Real Estate investing is preferred by investors all over the world, since it offers monthly rental income, secure home for your family in the future, safety and does not require the understanding of complex calculations. It involves the purchase of a real estate property for rental income and/or appreciation of the invested capital. In the words of Robert T Kiyosaki, the famous American Businessman, and Author:
Real Estate investing, even on a very small scale, remains a tried and true means of building an individual’s cash flow and wealth.
While most people have started realizing the importance of investments in building a financially independent future, very few have understood the true importance of investing in real estate. And those few are on the right path of becoming rich!
90% of the millionaires become so through owning Real Estate – Andrew Carnegie
Having said this, investing in real estate has its own set of pros and cons. If you want to invest money in real estate, then it is prudent to look at both the sides of the coin before signing the dotted line.
Why should I invest in real estate?
Here are five good reasons to consider:
- Lifelong passive income generator (rental income)
- Diversification of your investment portfolio
- You can finance your purchase and repay the installments while you earn the rental income and your capital appreciates.
- Your cash flow improves due to the rent received every month
- You can avail a loan against your property in times of emergency
Is Real Estate a good investment?
Every individual has a different preference for investment tools. While there is no one-size approach to investing, we can offer you a fair perspective. You can go through the advantages and disadvantages of investing in real estate and decide yourself.
Advantages of investing in real estate
- Simple to understand. No complex ratios/jargons. You purchase property and pay money. Period.
- You can work on your asset (property) to help increase its value, unlike stocks/bonds where all you can do is wait and watch.
- What happens during inflation? Real Estate prices increase too. So, investing in real estate offers you natural protection against inflation.
- The real estate market is not an over-analyzed market. Hence, by researching it well, you can find great deals and book good profits.
- With rising costs, most of us would be happy to have a second source of income, right? If you rent your property, then you can earn passive income for the rest of your life.
- Properties are usually very costly and most people don’t have so many savings. But, getting a loan to buy a property is possible. So, you take a loan, buy the property, keep tenants, ear the rental income and see your invested capital appreciate while you repay the loan every month.
- In times of exigencies, you can avail a loan against your property quickly and at competitive rates. Takes care of the proverbial rainy days!
Disadvantages of investing in real estate
- Lack of liquidity is probably the biggest disadvantage of investing in real estate. Comparing it with other investment options, you can’t quickly sell your property without drastically reducing its value.
- Unlike a share/bond, real estate properties require maintenance and care. Which means recurring costs and investment of time.
- While home loans are a blessing for investors, they can also turn into a liability if the investor loses his source of primary income.
How do I start investing in real estate?
Here are some tips to help you while getting started with investing in real estate:
1. Follow the three basic rules of investment
Before you start investing, remember to follow these simple steps:
- Determine your investment objective.
- Understand your risk appetite
- Define the time horizon of investment
These three basic rules of investment can help you to identify the investment options that best suit your needs.
2. Research and Analyze
Rome was not built in a day. They probably spent time looking at various estates before finalizing where they wanted to build the city!
Where do you want to invest? What kind of property? How old should the construction be? What type of construction? What about the interiors? There will be thousands of questions in your mind. Make a list out of them and prioritize. Then, start looking at properties. See as many as you can and filter them through your list of priorities.
A few properties that you narrow down can be filtered further by looking at your investment objectives and finding the one that is the best.
3. Understand every little detail about the financials before buying
There are many legalities and charges and taxes associated with buying real estate. If you are purchasing a property for the first time, ensure that you understand all the minute details well. Calculate the total fixed and recurring costs. Look at the expected rental income (if you plan on keeping tenants) and analyze your probable returns. Do the Math.
Once you have these figures in hand, you will be in a good position to make a decision.
Real Estate is the most important investment you can make for a multitude of reasons. Don’t leave it out of your portfolio. On the other hand, don’t rush and buy the first property that catches your fancy. Follow the steps mentioned above, go through the advantages and disadvantages of investing in real estate and analyze well before you make a decision.