetch you returns if rented.
How to Yield from Real Estate?
There are two ways to reap benefits by investing in properties:
1) Trading Properties: Property trading is purchasing a property with the expectation of selling it later at a higher amount to generate a profit. This is also referred to as “flipping”. One way is to sell it after some time just the way that it was originally bought; the other way is to refurbish/upgrade it and then sell it. The addition to your real estate portfolio is fast in case of property flipping, as the amount obtained from selling one property can be used to invest in another property (bigger/better) and the cycle thus goes on.
2) Becoming a Landlord: Purchase a property and rent it out to a tenant, is the simple procedure here. In this case, the investor can be sure of easy, monthly returns. It also becomes easier to pay monthly expenses incurred on the property as the cash flow is also on a month-to-month basis.
What is the Minimum Amount Required?
It is a myth that real estate investments require very high amounts. Prices of residential units even in Tier I cities, can start from Rs 12-15 Lakhs. For example, ROF Aalayas in Gurgaon offers apartments for Rs 12.34 Lacs, with the amount payable in installments.
Even if one plans to invest in a property of a higher value, there is the option of pooling funds from friends and family who share similar interests.
Which Type of Property?
Residential or commercial – both properties fetch returns. In the residential segment, one can buy plots, independent houses, or apartments. It is usually suggested to opt for apartments since they are easy to let out. For commercial, there are office spaces and retail shops. Whichever one may go for, it is recommended to select Grade A constructions (again, easy to rent out). Commercial properties typically fetch higher rents than residential units; however, residential units are considered safer.
Which Other Factors Should be Considered?
The following factors should be considered when buying property as an investment:
1) Location: The thumb rule of property investment is selecting the location right. The location should be well-connected or should have connecting roads under development at least. Outskirts of a city and new developing areas are potentially better locations, since they have higher value escalation prospects than saturated mid-town properties.
2) Stage of Development: Going for an under-development property will reap higher benefits – lower cost, longer life of the asset, and easy selling possibilities.
3) Term of Investment: Decide your purpose of investment first. Do you want to invest for short-term (5 years or less) or long-term (more than 5 years)? Select the location and type of property accordingly.
4) Building a Portfolio: If you already have a residential investment, go for a commercial one this time. If you have a commercial one too, select a retail option now. Multiple types of properties in your portfolio can help you compare and assess which one matches your return expectation and risk appetite best.
As Louis Glickman rightly said, “The best investment on earth is earth”. You should invest in real estate, and the right time is now. To quote T. Harv Eker, “Don’t wait to buy real estate, buy real estate and wait”.
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