In India, real estate has often been seen as a big-ticket investment that might require a lifetime of savings. However, there are alternative ways to get a slice of this real estate investment opportunity without breaking the bank. In this blog post, we’ll explore these alternative methods and show you how to get started in the world of real estate investing. So, if you’ve ever dreamed of having a stake in real estate but thought it was out of reach, keep reading to find out how you can make it a reality.
The Context
Real estate investing refers to the purchase, ownership, management, rental, and/or sale of real property for profit.
This can include residential or commercial properties, as well as land. The goal of real estate investing is to generate income through rent, appreciation, and/or resale. If you buy a property solely for financial gain, it can be considered real estate investing. However, using a property for personal use like a housing unit for the family is considered a form of security.
Investing in real estate can be a great way to generate passive income, build wealth, and secure your financial future. Real estate investing in India has been growing in recent years due to increased demand for residential and commercial properties. Retail, hospitality, and commercial real estate are also growing significantly, providing the much-needed infrastructure for India’s growing needs.
India presents favorable conditions for the growth of the real estate sector, including economic growth, liberalized foreign direct investment policies, an increasingly urban population, and government support for affordable housing. As per a study conducted by Imarc Group, the Indian real estate market is expected to exhibit a growth rate (CAGR) of 9.2% during 2023-2028.
An IBEF report suggests that by 2040, the Indian real estate market will grow to Rs. 65,000 crores (US$ 9.30 billion) from Rs. 12,000 crores (US$ 1.72 billion) in 2019. Another independent research by Mordor Intelligence suggests the India Commercial Real Estate Market is anticipated to register a CAGR of more than 13.85% up till FY 2028.
Actual Returns In Real Estate
Real estate returns in India can vary widely, depending on factors such as location, type of property, market conditions, and more.
The demand for housing however seems to be a long-standing pillar when it comes to Real estate investing in India. The average 10-year return on real estate investment has been around 10 percent, which is a little over 7.5% average annual inflation as recorded over the past 40 years in India.
This is based on the reports published by several real estate research firms that compared returns from the nine biggest cities in India. However, the rates may vary if you look at particular cities. Generally speaking, investments in real estate in India have yielded decent returns, with the potential for appreciation in property value over time.
However, real estate is also a long-term investment, and it is important to consider factors such as market conditions and rental income when evaluating returns. Real estate in India is usually considered a big-ticket item that sometimes demands a life’s worth of savings but there are various ways you can cherish a piece of this pie.
What Are Your Options?
1. Rental Properties
Investing in rental properties is the purchase of one or more properties to generate income through renting them out to tenants.
Rental Investing can provide you with a steady stream of income and potential for long-term growth, but we would want you to tread with caution here as this requires careful consideration of costs, responsibilities, and market conditions.
2. House Flipping
Already quite popular in Western countries, house flipping is the process of buying a property, usually at a discounted price, making repairs or renovations, and then selling it for a profit. It is a form of real estate investment that can provide a quick return on investment if done correctly but also involves a significant amount of risk and effort.
3. Real Estate Investment Trusts (REITs)
A Real Estate Investment Trust (REIT) is a type of investment vehicle that allows individuals to invest in a diversified portfolio of income-generating real estate assets, such as office buildings, apartments, hotels, and shopping centers.
If you plan to invest with limited capital then REITs can provide you with the opportunity to invest in real estate without the hassle of direct property ownership and management. REITs are required by law to distribute a large portion of their income to shareholders in the form of dividends, making them a popular choice for income-seeking investors.
Relatively a new concept in India at the moment we saw the first REIT (Real Estate Investment Trust) getting listed in 2019. Three years later there are now three (Mindspace REIT, Brookfield REIT, and Embassy REIT). The potential downsides of a REIT investment include taxes, fees, and market volatility due to interest rate movements or trends in the real estate market.
4. Real Estate Mutual Funds
Like thematic mutual funds, Real estate mutual funds are investment funds that invest in real estate-related securities, such as REITs and real estate companies, providing exposure to the real estate market through a diversified portfolio managed by professionals.
Some examples in India include Kotak International REIT FOF, PGIM India Global Select Real Estate Securities FOF, and Mahindra Manulife Asia Pacific REITs FOF.
5. Hard Money Loans
Hard money loans in real estate investing are short-term loans secured by real estate assets. They are typically used by real estate investors to finance the purchase and renovation of investment properties.
Hard money loans are often offered by private lenders and have higher interest rates and fees compared to traditional bank loans. They are typically used by real estate investors when traditional financing is not an option, such as in the case of a fix-and-flip investment or when the investor needs to close a deal quickly.
How To Get Started?
Here are some steps to help you get started in the world of real estate investing:
Step 1: Expand your knowledge
Before you start investing in real estate, it’s important to learn about the market, different investment strategies, and the different types of properties available. Read books, attend seminars and webinars, and connect with other investors to gain knowledge and insights.
PlanB book recommendation- “The ABC of Real Estate in India” by Sachin Mittal“.
Step 2: Determine Your Investment Goals
Think about what you want to achieve through your investment. Are you looking for short-term gains, long-term wealth building, or a combination of both? This will help you determine the best investment strategy for your goals.
Step 3: Create a Budget
Determine how much you can afford to invest and what your monthly expenses will be. This will help you make informed decisions about the properties you want to invest in.
Step 4: Choose Your Investment Strategy
There are several strategies for investing in real estate as we discussed above like rental properties, flipping properties, REITs, etc. Consider your investment goals and risk tolerance to determine the best strategy for you.
Step 5: Find the Right Property
Typically while buying a property, research the market and look for properties that match your investment criteria. Look for properties with good potential for appreciation, high rental demand, and low vacancy rates.
Step 6: Hire the Right Professionals
It’s important to have the right team of professionals on your side, including a real estate agent, property manager, legal advisor, and accountant. These experts can help you navigate the process and make informed decisions.
Step 7: Monitor Your Investment
Regularly review your investment to ensure that it’s on track to meet your goals. Adjust your strategy if necessary and make any necessary changes to keep your investment on the right track.
Conclusion
Real estate investing can be profitable. However, the level of profitability can vary and is dependent on various factors such as the location, type of property, market conditions, and the investor’s approach to the investment.
It’s important to conduct thorough research and carefully assess the potential risks and rewards before making a real estate investment. Be aware of some of the challenges and risks associated with real estate investment in India, such as a slow decision-making process, lack of transparency, and complex regulations.
Remember, investing in real estate takes time and effort, but the rewards can be substantial. With the right strategy, the right team, and a commitment to your goals, you can build a successful real estate investment portfolio and secure your financial future.
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