From equities to bonds, mutual funds to deposits, gold, and real estate, there is a multitude of investment options available to investors to diversify their hard-earned income.
The investment option appropriate for your portfolio depends on a range of factors, such as the amount of money available with you to invest, the level of your risk-taking capacity, potential ROI, and the extent of the control involved.
A 2017 survey that looked at investments in sixteen different countries found that the average yield on real estate investment was over seven percent per year. In contrast, equity investments averaged under seven percent, whereas bonds yielded about three percent. In India, there are periods of slow growth while the periods of fast growth can give outsized returns. For example, during the boom era between 2004 and 2008, the average 5-year return for housing across the top 7 Indian cities was over 60%.
The survey shows that historically properties have been a great investment option because property enables investors to generate profits in many ways. First, a property is a tangible asset that appreciates over time, and second, property investment also offers an opportunity to create a cash flow from the monthly rental income.
While equities, bonds, mutual funds, deposits, and other investment forms are each unique, real estate investment can offer something the others cannot: Financial freedom.
External factors, such as market sentiments and corporate decisions usually influence investments like stocks and mutual funds, but with real estate, your personal decision directly determines the return on investment. This allows you to exercise complete control over your investment to create a solid financial portfolio that maximizes cash flow and savings.
The Common Property Types
Real estate investment is more than just buying a property, in the hope that it will appreciate in value. Investing in this asset class involves a variety of strategies. One of the most important of these strategies is to decide which type of property to buy.
But why real estate types are so critical to property investing? The brief answer to this question is that each type offers a different avenue to generate returns. Let’s give you a lowdown on the major real estate categories to invest in:
Residential Real Estate
In India, residential real estate typically includes single-family houses, multi-family homes, and apartments. These residential properties can produce returns on investment in varying ways. For instance, one can invest in a single-family house, and keep it until the value of it increases. One can also rent the property while waiting for the price to increase. Most investors use rental income to pay mortgages. Alternatively, investing in a four-unit multi-family home, living in one, and renting out the other units, is a great idea. Many seasoned investors invest in multiple apartments within a complex. With this strategy, they can more effectively manage their investments because the properties are in the same area.
Commercial Real Estate
Commercial real estate investments generally need more aspects to be looked into than investing in residential properties. Likewise, revenue per sq. ft. of commercial properties is also much higher than residential units. Renting out commercial space can get a higher return than giving out a residential property on rent. Drafting a commercial property’s lease agreement is a critical process that requires a legal opinion. The price consideration depends on a range of factors that need careful evaluation. Even though investing in commercial properties is highly lucrative, it needs professional guidance to be successful at it.
Industrial Real Estate
Industrial real estate includes buildings and infrastructure that businesses use for warehousing, manufacturing, and distribution of products. Industrial properties are often huge and high-priced, with the needs of the tenant changing in no time. These properties have longer lease periods, and they provide higher returns. Industrial real estate investors have deep knowledge of the property market with a diverse investment portfolio. These highly skilled professionals know the risks associated with industrial properties, and most of them can handle it. This segment is for the big players.
Since the beginning of time, investing in lands has been a tested investment model that can yield higher returns. Although land investments are always cheaper than other forms of real estate investments, one should remember that buying a raw land will not provide the chance to earn a passive income. But in terms of capital appreciation, a land can give investors a phenomenal return on investment, if the property is in a locality that has upcoming infrastructure developments.
Pre-Leased Real Estate
Pre-leased real estate, also known as pre-rented real estate, is a leased property with tenants, who pay rent to the landlord. A real estate investor, investing in a pre-leased property, will automatically become eligible to enjoy the rent. For example, Mr. Shrivastava owns a 3,000-square-foot commercial space in Gurgaon, which has a leading FMCG company as its tenant. Now, if Mr. Jain takes the property from Mr. Shrivastava, he will immediately receive the rent paid by the FMCG company to Mr. Shrivastava.
Pre-leased property investment is attractive because it offers a constant flow of monthly income along with long-term capital gains. Also, pre-leased properties are extremely liquid, as there is a high demand for properties that give good rental revenues. This is one of the prime reasons that increase the appeal of pre-leased real estate to a great extent.
However, return on this sort of real estate investment is often dependent on a number of factors. Mentioned below are the crucial determinants in the ROI analysis of a pre-leased property –
- Property location
- Property price
- Financial stability of the tenant
- The rent yield
- Rent escalation
- Lease agreement terms and the lease tenure
- Property taxes and other charges
So How do You Determine the Ideal Real Estate Investment Option for You?
One must identify the segment that’s suitable for them depending on their purpose, risk appetite, budget, and overall investment portfolio. Every option has its own pros and cons so, everything must be evaluated carefully. That’s where the need for expert consultation from property pros like NK Realtors comes in.
With over 32 years of experience, NK Realtors is one of the leading real estate consultants in the country that employs a dedicated team of specialists to offer clients a clear understanding of the real estate market before they step into the field of property investment.
Because a real estate investment is big, and it will determine your future, often investing your money without consulting a real estate investment expert can turn out to be a costly mistake. So if you’re interested to enter the investment game, contact us today and let our team of experts steer you in the right direction.