Investing in
Real Estate
Learn how you
should invest in real estate.
Real estate is fast becoming an
important part of an investment portfolio. It is a
real asset and comes closest to offering fixed income
returns, and it's doing that better than financial
fixed-income instruments. There is also the upside
of possible capital appreciation if you get in at
the right time and at the right location.
Is this the right time to invest
in real estate? And is it just location, location
and location?
Which of these plots do your aspirations fit in?
Did the thought of buying real estate come to your
mind in the past six months? It must have. After all,
this year offers mouth-watering recipe of the lowest
interest rates and never before variety of construction
all in abundant supply. It's matter of how much money
you can invest.
There are all kinds of investors in the market -
from upper middle-class people who are looking at
shelling out about $1 million to high net worth individuals
who want to plant $100 million. No wonder then that
the supply is fragmented and the way about in each
of these sub segments is different.
If you are a high net worth individual
- then investing
in real estate commercial property would obviously
be your best option. Not just because you would have
the money, but also because you would have access
to consultants, advocates and brokers to help you
manage your large investment. You also have the option
of diversifying your portfolio by investing in properties
spanning the commercial, retail and residential segments.
If you are a budget warrior you will be plotting
things differently. You may, for example, look at
investing in a 200-sq.ft-shop space in a prime locality
to let out to a bank for an ATM. Top banks would be
willing to pay a great amount for the lease. You can
also open out your options by pooling money. That's
now a strategy adopted by several investors.
If you are looking at a steady income from property,
think of options in commercial and retail spaces,
where you can get average returns of 10-12%. And even
if you want to buy residential property and live in
it, now is probably the best time to buy. As an investment,
residential property is likely to fetch you yields
of only 5-7%. As you will see later, investing in
residential spaces needs a different mindset.
The risk profile of a real estate investor lies somewhere
between those of the debt and equity markets and so
do the returns. The risk profile in real estate is
closer to that in fixed income markets than the one
in equity. And it is likely that real estate returns
will fall gradually from the current level, in line
with declining returns in bonds (over the last two
years). Another reason for the difference in rates
is the lack of adequate and timely information.
Whichever investment philosophy
you subscribe to, you cannot deny the spring in the
market. It has started to pickup after a prolonged
slump. It is said that real estate follows a 5-7 year
business cycle, but only hindsight can verify that.
The best one can correlate is that
real estate reflects the general state of an economy.
If the economy is going to do well, then so will real
estate. This time what gives it strength is that the
market is driven by end user demand.
Next we will learn investing
in commercial spaces.
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