The first thing that likely springs to mind when you consider real estate investing is your home. Naturally, there are a variety of alternative assets available to real estate investors, and not all of them are actual homes. Over the past 50 years or so, real estate has grown in popularity as an investment strategy.
Real estate is regarded as a distinct asset class that need to make up at least a portion of a well-diversified portfolio. Being a landlord of a rental property is one of the most effective ways for investors to profit from real estate. Real estate flippers aim to purchase undervalued properties, improve them, and then resell them for a profit. Indirect real estate exposure is offered through real estate investment trusts (REITs), which eliminate the need to own, manage, or finance real estate.
Why Invest in Real Estate?
The risk-and-return profile of an investor's portfolio can be improved by real estate, which provides competitive risk-adjusted returns. When compared to equities and bonds, the real estate market often exhibits minimal volatility. When compared to more conventional forms of income return, real estate is also appealing. Generally speaking, this asset class trades at a yield premium to U.S. Treasuries and is more alluring when Treasury rates are low.
Where can you invest without buying a property?
1 Real Estate Investment Trusts (REITS):
A specialized firm called Real Estate Investment Trusts (REITs) invests in commercial real estate with debt and equity. REITs were first introduced in 1960 to give investors the chance to participate in real estate as a class of assets, and they are known to provide small and mid-level investors with a minimum 7-8 percent annual return. Investors in REITs hold shares of REITs and get dividend payments based on the success of the REIT investments, much like investors in mutual funds. The selection of businesses with a solid track record and high dividend yield is advised for people wishing to invest in REITs. Additionally, it is recommended to do your research and place your money in the hands of businesses with a lot of industry.
2 Real estate wholesaling:
Real estate wholesaling allows people to enter the real estate industry without having to invest a large sum of money. The investor, also known as the wholesaler, enters into a contract to buy a home they believe is being overcharged. This is a sort of property flipping. The item is then successfully sold to the end user. The process helps a newbie hone their bargaining skills and improve understanding of the real estate industry. The charge associated to the transaction, which is often a fixed percentage of the total cost of the property, is how the wholesaler makes money. But for the process to be successful, a sound plan must be developed. The investor needs to be aware of market developments, maintain a list of prospective.
3 Real estate mutual funds:
It is advantageous to diversify your financial portfolio by investing in real estate mutual funds. Similar to a mutual fund, wherein an investor owns a share of the mutual fund and the corporation owns the investments it makes, the idea is similar. Earnings can take the form of a dividend or a specific percentage increase in share value. In addition to direct purchases of residential, commercial, and industrial properties, real estate mutual funds also invest in REITs and real estate equities. Small investors that are hesitant to engage in direct real estate transactions are thought to benefit from the alternative. It's vital to keep in mind that the profits from real estate mutual funds depend on a number of variables, including demographics, market circumstances, and interest rates.
4 Online investment platforms:
Online real estate investment platforms aggregate the funds of several investors and invest on their behalf in prospects that would otherwise be expensive to research. The sorts of properties available for investment, as well as the minimum investment needed, vary substantially across them. The internet platforms provide access to a range of varied real estate opportunities, with an emphasis on both residential and commercial real estate, allowing investors to invest in a single property or a portfolio of them. The medium, however, is best suited for people who have the financial resources to invest constantly for a sizable period of time.
5 Hard money loans:
A real estate investor receives a loan from an individual known as a "hard money loan." Hard money loans, often known as bridge loans, are short-term loans used to fund investment projects. The amount of the loan is determined by the value of the secured asset. The lender frequently provides credit up to 65 to 75 percent of the property's value and is compensated with interest, which is generally higher than that of conventional real estate loans.
Flipping Houses:
Similar to how day traders are a very distinct species from buy-and-hold investors, real estate flippers are a completely different breed from landlords who buy and rent out their properties. Flippers purchase homes with the goal to hold them for a little time—typically no longer than three to four months—and then rapidly flip them for a profit.
To flip a property, there are two main methods:
1 Repair & Update:
This strategy involves purchasing a home you believe will appreciate in value after some renovations and modifications. The ideal scenario is to finish the job as soon as you can and then sell for more money than you originally invested (including the cost of the improvements).
2 Hold & Resell:
Different principles apply to this kind of flipping. Instead of purchasing a house and making repairs to it, you choose to purchase in a market that is fast increasing, hold onto it for a few months, and then sell for a profit.
Conclusion: From the above article we saw that investment in real estate is a good choice only when you have a good amount of investment to invest in. Many investors consider real estate investments to be safer than stocks since they hold an underlying physical asset and are good for portfolio diversification. The Indian real estate market is predicted to grow to US$ 1 trillion in size by 2030 from US$ 200 billion in 2021 and to account for 13% of GDP by 2025. Additionally expanding considerably are retail, hospitality, and commercial real estate, which is essential infrastructure for India's expanding demands.
The above article has been written by Mr. Omkar Bandivdekar (CMA Aspirant) and reviewed by Mr. Suyash Tripathi (Chartered Accountant) and they can be reached at mdomkarnitinbandivdekar@gmail.com and tripathi.r.suyash@gmail.com .