YES, few Technology Start-up Investments can make you $Billionaire, but in those cases success ratio’s are 1% from 1000, and if you are lucky. But in real estate, it will grow steadily without losing your Capital; you can become billionaire if invested wisely, that’s the best part about REAL ESTATE INVESTMENT.
Real estate Industry have taken a knocking in recent years; but it’s still one of the most robust investment classes, especially in the long term. Here’s why.
1. It’s considered the Safest Investment
There’s strong reason’s why it’s considered the safest Investment. The prices of real estate keep increasing every year; despite a succession of wars, disasters, recessions and crises. It’s done so without the volatility of the share market, making it an all-round safer investment.
When you factor in the return and risk associated with buying Real Estate and shares, shares have (marginally) higher capital growth, but the difference in risk is huge!!! The risk is measured in variation in returns and capital growth (or loss) on shares can range from +50% in a year to -50% in a week! You don’t get that sort of variation in property, hence it is considered a safer investment.
2. Easy to analyze and Start Investment in Real Estate
You don’t need specialist knowledge to start investing in Real Estate, all you need is some basic math to do the calculations. Calculating realistic expenses and rental income is all you need to see whether an investible property is a good idea or not. Your life as a real estate investor has been made even easier by the hundreds of online real estate calculators that you can download for just a few dollars or free. You don’t even need to use spreadsheets anymore to make your calculations. Analysis is less straightforward with investing in stocks. In addition to the cash flow, you will need to also factor in the underlying equity component. For any data on your stocks, you will need to trust the company with the figures in their reports. And needless to say, there are hundreds and hundreds of ways to manipulate the numbers to make them look better than they are and to keep investors happier than they should be.
3. It’s easier to research than stocks and shares
Investment in stock market requires a lot of research and knowledge. You have to understand the complex world of trading (not least the different kinds of financial instruments used), as well as research brokers and fund managers. Once you’ve done this, you’ve then got to get to grips with the companies on the market; which involves trawling the financial press, annual reports, other company releases and so on.
Investing in property, meanwhile, is much simpler, at its most basic, you can simply jump online and start looking at properties. Admittedly, there’s more to getting property investing right than just picking a property, but a significant amount of research can be done online (and is usually either free or inexpensive) or by visiting the markets, auction centres – without having to garner reams of specialist knowledge beforehand.
4. It’s easy to get finance, especially if the property is generating Rental income
You may not feel like applying for a loan currently, but most financial institutions and lenders like property as mortgage. Home loans are a major part of any bank’s business model, and lenders are more likely to lend on property than any other asset class; as evidenced by the fact that they will lend a higher proportion of the value (up to 80-90%) and at lower interest rates than any other asset class. This makes it a lot easier to borrow to invest in property than in any other asset class.
5. You can use MORE LEVERAGE
Borrowing to invest in property also means you get greater access to one of the oldest and most powerful tricks in the financial book: leverage.
When you buy an Investible property OR Rental property through a bank loan, you benefit from significant leverage. Most loans require a down payment equal to 10-20% of the property purchase price, while the bank finances the other 80-90%. So, let’s say you want to buy an investment property that costs Rs.100,000. You will have to pay Rs.10,000-20,000 now, and you will have 15 or 30 or even more years to pay the remaining amount (plus the interest). However, as soon as you find your first tenant, you will start making money (maybe Rs.800 or Rs.900) on the entire value of your property. Being able to finance the purchase of your rental property in this way gives you the opportunity to buy an investment property early in life when you still have very little savings and to start making money right on. It also gives you a chance to invest in several properties at the same time which will increase your rental income as well as your net worth. If we go back to the Rs.100,000 property, with a down payment of 20%, you can buy five of those for a total value of Rs.500,000. With stocks, you can only buy stocks worth this Rs.100,000.
6. Different Investment Strategy for everyone
Property is a remarkably flexible investment; no matter what your financial aims are, you should be able to find an and ideal Real Estate Investment opportunity that suits you. Common strategies include;
- Long-term capital growth
Looking to build a retirement nest egg? Long-term increase in value is the most effective way to do this. Property has historically proven its ability to deliver capital gain provided you select the right area with correct supply /demand ratio and demographics.
- Positive cash flow
Need cash now? Choose properties where rents outweigh holding costs and where’s the properties for different purpose are in demand. Certain property category offers exceptional cash flow, for example Retail, Hotel, healthcare & Commercial asset class. This extra money can definitely assist all areas of your life.
- Adding value – EASILY
Spotted a shabby old place with potential? You can renovate, subdivide or develop and create value out of thin air even through a simple paint job & minor renovation, unlike other asset classes. Which you cannot do with any other asset classes whether it’s gold or shares.
7. 100% Control
Best part about the Real Estate is TOTAL CONTROL.
The moment you buy an Investible property, you are in charge. You are free to decide on how much to spend on improvements in your rental property; you are free to increase or decrease the monthly rent; you are free to decide who your tenants will be; you are free to sell your property whenever you decide to do so. Alternatively, if you own stocks, chances are your share will be negligible compared to the overall value of the company, so you will have virtually no power over anything that the company might do or not do. Thus, if you are one of those people who like to be in control of their money and to be the one making the decisions, real estate investing is the right option for you.
8. You can renovate and Increase Value
Talking of influencing asset worth, there are a number of strategies you can use to do this, depending on cost factor. One of the most common is Simple Renovation job, buying a bad condition property and sprucing up the interior and exterior. This can vary from simply repainting and putting in new floorings, to putting in new accessories and landscaping gardens.
It’s a tried and true method of increasing the value of a property; even the outlay of just a few thousand rupees can add twice as much value to the right property at right location.
9. You can subdivide OR add more floors if law permits
Find a property in an ideal location, in an area that’s zoned correctly (or will be soon) and you can apply to the authorities for permissions to build more floors or vice versa, and sell one or both floors to earn profit. However, getting the right property is not much difficult, but getting the authorities permission might take few months.
10. An investment for every budget
Many so called experts have written that Indian property market is becoming unaffordable is simply not true. Admittedly, if you’re looking for an investment in the prime metros of Delhi, Mumbai, it’s likely that it will cost you much more than you can afford due to demand and supply gap; but if you go little further in the outskirts of main city or regional towns and cities, or Tier-1-2 cities like NCR, Chandigarh, Bangalore, Pune and Hydrabad for example, can get many options at affordable prices; if you buy smartly, you can also expect equivalent or even better growth than more expensive assets in Metro cities.
11. Real Estate Prices are Negotiable
If you buy a share, you buy it at the market price at that time; there’s no scope to negotiate. In the property market, it’s exactly the opposite, buying and selling is all about negotiation. If you look around town and search more, there’s also huge scope to find undervalued properties or distressed assets, particularly deceased estate or mortgagee sales, or sales due to divorce or family disputes. If you get this category asset, just grab it without a second thought, however, do the proper title due-diligence and all legal processes in place.
12. It improves financial knowledge
The simple act of saving for a deposit teaches financial discipline; working the numbers in terms of affordability prior to purchase is essential, and once an investible property has been acquired, the juggling act of dealing with holding, maintaining, rental income and tax benefits not only requires some monetary calculations, but also makes you more capable of managing your money, and making the most of every cent.
13. Tax breaks – Negative gearing
In terms of tax benefits, this is one of the most important benefits of Real Estate Investment, the fact that the Income tax office allows you to write off Real Estate Investment expenses against tax, thus lowering your income and your tax bill and offsetting any shortfall between rental income and holding costs either partially or in full. This makes investing in property more affordable.
14. Tax benefits – depreciation value
Last but not least, when you buy a property for Investment or generating rental income, your cash flow will essentially be tax free. You will get tax deductions on the mortgage interest, the operating expenses, property taxes, insurance, and depreciation, so on paper depreciation will count as negative income. Exactly how much in total you can deduct will depend on your rental income, but this is definitely a major advantage which you cannot enjoy when investing in stocks.
15. Recession doesn’t affect your fixed Installment
Margin calls are a common feature of shareholdings; essentially, if you’ve borrowed to invest in share, the margin call is when you are asked to deposit more money if the assets in your portfolio fall below a certain amount. However, it’s almost unheard of for a lender to ask you to top up a mortgage if a property falls in value, as long as you can keep up the repayments, you’ll be able to continue holding your property until its value increases again.
16. It’s an asset class you can use
Investment or not, your property is still just that – a valuable asset. So, should events take a turn which means you have to move into that property, you can whether for the short term or the long term, and, if things change again, you can move back out, leaving your investment intact and rent it out. That’s a hard thing to do with a share certificate or a bar of gold.
17. Demand is outstripping supply in the long term
Linked to this is that there is an ongoing demand for property; both rental property and property to buy. India’s Metro & Tier -1 cities population is growing rapidly, and housing supply remains tight in many areas (particularly Metro cities and areas affected by the resources boom). This provides another floor under the market which makes it less likely that prices will crash. Do your research carefully, though, as some areas of the market do experience oversupply! Like current scenario’s in NCR region.
However, after certain year and period, every area faces under-supply of required Real Estate due to growth in demand and population, it’s a proven fact!! Thus higher the demand, higher the price of real estate.
18. Less Volatility & more Protected
While stocks have the advantage of being way more liquid and flexible (you can sell them at any moment), they are also very, very volatile. The general state of the economy affects real estate properties too but to a much lesser extent than it affects stocks. Consequently, if you buy an investment property instead of stocks, you will enjoy a higher sense of stability for your investment.
Properties in well located area’s especially high-end residential zones, underpinned by good supply and demand, rarely crash overnight or even over extended periods of time. They hold their own or at least level off and rarely experience major falls. Investors can avoid high risk areas simply by researching the potential markets and properties well before they buy.
During an economic slowdown, more demand from both buyers and tenants falls into lower or upcoming markets, this result in decrease of values and yields.
19. Other people pay for your investment
In fact, it’s worth noting that, as well as being able to borrow the vast majority of the asset value and the tax benefits, you’re also getting other people, namely tenants, to pay-off your investment through rental payments. You have to just Invest 10% of actual property value, rest is paid by rental income.
20. Still keep growing, year after year
Many investors following a capital growth strategy are putting together a nest egg for their retirement; whether that’s based on selling down and creating a lump sum, partially selling down and living off rental income, or on living off a line of credit. Best thing about Real Estate is that, even after 20 years, yield and value of the Real Estate will continue to improve, making you worth more each year.
21. Bricks and Mortar feel – Tangible Asset
Another factor which is comforting to many investors is that they’ve invested in something tangible, something they can ‘physically look, touch and feel’. Property is one of the few investments which you can actually see and feel, and this often makes it feel more real, you can’t take your friends for a drive on a sunny day past your share portfolio.
While much of this may be a psychological comfort, there’s also a monetary benefit. After all, even if the worst happens, the fabric of the property and the land underneath will still have almost 35-50% tangible value – unlike shares in a company that’s gone under the zero level in such scenario.
22. India’s economy is solid and fastest growing economy
There may be some short-term recessions, but India’s economic future is well and truly solid. The country’s population is projected to reach at least 145 cr. by 2030, and these people will all need housing, most likely in the metro and tier-1 cities. This is all set to fuel solid property growth in the coming years, although savvy investors would do better than others by carry out extensive research into which areas will benefit most.
23. Real Estate Values Increases from other people’s spending
Specifically, government and Commercial investment and development activities. Spending on infrastructure like roads and rail and airports can boost values in cities or regional town which may have previously had accessibility or other issues, meanwhile, investment in new premises or projects, commercial activities, universities, hospital, factories, resources projects, shopping centres and so on, can provide employment opportunities and increase Real Estate demand. These all activities will help the Real Estate prices increase, and that all happens without Investor having to spend a cent on his property.
24. Few Generation can survive on Real Estate Income
When thinking long-term for your investment, you don’t just have to think your lifetime, you can also think about your children or coming generation too. Depending on the legal structure in which you own your properties, you can pass your investments onto your next generation via legal documents either before or after you pass away. You can do this with shares too, but how many top companies in the past 30 years ago are still at the top level? Not that many, in opposite a well positioned property should continue to grow over the long term even for 150+ years.
25. You don’t want to maintain yourself, no problem
If the idea of property hunting, renovating, developing, dealing with tenants or any of the associated tasks that come along with investing in property don’t appeal to you, then you don’t need to do them yourself. There are well organized entities with the ability to outsource pretty much every task to an eager and competent service provider such as agents, property managers and so on. It may cost you, but the best providers also offer a competitive advantage which can actually boost your profits and adds value in the long run.
26. Feeling the pride of ownership
The right property in the right location with the right tenants and ownership mindset can produce a tremendous pride of ownership factor that is highest among all asset classes. Homeownership is out of reach for most people. Imagine owning thousands of multi-family housing units instead?
No one can ensure the future of income from asset class, but this asset class seems positioned to continue to benefit from many other socio-economic issues and THAT’S FOR SURE WILL REMAIN SAME FOR ANOTHER CENTURY.
27. Your job is unstable.
While you might think you have a stable job, job security is not what it once was. Employers are all too happy to let go of hundreds or thousands of employees just so the price-per-share might increase a few percentage points or can cut costs a little bit. Efficiency is the name of the game, and your job might be on the chopping block.
Today, the best job security is enjoyed by those who take an active interest in gaining skills and knowledge that can be used elsewhere. Real estate investing is one of the greatest ways to gain financial independence so your job can become Optional rather than Essential.
28. Technology has made investing significantly easier.
In the “older days,” investing in real estate took a significant amount of driving around, talking to people, waiting, looking at hundreds of pages of documents and other difficult, time-consuming tasks. Today, technology has made investing in real estate significantly easier. For example:
- Advertising units is as simple as posting to any online portal.
- Screening tenants can be done online through a number of screening services.
- Handyman and cleaning services can be ordered online.
- Tenants can pay rent online rather than in person.
- Your agent can set you up with automated email alerts for new listings.
- You can take virtual tours of neighborhoods using Google Street View.
- You can invest in real estate passively through crowdfunding websites.
And so much more. Today, a real estate investor barely needs to leave the comfort of home to manage a portfolio of rental properties, thanks to technology.
29. Real Estate Knowledge is free.
In the past, real estate knowledge was primarily taught by “get-rich-quick” gurus charging outrageous fees for “secret knowledge.” While this practice is still common, the internet has democratized learning in a way that makes real estate investing education completely free.
There are thousands of blog posts, ebooks, podcasts, forums and more sources that help real estate investors connect.
30. A Distinct Asset Class
Real estate is a distinct asset class that is simple to understand and can enhance the risk and return profile of an investor’s portfolio. On its own, real estate offers competitive risk adjusted returns, with less principal conflict and attractive income streams. It can also enhance a portfolio, by lowering volatility through diversification. Though illiquidity can be a concern for some investors, there are ways to gain exposure to real estate, such that illiquidity is reduced, if not brought on par with that of traditional asset classes.
The Bottom Line
- Real Estate Investment is not meant for people who wants to get-rich-quick.
- With this article, we don’t mean to say that real estate investing is an all-happy, problem-free way of making money. What we want to show you is why you should consider to Invest in Real Estate rather than invest your money elsewhere.
- Buying rental property based on speculation of its value is a dangerous tactic which many Investors follow without doing thorough research and analysis.
Of course, we are not suggesting you that any piece of real estate is going to make sense. You still need to understand what you are doing. You still need to do the math correctly and research the market well before Investing in Real Estate. You still need to hustle to find the 1-in-10000 options that is actually worth Investing.
“Perhaps, the secret to making a billion dollars in real estate is that there is no secret. These self-made real estate billionaires built their wealth through visionary thinking and opportune risk-taking. These characteristics won’t bring billions to all average investors, but they will certainly move them to greater wealth”.
David Lichtenstein – A Billionaire Real Estate Investor
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