Real estate investing is one of the fastest ways to gain returns. However, it can be slightly tricky to navigate the system and make the right choices. If you’re also just starting to invest in real estate and looking for some beginner-friendly tips, you’ve come to the right place.
Here we discuss everything you need to know about real estate investing and talk about some beginner-friendly investment strategies. In addition, we also shed light on some mistakes to steer clear of while investing in real estate. So, let’s get started.
What is Real Estate Investment?
Real estate investment is the process of purchasing real estate, managing it and then selling it or keeping it on rent, at the right time and right price to gain profit. This creates generational wealth and outperforms stock market, if done correctly. Real estate investors generally own multiple properties, which are used to generate profits through rental income and price appreciation.
Investing in Real Estate: Things to Keep in Mind
To get maximum benefit from selling/purchasing or renting your properties in 2023, it is important that you keep in mind the following points:
- Investing in real estate is a time-taking process
- Benefits of real estate investment reap with patience
- Always consult with real estate investment specialists before buying/selling/renting
- When buying a property, do thorough research – look for news, owner’s profile and company’s performance
- If you’re buying for commercial purpose, factor-in energy-consumption costs, maintenance cost, etc.
- Look for the property’s green rating – a higher green rating shows how well the building performs by consuming fewer natural resources without compromising the occupants comfort
- For a steady flow of income, consider renting out your property
- When renting out for real estate investment, do background check of the tenant and get lease
- Commercial real estate usually reaps higher benefits as compared to residential properties – for sale and renting, both
How to Invest in Real Estate in India?
There are two ways in which you can build money through real estate investing in India, viz:
Value Appreciation – Sale of real estate at the right time
Property values have historically increased over time, making real estate investment one of the very few sure-shot ways to gain long-term returns. One of the most important factors to consider while choosing a property for value appreciation is the location. Property prices go up based on the desirability of the neighbourhood.
You can also consider investing in an up-and-coming area as such properties are usually offered at a lower price but their prices tend to go up as the surrounding area develops.
Renting Real Estate – For regular income flow
Most real estate investments in India are made with an agenda to earn rental income. By renting out your property, you can earn high returns in the form of rent. Also, you can increase the rent of your real estate property every year and reap the benefits of value appreciation as well.
Rental income acts as an excellent supplement to your monthly income and can help enhance your savings as well.
FD vs Real Estate: Which is Better?
Whether you’re a risk-taker or a risk-averse investor, having a balanced approach works the best. That’s why it is important you include stable investment options alongside your risky investment ventures. Let’s draw a comparison between two of the most popular investment options in India, i.e. Fixed Deposit and Real Estate Investment:
| Real Estate Investment | Fixed Deposit (FD) |
| Purchasing a property takes time | Opening an FD account takes mere minutes |
| Returns on real estate investing are not fixed | FD returns are fixed & guaranteed |
| May reap very high returns and make for a sophisticated asset class | FD provides low to moderate returns |
| Investing in real estate is a long-term investment | FD can be for long-term or short-term investment |
| Real estate offers high resale value (depending on market conditions) | FD has no resale value |
Also Read: ESG Investing
Real Estate Investment Tips For Beginners
For beginners, real estate investing can be either too scary or too alluring. Both situations can go wrong anytime. Thus, you must consider the following tips before starting to invest in real estate in India:
Be Aware Of the Costs
Buying properties will cost you quite a bit, but if you have enough funds or are willing to take a loan, it will prove to be worth it. However, there are a few additional costs involved as well, such as yearly upkeep and maintenance, utilities, taxes, etc. Everything has a cost, so make sure to consider every factor.
Choose the Property Type
Once you are sorted with your funds, next comes the step wherein you must decide which type of property you want to invest in. You can purchase property to rent out as an apartment or use it as an Airbnb. All of these things should be decided beforehand when you think about real estate investing.
Check Out the Location
One of the primary factors of real estate investment is the location, I.e., you would not want to buy a property that is low in price but is located in poor demography. It is important to check the market value, community, proximity to hospitals and shopping complexes, the neighbourhood, etc.
Buy Property with Growth in Mind
The majority of us invest in real estate with the idea of selling it one day. The goal is to sell it for more than what we have paid. Therefore, it is preferable to make certain upgrades and additions to your property in order to get a higher price in exchange for it. Make sure you invest your time and resources in building your investment strategy.
Also Read: What is Investment?
Different Ways of Investing in Real Estate
The following are the different ways via which one can start investing in real estate:
Real Estate Investing: Wholesaling
Real estate wholesaling involves acquiring a property under market value and then assigning an end-buyer to re-purchase the contract. In other words, as a wholesaler, you wouldn’t actually own the property but would earn money by adding a fee to the final contract price.
That said, you don’t need to freeze a lot of money as you won’t be the one buying the property.
The key to effective real estate wholesaling is developing a robust buyer network. It’s important to have a list of potential buyers and understand their investment objectives to reach out to them with the right opportunities.
Real Estate Investing: Prehabbing
Another great real estate investment option for beginners is prehabbing. In prehabbing, investors enhance the visual appeal of their property, enough to entice potential buyers. This could include cleaning, painting, and landscaping the property to make it look visually appealing.
Real Estate Investing: REIT Investing
Real Estate Investment Trusts offer an excellent starting point for those who are new to the real estate investing. Equity REITs are the organisations that own income-generating real estates. Investors can acquire stakes in these properties and earn returns in the form of regularly paid dividends.
REITs are great for beginners who cannot pursue real estate investment but wish to generate a passive stream of revenue.
Real Estate Investing: Renting Properties
Investing in rental properties is a great way to earn monthly income. Renting your real estate investment ensures you a fixed supplementary income and increase in your monthly savings as well.
While investing in rental properties, you can also consider rental hacking. This refers to occupying a portion of the house yourself while renting out the rest. This is a great option as it lets you qualify for a property loan even though you intend to earn income off of the property.
Why is Real Estate Investment important?
Owning real estate has always been associated with wealth and status. However, it is important to know that real estate investing is also popular for its credibility, I.e., it is one of the safest ways of securing one’s wealth. Let’s look at a few of the many benefits of real estate investing.
- Appreciation of Value
The value of real estate has been increasing with time. Therefore, with a good investment, you can make an enormous profit. In other kinds of investments like the stock market, the risk of loss is inescapable. However, real estate investing offers significant control over one’s investment.
2. Tax Benefits
The tax deductions provided on real estate can reduce the overall taxes. The government also offers tax breaks for property depreciation, legal fees, maintenance and repair expenses, and insurance at the same time.
3. Cash Flow
Real estate investing provides an ability to generate cash flow. A steady rental income offers long-term financial security by working as an excellent incentive for passive income.
Real estate is easy to buy, gives tax benefits, is convenient to finance, and gives numerous more benefits. Hence, even today, real estate investing is one of the most beneficial investing options.
Investing in Real Estate: Key Takeaways
- Real estate is considered an independent asset class and is an essential part of a diversified portfolio
- Property renting is one of the most lucrative ways to make money through real estate
- Real Estate Investment Trusts are a great way to get real estate investment exposure without owning, operating or financing properties
Investing in Real Estate: FAQs
Some excellent real estate investment strategies for beginners include: Real estate renting, Prehabbing, REIT investing and Buying rental properties, etc.
You can opt for 80C deductions of up to Rs 1.5 lakhs, if you’ve taken a home loan for investing in real estate. When selling a house, you can benefit from indexation if it’s a long-term capital gain. These are just a few tax benefits of real estate investment.
Ways to boost your investment property’s profits: Set a competitive price, screen tenants, Charge fee for additional services, renovate and maintain your property to get the best offer
Even before you start looking for your first investment property, you should have enough capital. You should also try to learn everything you can about real estate investing. Attend seminars, purchase books, read real estate blogs, and so on.
Read more about Understand Types of Mutual Funds.
