What is Real Estate Investment?

This blog discusses the true meaning of real estate investment, the need for real estate investment, its various types, and many other fascinating topics related to it.

Table of content

• What do you mean by Real Estate Investment?
• Why do we need to Invest in Real Estate?
• How to start investing in Real Estate?
• Advantages of Real Estate Investment
• Types of Real Estate Investments

What do you mean by Real Estate Investment?

Real estate investment is the practice of purchasing property as an investment rather than as a primary residence, in order to generate income. It may be simply defined as any piece of land, structure, infrastructure, or other tangible assets that are often immobile yet transferrable to get a profit from it.

For thousands of years, the real estate business has been a very significant component of wealth. Real estate investment’s main aim is to purchase property with the intention of generating income and capital growth. Residential, farmhouse, business, retail, and leisure are the following examples that come under this category.

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Why do we need to Invest in Real Estate?

Real estate has become a good investment option in India with the rising demand for real estate properties.  Buying a new home is always a dream come true for Indian households. While fulfilling this dream gives you emotional satisfaction, it also promises financial growth, as real estate investment in India has a good return on investment (ROI).

For millions of Indians, real estate remains their preferred form of investment for the following reasons:

1. Appreciation of Value

Due to a lack of available land, real estate values will undoubtedly rise, particularly in urban areas. It is said that real estate investments yield higher returns over time.

A wise real estate investment appreciates over time. Additionally, rents typically rise annually, ensuring increased cash flow.

2. Sufficient Cash flow via Rental Income

By investing in real estate, you can induce cash inflow easily. A yearly rental income is a great way to make a good income. It offers great fiscal security to the investor. However, income from your reimbursement parcels ensures hassle-free retirement.

3. Safe and Secured Option

Compared to crypto and stock markets, real estate is a safer investment option and has grown consistently over the past few decades.

4. Tax Benefits

You could save money on taxes by investing in real estate. There are many tax reductions for putting resources into land. You can save up to INR 1.5 lakh on the principal amount if you choose a home loan under Section 80C.

In a similar vein, according to Section 24, you can reduce the amount of interest you pay by up to 2 lakhs. You will also be able to lower your taxable income and make real estate investing more affordable.

How to start investing in Real Estate?

There are several points that need to be taken care of while you are investing in real estate:

• Buy Real Estate Investment Trusts

REITs allow you to own, operate, or finance income-generating real estate. Frequently compared to mutual funds,  they are businesses that own commercial real estates, such as office buildings, retail spaces, apartments, and hotels.

REITs are a common retirement investment due to their high-yield dividends.. Dividends can be automatically reinvested by investors who do not require or desire regular income for their investments.

• Use an online real estate investing platform

Platforms for real estate investment connect developers with investors who want to finance projects with debt or equity. In exchange for taking on a significant amount of risk and contributing a fee to the platform, investors anticipate receiving distributions on a monthly or quarterly basis.
These are speculative and illiquid, just like many real estate investments; unlike stocks, you can’t easily sell them.

• Investing in Rental Properties

Investing in rental properties provides the significant capital to cover vacant months and pay for initial maintenance costs.

• Real Estate Mutual Funds

REITs and real estate operating companies make up the majority of investments in real estate mutual funds. With them, you can get a wide range of real estate exposure with a small amount of money.

They provide investors with a much broader asset selection than can be achieved by purchasing individual REITs, depending on their strategy and diversification objectives.

Advantages of Real Estate Investment

In the above section, we have seen the various types of real estate investment in the field of investment banking. Let’s take a look at the following advantages of real estate investment to have a better view:

1. Diversified Income Source

There are several ways to invest in property. Your assest  can be bought and sold, flipped, or rented. These investment ideas  offer high profits.

2. Tax Benefits

You can, however, submit your taxes with the revenue agency and have your tax obligation reduced. You can claim deductible costs like management, insurance, advertising, utilities, repair and maintenance, and so forth.

Moreover, you might be able to deduct the difference from your other sources of income for tax purposes if your rental revenue is lower than your running expenditures.

3. Fewer Risks

Property investing often has fewer risks than other investment alternatives like equities, especially when done over a lengthy period of time. Most thriving real estate markets see annual increases in property values as well as gradual increases in equity. The longer you keep your property, the bigger the earnings will be, therefore choosing this option has reduced risk.

4. Unaffected by Inflation

When the rate is high, rent and property prices must also increase. This indicates that you will benefit from an increase in the cost of living. Apart from that, mortgage payments are unaffected by inflation, therefore their value decreases as a result of inflation.

Types of Real Estate Investments

It all depends on the market situation, so there is no best or safest investment strategy. Let’s discuss the various kinds of real estate investments:

1. Residential Real Estate

This category includes villas, townships, single-family homes, multi-family homes, and apartment buildings. . From an investment standpoint, each of these options offer distinct prospects.

For instance, the longevity of the construction and the rising value of land will drive up the prices of well-built villas and independent houses over time. Contrary to this, the value of apartments may not increase after ten to fifteen years of use. Therefore, they must be sold within five to seven years.

2. Commercial Real Estate

In this type of real estate, we’ve probably seen shopping malls, restaurants, schools, hospitals, and office buildings. They are more expensive to invest in than residential properties, but there are better chances of profit.

3. Industrial Real Estate

Industrial properties are buildings and factories used for manufacturing goods and storage. In order to keep residents safe from pollutants, they are typically located far from the city.

Despite the property’s recent conversion from agricultural land to industrial use, its value will be significantly higher than that of the nearby farmlands.

4. Land Real Estate

Land real estate is  India’s least-priced and safest real estate properties i. You need not worry about theft, damage, and upkeep when purchasing real estate as an investment.

Yet, creating passive income from real estate investments also calls for certain unconventional strategies that might only sometimes be successful. However, investing in it is an excellent idea because it can end up being very profitable.

Conclusion

In essence, real estate investments are made to protect money and make a profit. Compared to  other investment options, real estate offers significantly better returns,  opportunities for leveraging,  income tax sheltering techniques, and a higher level of personal control. This is the main reason why people want to invest in real estate, and understanding these aspects is often part of an investment banking course.