How to Invest Money in Real Estate
Why Invest Money in Real Estate?
“Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world”.
- Franklin D Roosevelt
Are you worried about where to invest your savings? Are you not sure how your investments reduce your tax burden? Are you concerned about the volatile market conditions? Why invest money in real estate industry when there are other options? Read on to find answers to all your investment queries...
Real estate has always been the go-to for investors planning a safe and secure future. The low and middle income groups see owning a house or a plot as a great deal of investment along with purchase of bullion. Especially in India, this scenario has strengthened over the last few years with the per capita income increasing and the population being dynamic.
Here are the top reasons why investing money in real estate is the need of the hour for the investors as well as the economic growth.
The financial advisors and investment experts suggest real estate as a safe and sound investment to those who look for options. This is due to the above the advantages and many more that this sector has to offer.
Let us see in detail what the advantages of investing money in real estate industry are:
- Less volatility than stock market.
“Stocks are subject to market risk”- This is the common disclaimer that the stock market investment comes with. With the market volatilities increasing day in day out, the risk that comes with investing in stock markets is relatively higher as compared to real estate industry.
In stock markets, there are numerous factors beyond your control that negatively impact your returns. Real estate gives you more control in the form of your property, the longer you hold onto your property the more is the equity buildup.
The positive relationship between GDP growth and real estate appreciation is another reason to brand real estate as a safe investment. Though there is a slowdown in the economy, the real estate investments have not hit the rock bottom as other sectors of investment. This is proof that, it is less volatile subject to market conditions.
- Reduced tax burden.
Investing in real estate comes with numerous tax benefits. You can get tax deductions on mortgage interest, cash flow from investment, operation and maintenance costs, property taxes, insurance, etc. These deductions can offset income and reduce your overall taxes.
Tax saving is an important part of today’s economy to reduce the burden on the common man and the governments all over the world are making an effort to improve the per capita saving. This, in turn, resulted in tax deductions for those who own, maintain or rent a property.
Also the longer the individual holds on to the property, the more are the savings. Expenses on renovation and improvements also attract tax deductions. The equity is built up when the property is mortgaged and the rents collected mostly cover the interest payments which result in lessening the huge burden of interest payments and amount of tax payable.
- High Return on Investment.
The high returns are guaranteed on the real estate investments. If the property is a plot, there is only appreciation in its value. The land always held the status of valuable commodity, from time immemorial. Historically, those who possessed rights over a piece of land were all-powerful, like landlords and zamindars. After the abolition of the Zamindari system, land became a saleable commodity and the ROI is very high in this case. Thus the millennials are showing great interest in buying a property.
This is the right step towards a bright future in terms of both monetary and fiscal. On the monetary front, the sale of the property after a period of appreciation always earns a good profit for the seller. On the fiscal front, the upkeep of the property offers many benefits like tax saving, equity buildup, and social security.
If the property is an apartment, the returns are in the form of rent, tax savings, etc. Though there was a slowdown in the housing market, it has recovered and the appreciation is back on track. History continues to prove that, the longer you hold on to your property, is how you will make more money in real estate.
- Transparent, Safe and Secure
With the recent government measures like demonetization, GST, implementation of RERA and the Benami Act has made the investments in real estate more secure and transparent. This also led to a surge in the investments in this sector. With the inflation being low in the housing sector, this is the right time to invest in real estate and gain maximum returns on investment.
No other investment has been the best in the long run over the course of history. With the economic growth picking up the ROI on the real estate is also expected to rise. However, the investment in real estate is mainly due to socio-psychological factors rather than economic factors.
This is due to the fact that in Indian society, owning a house or property means that the social status has been driven to the highest points and the prospect of “settling down” in India means owing a property. Thus there is also a sentimental value attached to every property bought and this holds value to the generations to come.
How to start investing in real estate?
However, there are certain things to keep in mind before investing in the real estate market. There are many ways you can invest in real estate industry like buy and sell property, including plots, flats, villas, etc., invest in a site-development project, which includes construction and sale of flats or layouts of land, etc.
Here is a checklist of things that you need to consider before investing:
- Be Patient- Buying a property is a time-consuming affair. Stay patient and wait till you find such a property that suits all your needs.
- Check your finances- Beware of fraudsters who trick you into buying a property for what its’ worth. Plan your finances and do not waver from your budget.
- Check Market rates- The follow up to the above is to not just blindly follow the broker or handler but also make your own enquiries about the market scenario.
- Visit the property- With online marketing on the go, do not pay any advances unless you have visited the property yourself. What you see with your own eyes, is what you should believe.
- Talk to neighbours- Those who are already residents or those who own a property in the neighbourhood know the in and out of the locality. They will be of much help in guiding you through your deal.
- Check the papers- Thoroughly check for all the necessary documentation to prevent any mishap during the deal.
- Negotiate- You are looking for a deal that suits you best. Do not hesitate to negotiate for the best price and that which will make you happy and also not burn a hole in your pocket.
- Consider the risk factor- Legal hurdles and property disputes are the most common hassles in a country like India. Though the real estate market is relatively less risky, it is better to have a thorough background check before investing in a property.
- Go for a bank loan- It is always best to approach a bank for a home loan as this saves you from tax burden and also your interest payments will earn you mortgage rights over the property. This will give you leverage over the property.
- Stay Positive- Last but not least, it is important to be positive and not be hasty in making a decision. Real estate investments require a lot of patience and optimism to find the best property for you to invest in.
There is one final advantage to a real estate investment and that it is understandable and easy for almost everyone. It’s easy to purchase, easy to finance and there are no insurmountable financial barriers to entry. It’s easy for most investors to improve their properties and it’s easy to use the tax benefits. While the stock market is becoming more and more of a mystery and becoming the game of financiers, real estate investing is looking better and better for average Indians.