Real Estate investment has always been a lucrative option. It attracts a lot of investors for building on wealth as it promises good returns. Real estate covers housing, retail, hospitality and commercial sector.
The decision to invest in real estate requires a careful analysis of the
- economic conditions
- investment policies
- availability of funds
People invest in real estate for various reasons like:
- Stable income (rental)
- High Returns
- Portfolio Diversification
Like all other investments, e.g. stocks, shares, mutual funds, etc., real estate investment has its share of risks. The risks can be minimized by taking reasonable precautions beforehand.
There are some dos and don’ts which can help to take the decision prudently to invest in real estate:
- Investment in real estate takes time to generate income and is highly illiquid. It is essential to ensure that there is enough cash to survive the lock-in period. The property should not become a liability. One should have sufficient savings required to deal with hidden expenses like government dues, taxes, maintenance charges etc.
- It requires careful planning to ensure availability of funds for real estate investment. Unlike other forms of investment like stocks and shares, the risk is more. There is much more to lose than the amount invested.
- It is advised to understand the property where one intends to invest. For example, it is good to know if the investment is fruitful in residential or commercial real estate.
- It is better to go for investment in various properties than to concentrate on a single one. A person can distribute the investment in multiple properties as per the budget. A mix of residential and commercial real estate is better if finances permit.
- It is not uncommon to find that real estate investors prefer to take professional help and legal assistance as the amount involved is huge. It also helps to handle the risk appropriately.
- Do not expect quick returns in the real estate market. The benefits are reaped in the long term.
- Miscalculations and myths are common in the property market. Always collect the information from reputed sources. It is better to approach the professionals or business analysts or financial advisers, who are well informed and knowledgeable about the property market. The expected change in the market price of the property has a lot of influence on the decision of investment.
- Do not invest simultaneously in various properties unless there is sufficient backup. Cash flow is restricted once the money is invested in real estate. It is significant to be wise before we chose the properties. One should invest in the second property only when the first one has started generating income.
- Always talk to property dealers or regular investors if you are a novice in the field. Taking legal advice and professional assistance proves fruitful.
Read more: NRI investments in Indian real estate sector