INVESTING IN REAL ESTATE

Many a times I am asked if one should invest in real estate/ house or invest in mutual funds or equity and rent a house while waiting for investments to grow to buy the first house. Many people have a lot of confusion which is well understood too.

First house small or big is a necessity to live in life long so it is not considered as an asset or investment as far as your personal financial planning is concerned. Comparing it with equity or any other investment is thus not correct.Waiting for the equity or mutual funds investments to grow enough to buy a house is also not recommended for valid reasons,please see my earlier blog on First House for more clarity.

So your equity investments or asset allocation (which I am yet to discuss on my blog) really starts only after the first house has been purchased.

If you have recently migrated to another country then it is advisable that you plan for your first house in the relocated country not considering the house in home country and later take a call on keeping as an asset the house in home country or selling it .  

Investing in real estate beyond first house is best viewed as a portfolio enhancer, an investment that complements stocks and bonds as a decision based on your asset allocation,used as part of a larger investment plan, it can add stability to your income.

Before you decide to invest in real estate the following points need to be kept in mind :

1. Real estate investment can require a significant amount of capital, even beyond the price of the purchase. Ask yourself if you can afford to keep your investment if the market turns bad.

2. Since real estate is a tangible property, it will require maintenance and upkeep. While this is normally covered by rent paid by tenants, there may be times when there are no tenants to occupy the property, meaning that the costs will fall to the owner.

3. Learn about real estate investing. In order to invest in real estate successfully, you should research the subject thoroughly and be well-versed in how the market functions. There are multiple ways to invest in real estate, and you will need to evaluate your goals and finances to decide which option is best for you.

4. Real estate is "an interest in land" (and anything permanently attached to land). This means that the real estate market is essentially about buying and selling land and buildings. There are two types of "interest" at work in real estate: ownership and leasehold. "Ownership interest" is taking full control of and responsibility for land and buildings, and "leasehold interest" is the granting of certain rights to a tenant in exchange for rent payment.

The most common form of real estate investing is purchasing ownership interest in a property and then earning money from rent paid by tenants.

5. Identify your tolerance for risk. There are two main markets when dealing in real estate. These are the private and public markets. Any investing is risky to some extent, but each market has its own level of risk.Please do not consider keeping fixed deposits with builders as an option for investment, as many have lost their hard earned money lured by a slightly higher interest rates offered by these builders and considering it as an investment.  

6. Private real estate involves the purchase of an ownership interest in "real" (as opposed to "personal") property. You or a property manager would then operate that property and you would earn money on rent paid by tenants. This is a very direct way of investing in real estate because you, as the owner, are responsible for the property.

7.Public real estate involves purchasing shares of a publicly traded real estate company. Because you only own shares in the company, you are not responsible for the real estate. This is a less direct approach to investing.

History of Real estate in India

Post independence real estate has given phenomenal returns in India, much at the cost of common people and larger national interests often supported by politicians and ruling political parties to create a parallel economy of black money. Nation, development and common people have paid an enormous cost before the efforts by way of RERA legislation which is slowly getting implemented and showing long term positive results. Rise in returns from real estate is not likely to be so phenomenal as in the past but need for housing for increasing population will continue.

This needs to be noted and well considered when thinking of real estate as an investment today.

For those who need long term sustained personalized support and education on personal financial management visit and enroll on my web site :

www.moneymonk.me