Why Should I Invest In Real Estate?

By : 360 Realtors

21 April, 2017

The Indian real estate sector is growing by leaps and bounds. There have been times when the Indian property market was on a slump but with the landmark reforms announced in the years 2016, the industry is anticipated to be more professional, transparent, and trustworthy instilling confidence in both buyers and investors. 2017 is expected to be the bumper year for Indian property market.

To buy property in India is one mad passion that all Indians are in love with. Brick and mortar investments have been one of the most robust investment classes especially in the long term. It is the kind of asset that can be once acquired and can be paid back for in monthly equated installments for a set term of years.  There are some investors who feel physiologically satisfied for the investments made since they can touch and feel their property. It involves a kind of mental comfort. Property is an appreciable flexible investment on which you have 100% control. Property market is a stable market in comparison to shares and is thus less prone to short term speculations. Property investments are considered to be a tried-and-tested method to increase your investments steadily. There are multiple reasons why real estate investments are considered to be the most profitable option for having a good investment portfolio.

1. Inflation-proof investments – Real estate investments are considered to be inflation-proof investments. With inflation in the economy, the rents of the property normally increase whereas the home loan payments remain the same. While there is an increased income flow, the expenses incurred for holding the property remains stable.  Also, in times of inflation, the home loans become expensive for an average consumer which means there shall be more population as renters. With an increase in the number of renters, the demand for properties available on rent shall also go up, resulting in a hike in the rental amounts.

2. Rental yield –This refers to the percentage yield from direct rental income. It can be calculated both ways - net or gross. Wise and smart investors prefer calculating net rental yield which takes into account all the taxes, expenses and all types of costs incurred and divide it by the value/ cost of the property. Since it doesn’t take into account the home loan payments, so it can be negative cash flow also. Hence, many investors go for cash-on-cash rental yields which take into account the monthly home loan payments also.

3. Leverage – In order to purchase properties offering good rental yields, it is better to use leverage for greater returns. One can borrow more by using property as a security as compared to shares or any other option. The investors can increase his returns by using his total leveraged assets and buying four properties on paying down payment rather than using the same amount of funds in purchasing 1 property on cash. But since leverage involves risk, it is important for a smart investor to understand how real estate investments are affected by leverage.

4. Appreciation – As the inflation goes up, there is an appreciation in the value of rental properties.  An increased value can lead a good sale and further reinvestment of the funds in a higher vale property. Or the equity received can be used for other investment purposes. This serves to be an important and valuable component of real estate investment return.

5. Equity generation through property improvement – At times, some investors intentionally purchase a property at its lower value. Such properties might lack on certain features or need improvements. People estimate that the value of renovations/improvements done shall exceed the price of the property subsequently leading to an increased equity. For example a cosmetic renovation by just sprucing up the interiors and exteriors increases the value of the property without costing much.

6. Paying down loans – Paying off the loans or amortization leads to freeing up of different investment resources resulting in increased leverage. This increased equity can be used to make some other investments.

7. Safest Option – Homes are considered to be the safest investment option as they yield returns till time infinity. You can find homes that suit every budget and requirement.

Thus, the real estate investments in Property in India like elsewhere in any part of the world, provide multifaceted returns as compared to bonds and stocks which are inflation-sensitive. The latter offers minimal dividend / interest returns and has only value appreciation potential. On comparing the risks and returns involved in buying shares and property, it is always the property that wins. Real estate investment is the kind that adds to your pride of owning multiple properties. It is the investment for the new generation.