Discover the basics of real estate investment with our beginners guide. Learn key strategies and tips to kickstart your journey in property investment.

Real estate investment is a topic that has garnered much interest in recent times especially, owing to the rise in demand for real estate as an investment.  Real estate has long been considered a lucrative source of growing one's wealth. For those new to the world of property investment, it can seem complicated and daunting.  However, with the right guidance and know-how, the realm of real estate investment can prove to be a key component of your financial portfolio.

In this blog, we will reveal a beginner's guide to real estate investment, including the basics, benefits, strategies to manage risks, types of investments to look into, and setting goals. 

Real Estate Investment Benefits

Did you know real estate investment in India is the second largest employer after agriculture? it’s true. Urbanisation, the rise of nuclear families and increased family income have contributed to the overwhelming attraction towards real estate. But before we start delving further, it is important to understand why real estate investment is worth considering.

1. Income Generation: There’s a reason why there's been a boom in the real estate industry. Real estate provides a stable and continuous income through rental payments and through selling when a property gains appreciation over time.  

2. Appreciation: Over time, real estate properties garner an increase in value. This is called ‘Appreciation’ and is known and proven to have provided significant capital gains when you decide to sell the property.

3. Diversification: Real estate as a market has provided investors with another means of investing through which they can diversify their investment portfolio. This helps in lowering the risk rate and can protect your investments from market volatility as different kinds of properties impact different levels of gains and losses. 

4. Tax Benefits: The Government of India offers many tax benefits if you are investing in a property for business or are a first-time home buyer. Real estate investors can enjoy various tax advantages, such as deductions for mortgage interest, property taxes, and depreciation.

5. Tangible Asset: Unlike stocks or bonds, real estate investments offer comfort, being tangible assets. You can experience and visit your properties, which can be a reassuring factor for some investors

Types of Real Estate Investments

Real estate covers a myriad of investment options. Knowledge about the different types of investments will help you choose the one that aligns with your needs, budget and long-term goals. Here they are.

1. Residential Real Estate: This category is the most commonly known and indulged in. This includes a property purchased to live in, a Long-term rental property or one that you buy and maintain with the purpose of renting out, a vacation rental or homes you buy to accommodate tourists, ADU (Accessory Dwelling Units) or spaces within your own property that you rent out to a tenant. Residential real estate is the highest-yielding investment, though may require expenses and regular cash flow to maintain such properties. 

2. Commercial Real Estate: Commercial properties that are used for business purposes such as office buildings, retail spaces, and industrial properties. Like Residential properties, investing in commercial real estate can also yield higher returns but may require considerable capital.

3. Vacation and Short-Term Rentals: Vacation or short-term rentals are typically those investments that you put up as holiday homes or accommodations. For example, you buy a property in a location that is tourist-friendly, refurbish it and maintain it with the purpose of extending a vacation accommodation. Airbnb and Vrbo are examples of such investments. These may prove to be extremely profitable but require significant monetary flow.

4. Real Estate Investment Trusts (REITs): REITs are companies that operate and manage a property for you. These are considered passive investments as instead of owning the property, you hire an REIT to run it for you, while you generate income.

5. Raw Land: In India, raw land is considered a long-term, stable property investment. This kind of property is an empty plot without any walls or inclusions. Such investments are high-yielding and can witness very high appreciation over time. Raw land investors usually lease out the land to farmers for agriculture.

Creating Investment Goals

The real estate realm, though lucrative, can be unforgiving if decisions are not well thought out and most importantly, goals are not set clearly. Hence, setting clear and achievable investment goals and strategies is crucial in your real estate journey. Here are some considerations when creating your investment goals:

First and foremost, define your financial objectives- is your goal long-term appreciation, passive income or short-term profit? This also ropes in the time frame you are looking at whether you seek immediate gains or are you investing for the future.

Once that is set, Zeroing in on a property type will become easier. 

Your financial expanse and time horizon will decide whether you should invest in a residential property, rental property, commercial property, raw land or  ADUs. Though all of these property types are slated to give returns, it is imperative to understand and realise your risk tolerance. Every investment comes with its share of risks. Assessing how much you can afford to take as a liability. 

Strategies for New Investors

For new investors, the prospect of entering the real estate market can be very intimidating and frightening. That is but natural, as your life’s savings garnered through hard work and toil are at risk. However, there are means and ways to make this journey simpler and seamless, and increase your chances of success in creating profits. 

1. The number one advice is to educate yourself and read about the market, its pros and cons, the types of properties that exist and what kind of investment to consider when starting out. Basic knowledge is a must before you dive into the waters. Online courses, and knowledge from professional property advisors, friends and relatives who have delved into the market can prove to be more beneficial in getting you started than you think.

2. Slow and steady wins the race! Take this as a thumb rule when you start your real estate journey. Start small with a lesser budget and safer properties. Test the waters and gradually as you gain experience, you’ll be well settled and ready to make larger investments. 

3. Whether it is buying a house or any other kind of property, the importance of location cannot be denied. It is probably the most crucial factor that decides how profitable your property will be. Pick a location that has the potential to grow economically and has a robust job and manpower market, has basic social amenities around and of course safe surroundings.

4. The cash-generating prospects of a property must not be left out. Perform a cash flow analysis on the property to ensure that a property you buy for rental income must give you back more than your expenses. 

5. Financing is a stage that can make or break your future goals. So, you must explore your financing options, such as mortgages, taxes, loans etc to determine the most suitable method for purchasing properties.

6. The bottom line is that professional help will come in very handy. Consider speaking with real estate agents, property managers, and financial advisors to get expert advice and support.

Managing Risks in Real Estate

Real estate investment is not without risks. Even when the market is thriving, it is still prone to potential risks, to buyers, brokers and agents alike. With so many intermediaries involved in the process of buying, selling and renting, the margin for error could be less. However, understanding risks and taking steps to manage them can help protect your investments if you are a buyer and your relationship with investors, clients and agents if you’re a seller. Here are some potential risks to keep in mind- 

1. Market Risk: The real estate market is prone to fluctuations. This volatility can be attributed to several factors such as economic conditions and interest rates. Diversifying investments can help in mitigating market risk.

2. Property Risk: Properties can require unexpected repairs or maintenance. Budget for these expenses and conduct thorough inspections before purchase.

3. Tenant Risk: Assess tenant risk with precision. Our comprehensive solutions provide in-depth analysis, minimizing potential issues. Protect your property investment by making informed decisions with our reliable tenant risk assessment services.

4. Liquidity Risk: Real estate is considered a less liquid investment compared to stocks or bonds. Be prepared for the possibility of not being able to sell your property quickly.

5. Credit Risk: If you're financing your investments, be aware of credit risks associated with mortgages and loans. Maintain good credit to secure favourable terms.

6. Legal Risk: Real estate investment for beginners may seem complex, but with the right guidance and a well-thought-out strategy, it can be a rewarding endeavour. Real estate basics encompass various investment types, each offering unique advantages.

By setting clear investment goals and following proven strategies, you can make the most of the opportunities the real estate market has to offer while managing potential risks. Remember, real estate investment is a long-term game, and patience and diligence are keys to success. Start your journey, and you may find that real estate becomes a cornerstone of your financial future.