A Guide To Investing In Real Estate

Dated: December 16 2020

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A sound investment can change our lives, which provide us with sufficient funds for an easy leaving, to live our dreams. Nowadays almost everyone has an investment portfolio comprising of several investments, be it stocks, gold, bonds, government schemes, etc., but one of the most underrated or ignored investments in the present time is an investment in real estate. Investment in real estate will help in the economic growth in most Indian cities, with the increase in average income, has added incentives to invest for the future and real estate could be the ideal investment choice for you.

Real Estate and Its Importance

 The demand for land hasn't changed, since historical times, kingdoms have fought battles for lands for a longer time. The importance of real estate hasn't changed with time. Investment in real estate is always beneficial. It never loses its demand or value, investing in it can be a great decision as it offers higher return as compared to returns offered through traditional investment options Owning a home is the dream of everyone, and fulfilling this dream can give you not only emotional satisfaction but also adequate funds. Given the shortage of land in cities across the country, purchasing even a small flat can offer you returns, either in the form of rental income or by selling it for a profit.

 

Smart ways to invest in real estate

 

Rental Properties

Owning rental properties can be a great source of income. one should have the patience to manage tenants. However, this procedure does require abundant capital to fund up-front maintenance costs.

 

Pros

  • Regular income and price of properties can appreciate

  • Maximizes capital through leverage

  • Many tax-deductible associated expenses

Cons

  • Can be tiresome managing renters

  • Potentially degrade property from renters

  • Reduced income from potential vacancies

 Real Estate Investment Groups (REITs)

This type of investment is helpful for those people who want to own rental real estate without the nuisance of running it. Investing in Real Estate Investment Groups requires a capital cushion and access to adequate funds.

These investment groups are similar to small mutual funds that invest in rental properties. 

It is a process in which a real estate investment group, real estate investment companies buys or construct a set of apartment blocks or condos. They allow investors to purchase them from the company by joining their group.

An individual investor can own one or multiple units of self-contained living space. Still, the company operating the investment group is responsible for managing all of the units, including maintenance, advertisement of vacancies, and interview of renters. In exchange for performing these management activities, the company charges a percent of the monthly rent.

 

Pros

  • More hands-off than owning rentals

  • Provides income and appreciation

Cons

  • Vacancy risks

  • Similar fees as mutual funds

  • Susceptible to unscrupulous managers

Real Estate Investment Trusts (REITs)

A real estate investment trust is (REIT)is idle for those investors who want portfolio exposure to real estate without a traditional real estate transaction.

A REIT is established when a trust uses any investors' money to purchase and operate income properties. 

REITs invest in a massive range of real estate properties of all types, such as apartments, offices, retail centers, warehouses, infrastructure, hotels. Most of the REITs focus on a specific property type, but some hold multiple types of properties in their portfolios. Besides, REITs provide all investors with the chance to own valuable real estate, present the opportunity to access dividend-based income and total returns, and help communities grow, thrive, and revitalize.

 

Pros

  • Essentially dividend-paying stocks

  • Core holdings tend to be long-term, cash-producing leases

Cons

  • Leverage associated with traditional rental real estate does not apply

Online Real Estate Platforms

Online real estate investment platforms are for those investors who want to join other existing investors who have already invested in a more prominent commercial or residential contract. The type of investment is done through online real estate platforms and is also called as real estate crowdfunding. It still requires investing capital, although less than what's required to purchase properties outright.

 Online platforms connect investors who are looking to finance projects with real estate developers. In some cases, you can diversify your investments with not much money.

Pros

  • Can invest in single projects or portfolio of projects

  • Geographic diversification

Cons

  • Tends to be illiquid with lockup periods

  • Management fees

Buy a vacation rental.

A vacation rental is different than a long-term rental property in some ways.

It can also be significantly easier to finance a vacation rental, especially if it meets your lender's definition of a second home, and you don't use the rental income to qualify. 

However, there are some negative aspects to owning a vacation rental and managing a vacation rental or its marketing is more involved than a long-term rental. As such, investment in this type of property, its management is far more expensive -- expect to pay a property manager about 25% of the rent on a vacation rental. That's more than double the 10% industry standard for properties with long-term tenants.

Furthermore, you might not be allowed to rent out properties in your preferred locations -- or you might need a special license, which can be very expensive. And it can be easier to get second home financing, but you'll need to qualify for it based on your existing income, not your anticipated rental revenue.

Pros

  • In its positive aspect, the investor may be able to use the home when it is vacant.

  • Vacation rental tends to bring in more income per day as compared to a long-term rental property.

cons

  •  Marketing and managing a vacation rental is more involved than a long-term rental.

Blog author image

Herbert Anderson

Client Advocacy & Real Estate Advisory Services Herbert (Allen) Anderson is a Houston, Texas-based REALTOR® I Trusted Adviser with an immensity of experience and core understanding of how to delive....

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