Investing in real estate is often considered a luxury. Well, that’s a myth! In reality, if you spend an inch of your finances on a property, you can expect growth for infinity. Yes, that’s how beneficial real estate investments are.
Moreover, real estate is now more accessible through advancements in proptech (property technology). As a result, this makes investing simple!
Now, real estate investments have been considered reliable for many reasons. For starters, at a compound annual growth rate (CAGR) of 3.3%, the global real estate market is expected to reach US$4.7 trillion by 2030 from its predicted US$3.8 trillion in 2023!
This means the money you invest in a property will bring you back better profits in the long run. Now, you cannot expect instant growth overnight. But you can expect stability and reliability.
Hence, it’s time to learn more about why real estate investments are essential and how you can do that –
Imagine you have saved $1000 from your yearly income. Now, you can spend it on items that you wish for. But here is the thing – what if instead of spending the money entirely, you invested it in an item that will bring you returns as well?
For example, instead of purchasing a luxury watch(one-time expenditure), sign in a course. That way, by learning a skill, you can upgrade your CV and get yourself a passive income!
Similarly, when you use your money in real estate investment, you are preparing your road for an income as well.
Now, below are detailed reasons that explains why real estate is a smart option for investment, check below –
The first thing about real estate investment that tempts everybody is that the income benefits. But how will you get it? Well, as real estate investors, your income areas will be appreciation, rental income, and profits from enterprises that rely on real estate.
So, if invested wisely, you might benefit in the long run. Moreover, when the time comes to sell real estate, it tends to increase in value over time. Likewise, rents also have a tendency to rise over time, which improves cash flow.
Apart from that, you can also avail rental income as among the most alluring forms of passive income. This is, in fact, one of the simplest ways to keep a consistent income after retirement.
Secondly, investing in real estate serves you several tax advantages. Here is an example – on the basis of a home loan, in countries like India, one can save up to Rs 1.5 lakh under section 80C. Similarly, section 24 allows for a reduction of up to Rs 2 lakhs in the mandatory interest payment.
In addition to minimizing the cost of real estate investing, it will significantly cut taxable income.
A number of expenses, including business expenses, cash flow from other assets, and mortgage interest, are eligible for tax deductions.
Thirdly, real estate investment means increasing your property value. In other words, the fancy term, ‘property appreciation’ is what you will hear in the market. It’s the most crucial consideration when assessing the advantages and disadvantages of a real estate investment.
So, here is the theory – when market rates increase, a property’s value increases as well. As a result, this allows the owner to sell the house more rapidly.
Even if a property’s value remains stagnant for some time, you can still generate a steady rental income with good maintenance and management. Hence, there is never a worry about property expiration. You will always have a price, in fact, a higher price for your asset.
Fourth, smart home investment will bring you better exposure. You see, over the past few years, the demand for smart homes has steadily increased. Due to the growing usage of technology and the need for more comfort and convenience in day-to-day living, buyers look for tech-enhanced homes.
So, with the increase in real estate investment, the concept of smart homes is getting highly competitive. A lot of new housing complexes are being built specifically as smart homes, which come with features like automated security systems, voice-activated assistants, smart lighting, and centralized control systems.
In the current housing market, buyers are becoming more and more interested in the enhanced comfort, security, and convenience that these homes offer their residents. Hence, if you put your money into such property, you can always expect revenue.
There are a variety of real estate investment possibilities available. As real estate investors, it’s your choice to either pick a conservative or potentially high-return investment area. Hence, to ease your work, here is a list of property categories where you can confidently invest –
Residential or housing real estate includes single-family homes, condominiums, and vacation homes, as well as almost any place where people live or visit. Investors in residential real estate profit from the rent (or regular payments for short-term rentals) that tenants pay, the appreciation of their property between the time of purchase and sale, or both. As the value of the house rises, you can profit from capital appreciation as well as passive income.
A rented or leased space where you can run a business is known as commercial real estate. Now, this includes things like leased eateries, a strip mall with multiple distinct businesses, a petrol station, and an office building rented by a ‘single company’. Each firm must pay rent to the property owner unless it owns the property itself. Suppose, you are the property owner, you may get higher and more consistent long-term revenue from commercial buildings because you will typically have longer leases and can fetch higher rent than residential properties.
Usually, investors purchase land for residential or commercial development.
However, purchasing land for development requires some market research, particularly if you intend to build the home yourself. This kind of investment works best for someone who has a lot of money to spend and who is well-versed in all aspects of real estate, including building codes, zoning laws, flood plains, and the local residential and commercial rental markets.
Now that you know real estate investment, it’s time to actually do it. Hence, here is a list of steps you must follow when investing in real estate –
Before making a real estate investment, anyone thinking about it should think about learning more about the industry. Knowing the fundamentals of the industry’s operation is quite beneficial.
Establish a solid foundation by learning the fundamentals of real estate, such as financing, cash flow, and profitability. When you tackle more complex subjects like how to generate money in real estate and developing a real estate portfolio, knowing the terminology and grasping the fundamentals will be helpful.
Real estate investing has probable risks, just like any other type of investment. However, depending on the kind of investment you select, real estate investing entails varying degrees of risk.
To choose which assets will help you reach your financial objectives as an investor, you must ascertain your level of risk tolerance.
Your financial and personal circumstances will have a significant impact on your risk tolerance. For instance, you would want to select less volatile assets if you have a family to maintain, a house payment, and numerous other monthly needs.
When deciding which real estate market is a viable investment, location is a major factor.
In the hottest real estate markets, some neighborhoods are in great demand, which makes them competitive but promising. Therefore, you might need to investigate what you believe to be the best investment opportunities.
Finding houses that suit your budget and determining how much money you can invest are the first steps in choosing a desirable location. To find out if the local economy and job market are expanding, you need also to examine them. The demographics of the renter population and population growth should also be taken into account.
Now that you know exactly where and how you want to invest, it’s time to begin your real estate search.
You must conduct some study on the specific house and the neighborhood when you locate possible investment properties. The property loses value if it is in bad shape or is situated in an unfavorable neighborhood. Analytical software and reporting services can be used to determine a property’s profitability and volatility.
After locating the ideal investment property, you will need to secure funding for the transaction. Compared to purchasing a primary dwelling, financing an investment property is typically more difficult.
You might be eligible for a conventional bank or credit union mortgage. To be eligible for these riskier mortgages, you must have a solid credit history and a high credit score.
The overall goal is to increase wealth and create an income stream, while each investor may have slightly different objectives. Along the journey, it’s critical to evaluate your progress towards these overarching objectives.
You can utilize a variety of computations and ratios to better comprehend your progress. Before employing one, make sure you complete your research because some are better suited for specific properties, such as residential versus commercial. You could require indicators such as operating expense ratio (OER), internal rate of return (IRR), and net operating income (NOI).
Even though ‘real estate investment’ sounds like a heavy task, it’s easier when you know your priority. It was till yesterday that people assumed putting money on a mansion is nothing but luxury. But if that property can provide you rental income, or you can use it as a ‘homestay’ for local tourists, wouldn’t that be worth it?
Well, that’s how the world is evolving in the field of real estate. Everybody can own a property. But, the important thing is to be cautious about your goal in such investments. Hence, save this article to note all the pointers and invest wisely.
Good Luck!
By Proptechbuzz
By Ravi Kumar
