Through the article, we will look at the importance & types of real estate and how we can invest in real estate.
Real Estates include all the land, the buildings constructed over them, the improvements made on the land to access such construction. Real estate can be broken into four broad categories:
- Commercial: Office Spaces, Retail Shopping complexes
- Residential: Residential Apartments, Housing societies, etc
- Industrial: Factories, Cold Storage Facilities, Warehouses, Distribution Centers, and R&D properties
- Land: Agricultural Land, Individual plots used to build construction
Real estate is a highly recognized sector globally. This sector is the second-highest employment generator in India, after the agriculture sector. This sector is expected to reach US$1 Trillion by 2030, up from US$ 200 billion in 2021. Real estate is also expected to contribute as much as 13% of India’s GDP in 2025.
Purchasing real estate is one of the few investment strategies that can be highly lucrative and safe. Unlike stock investment, where the entire amount needs to be paid upfront, only a tiny percentage of the total investment needs to be paid as a down payment. The rest of the amount can be paid over fixed tenure, with interest, of course.
There are several ways we can earn through real estate investing:
- Rents and Leases: Owning properties that can be given on rent is a great way to earn money periodically and systematically. However, the owners would require to consider that there would be vacant months that can hamper the income and return of investment.
- House Flipping: Someone with experience in real estate marketing, appraisal, and remodeling may be done by someone. This requires liquid capital and the capacity to identify, comprehend, and correct issues as and when they arise. Because the capital is locked up for a shorter time, it may provide a speedy return. It just needs extensive real estate market knowledge.
- Real Estate Investment Groups (REIGs): These are good options for people who want to own a rental property but can not deal with the hassle of managing it. It is similar to mutual funds. It is a corporation that either creates or buys a group of apartment buildings and then sells them to investors.
- Real Estate Investment Trusts (REITs): For individuals seeking portfolio exposure rather than a real estate transaction, REIT, is a choice. It is formed when a trust uses the funds of its investors to purchase and operate income properties.
- Online Real Estate Platforms: Online real Estate investing platforms seek to bring together small investors in more significant transactions. In this case, the investment is made through internet platforms known as real estate crowdfunding. It also necessitates a capital expenditure, although it is far less than required to purchase real estate directly.
Real estate investors can be categorized as active and passive investors. An active real estate investor is someone who self-manages a rental property instead of hiring a professional manager.
Passive real estate investors transfer most of the effort needed to own and operate property to others, investing in a crowdfund or engaging a local property manager to handle day-to-day operations.
To conclude, there are Pros and Cons we need to know about investing in real estate:
- Stable flow of income
- Appreciation of capital invested
- Real estates bring diversity to portfolios which help in reducing the risk
- It can be bought using leverage
- Requires high liquidity
- Many local factors play an essential part in real estate
- Needs large initial financial outlay