We often hear, in various media, that real estate is the best form of investment. But there is not enough information about treating real estate as an option for self-use against treating it as an investment. In this post, we will discuss essentials of investing in real estate.
There are two ways for you to invest in real estate:
(a) buying actual property or;
(b) investing in Real Estate Investment Trusts (REITs).
Buying actual property is a traditional option while the REITs are a relatively new concept that is yet to pick up steam in India. We have made a comparison of the two approaches here.
A handy checklist for you if you are considering real estate as an investment:
Study the market
One of the primary requirements of investing (whether real estate or any other field) is to understand how the market works and the current condition of the market. As a real estate investor, your best option is to purchase property when it is a buyers’ market. This will ensure you get a good deal on the property. You also need to know the prices being quoted for various localities and the kind of appreciation they are likely to see in future.
(1) Study preferences
Notions of the ideal home are changing quite rapidly. Buyers and tenants once preferred big homes; today, the idea of compact homes is gaining momentum. Similarly, apartments are the norm and villas are considered luxury options. Connectivity is a major consideration; irrespective of whether you are targeting buyers or tenants. If you are considering leasing the property to a business, you will need to understand their typical requirements as well.
(2) Plan ahead
What are the returns you expect from real estate investment? Are you seeking to supplement your monthly income through rentals or are you seeking to sell the property at a higher price to make a significant gain when the market improves? How do you plan to finance the purchase? Getting clarity on these details is important before investing in a property.
(3) Make an informed choice
It is important to have discussions with property experts when purchasing with investment in mind. Getting opinions from trusted family members and acquaintances can also help.
(4) Check credit score
Before taking a loan to finance the purchase, check your credit rating from CIBIL. A good credit score will help you get a better deal with home loans which will benefit your overall investment strategy.
(5) Verify the property
Property verification is crucial before taking ownership of the same. If the property doesn’t meet a certain standard of quality, your chances of being able to earn returns from it are rather low.
(6) Get legal help
Irrespective of whether you intend to be a landlord or sell the property at a later date, make sure that all your property documents are clear and in order. Tenants and buyers are wary of entering into transactions when dubious documents are involved and rightly so. Legal support will also ensure that all your plans for the property are executed without any legal hassles.
As an investor, your motive is straightforward – to maximize returns. However, this can be hindered due to poor understanding of what is required and the reality of investing in real estate. Stay informed, stay safe!