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An excellent real estate investment offers you good returns on your capital invested without making too many efforts.
There are several ways to earn profits with real estate investment. Long-term rentals, short-term rentals, vacation rentals, long-range investments, REITs, non- performing loans, etc. – all are ways to invest in realty market. However, each method has its own risks involved, returns assured and time commitments. Some are like full-time jobs while there are some others like REITs that do not involve much work.
Long-term rentals offer you good returns for as long as you own the property. Transforming old houses into something new is another option to earn through real estate.
Some of the most important ways to earn profits in real estate investment are listed below:
• Buy at lesser rates: One can earn immediate returns if he buys a property at under market value. Like in case of quick sales, foreclosures or if someone has excellent negotiation skills.
• Selling high: Unlike stocks, which are bought and sold at market value, with real estate you have the benefit of staging a property and attracting the buyers to sell it over market value.
• Rental Income: It is the prime source of profit for an investor if he buys a property for rental purposes.
• Renting sub units: It is better to rent room by room. If you rent three rooms to three different families you can earn greater amount of rent instead of selling the portion as a whole to one single family. You can also divide your house and rent out as duplex or triplex for earning better amounts of money.
• Renting as workplace: Different businesses need the place for different tenures and generally the amount of rent is also higher. It is advisable to choose a known business to give your place on rent.
• Increasing equity: In case the owner takes a home loan to get the rental property financed, the equity increases with every installment paid.
• Leverage increases returns: In case a person makes 20% down payment, he will still receive rent for 100% of property value making it an excellent return for 20%. For example, if the value of the property is Rs 1, 00,000 and you receive Rs 750 as monthly rent, you pay Rs 500 as home loan EMI, taxes and fees, etc. The remaining Rs 250 is still your profit against a down payment of Rs 20,000, which is Rs 3000 per year. Or say a return of 15% on the capital invested which is not the situation in case of stocks.
• Leverage earns you profit on the full selling price: The greater the leverage the bigger is the return. In case you sell the same property you bought for Rs 1, 00,000 at Rs 1, 20,000 after a few years, you will earn Rs 20,000 as profit and Rs 20, 000 plus principal payments back.
• Profit from a lump sum on a refinance: In case you invest Rs 10,000 for renovation of the house which is worth Rs 1, 00,000 and this Rs 10,000 spent will be paid back by tenants in rents, the property now becomes worth Rs 1, 25,000. You can get it refinanced to get your Rs 25,000 cash and pay 25% as down payment for your next property worth Rs 100,000.
• Profit from extra cash flow on a refinance: You also have the option to get your property refinanced in order to lower your monthly obligations while the rental amount remains the same. In this case you will have more cash flow at your disposal every month which you can use for renovations, or save for getting a new rental property or have more liquid cash to live your life your own way.
• Tax benefits on improvements: The owner also has the option to deduct the cost of renovations done from the rental income. In this case the addition in the worth of the property will be beneficial for the owner.
• Tax benefits on interest: You can also deduct the loan interest from the rental income to create a tax free profit, depending upon the country you are living in.
Lower Risks involved
Stocks are very unstable and some trading companies allow you to deal on leverage. In case the share value goes down, your whole account might get wiped out. Whereas this is not the case in real estate. In realty market you can deposit any amount of money to purchase a house and rent it. In case you have some tenants, then you need not worry about the instability of the property market as your monthly obligations will be paid through your rent. And even if there are no tenants, then you might have to keep the house vacant temporarily and pay the EMI’s yourself.
How to use your property
The type of the house, area of the house and the state of the house will determine what you want to do with your property. In case you don’t want to spend money on renovations, then look for a property at some nice location where the repairs don’t cost much. In case you want to rent the place to families, look for some nice location with basic utilities in close proximity. A 1BHK unit or studio apartment is sufficient for young professionals or students living in some other location.
Regarding management of the house, no doubt there are property managers available who will love to do the job for a set amount of charges, and would relieve you of all the stress and workload but then your profits will come down.
Hence, how you earn profits from your realty investments depend upon you. Real estate investment is actually real. It is a result of your hard efforts to take care of your property, repair it, promote it and look for some genuine tenants and preserve it for years. In case of negative equity, rent received from the real estate investment will help you cover the mortgage. When the first time buyers are denied loans from the banks or in case of economic anxieties, there shall be an increase in the number of potential renters.
Thus, for all the above mentioned reasons, real estate investment is always the best investment opportunity with countless variations. There is much potential with real estate but one must make careful choices before diving in.
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