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5 Best Ways to Invest in Real Estate
Real estate is one of the most significant asset classes in India. It drives economic growth, contributes to the country’s GDP, and creates employment opportunities. The market is set to grow in the coming years due to factors like urbanisation, rising incomes, demographic trends, etc. When exploring real estate investment opportunities in India, you'll come across various options, such as retail, residential, industrial, and commercial properties.
Investing in real estate is a lucrative strategy that can yield substantial returns in the future. Since it involves a considerable investment, you can borrow a loan against property or property loan with the best interest rate from Hero FinCorp to make the purchase for now and repay it over a chosen tenure. You can get up to 75% of the value of your mortgaged property as a loan against property.
When selecting a property, remember that the best type of real estate investment in India is one that offers the highest likelihood of success and return on investment. We will explore the five best ways to invest in real estate in India.
What is Real Estate Investment?
Real estate investment refers to buying property for investment and generating income rather than using it for residential or commercial purposes. It can be any structure, piece of land, infrastructure, or immobile tangible asset. Still, owners can transfer their ownership to others to earn profit.
For ages, investing in real estate has been a significant way to build wealth. Its primary purpose is to purchase and hold a property until its value increases. Selling it at the right time can earn good returns in a lump sum. Until it is ready for resale, you may rent it out to generate monthly income. Residential, retail, commercial, leisure, farmhouse, etc., are some of the best real estate investment examples.
Top 5 Ways to Invest in Real Estate
1. Rental Properties
Rental property investment is a popular method of investing in real estate. Begin with acquiring a single unit, renovate it a little, and rent it out. You can either become the property’s sole manager or hire a property manager to take care of its upkeep and maintenance and collect rent on time. However, be ready to cover the cost upfront, renovate the property occasionally, pay property taxes, and cover vacant months.
| Pros | Cons |
| Provide a regular stream of income through monthly rent | Managing the rental property might become challenging, including selecting tenants, collecting monthly rents, repairing and maintaining the property, etc. |
| Well-maintained properties can increase in value and attract higher rents. | Purchasing and maintaining a rental property without living in it is difficult and expensive. |
| Tax deductions apply for depreciation, repairs, property taxes, mortgage interest, etc. | Rental property investment is subject to market risks. |
| You have control over the property and make decisions regarding rent, upgrades, tenant selection, etc. | The property’s value may fluctuate depending on market conditions. |
2. Flipping Properties
Real estate flipping is purchasing a property, repairing or renovating it, and selling it for profit. It is a lucrative investment strategy, but you will need considerable experience in real estate valuation, renovation, and property sales and marketing. If you are just beginning, you may hire a professional real estate agent or manager for guidance.
| Pros | Cons |
| If done correctly, flipping properties can bring you significant profits. | The investment strategy carries significant risk, as the cost of purchase, repairs, renovations, etc., adds up quickly. You may lose money if the property does not sell for the expected value. |
| Flipping a property allows innovative expression through the design and renovation process. | Apart from investing your money, you must also dedicate a lot of your time and energy to managing contractors, marketing the property, overseeing renovations, etc. |
| Sometimes, flipping property can generate excellent returns within a short period, even in a few months. | Since the property’s price is subject to market fluctuations, it may affect your profitability if the market goes down. |
| The investment strategy ties up your capital only for a short period. | The process requires considerable knowledge and experience of flipping properties in the real estate market. |
3. Real Estate Investment Trusts (REITs)
REITs, or Real Estate Investment Trusts, are entities that own and manage real estate with the goal of generating profits. These companies or corporations work like mutual funds that pool money from various investors to purchase real estate. Many REITs deal in commercial real estate investment projects like malls, hotels, office buildings, apartment blocks, etc. Like stocks, REIT transactions take place on major exchanges. You can invest in real estate and earn dividends without directly managing, renovating, and marketing the property.
| Pros | Cons |
| Hassle-free investment options that do not require direct operation and management. | A higher property loan interest rate increases the borrowing cost, reducing the REIT profits. |
| Earn dividends to generate regular income. | Prices fluctuate according to the market conditions. |
| Opportunity to invest in a wide range of residential and commercial real estate. | No direct control over the property or its transactions. |
| Major stock exchanges list REIT shares, making them highly liquid to buy and sell. | REIT dividends received are taxable. |
| Professional and experienced teams manage these properties to enhance performance and make better decisions. |
4. Real Estate Investment Groups (REIGs)
REIGs are great investment options if you want to own a property without directly managing it. You can own single or multiple real estate units and let the REIG handle its maintenance, take new tenants, advertise for vacant properties, etc. In exchange, these companies charge a percentage of the monthly rent.
| Pros | Cons |
| Diversifies your real estate investment portfolio. | Minimal control over property-related decisions. |
| Spreads the risk across several properties. | Less liquid than stocks, mutual funds, etc. |
| Lowers the overall investment risk. | Acquisition fees, management charges, and other transaction costs can be high. |
| Experienced professionals manage the property’s selection, management, and acquisition. | REIG are subject to market risks. |
| Since REIGs pool money from various investors, they can invest in more valuable, larger properties. | Their value may fluctuate according to market conditions. |
5. Real Estate Crowdfunding
Invest in real estate crowdfunding through online platforms that allow fund-pooling to invest in real estate. You receive monthly or quarterly payments for the risk you take for investing in these platforms.
| Pros | Cons |
| Allow portfolio diversification with investments in multiple projects. | Limited control over management and decision-making. |
| Experienced professionals manage these projects. | Low liquidity. |
| Lower minimum investment requirement. | Fees and charges are applicable. |
| Regular updates and transparent reporting for the project’s progress. |
Conclusion
In the wake of rapid urbanisation in India, the demand in the real estate market continues to increase. Apart from being a valuable asset for buyers, real estate offers them tax benefits, rental income, price appreciation, and a hedge against inflation. Are you planning real estate investment but don't want to exhaust your savings? Borrow a property loan from Hero FinCorp to fund your purchase. Use a mortgage loan calculator to know your EMIs based on your property loan interest rate, principal amount, and repayment tenure.
FAQ
1. Is real estate a good investment option?
Yes, real estate is an attractive investment option to generate income and long-term wealth.
2. Which real estate investment is best?
The type of property you purchase largely depends on the amount you are prepared to invest, the level of risk you are ready to take, and how much involvement you want in the investment.
3. How to invest in real estate in India?
In India, you can start investing in real estate through any method, including property flipping, REITs, REIGs, crowdfunding, or rental property investment.
4. Why invest in real estate?
When you invest in real estate, it can become a valuable asset with price appreciation over the years. Besides, it also offers tax benefits. You can earn rental income by renting it out and gain a hedge against inflation.
5. How can I start investing in real estate?
Evaluate your investment capacity, look at your finances, and learn about different investing methods before investing in real estate.
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