Investing In ‘Real’ Asset; A Guidebook For Real Estate Investments

Sohan and Mohit, the two friends who are on their journey to build a strong financial security, discuss diversifying their assets to grow their money while spreading the risk. Sohan, who is a finance enthusiast, suggests that investing in real estate seems a suitable option as it generates stable returns and cash flows.

For which Mohit asks, isn't our home a real estate investment? Sohan answers, “Your existing home should not be considered as a part of your portfolio and a dream home which you want to buy will not be an investment.”

Real estate investment in cash flows generating properties can enhance your overall returns, while a piece of land can certainly provide you appreciation in the long-term. It is considered as a ‘real asset’ because it is not on paper like your stocks, its value does not fall significantly like equity assets. So, to allocate a portion of money towards real estate is always a smart choice.

You must have heard people calling real estate is not a good investment compared to Nifty 50 or market returns, they draw the same comparison with fixed deposits and neglect a simple concept that every asset class serves a different purpose.

Real estate is also classified as a growth asset with low risk as its value appreciates over time. It plays an important role in laying ‘growth floors’ in your financial pyramid. MINITIT, in its recent blogs, educated investors on the right way to build the foundation of the financial pyramid.

Now, Sohan plans to buy an apartment to generate a passive income while eyeing for the capital appreciation. He plans to search for good residential or commercial properties in his budget.

The value of real estate does not fluctuate on a daily basis and acts as a hedge in time of a market crash. However, there are some other challenges associated with real estate which you should note while planning to buy a property.

Challenges Associated With Real Estate

Although Sohan is right about the benefits of real estate and it really suffices your assets, it is equally important to know the hard challenges while investing in real estate.

Buying a Property

Before buying any piece of land, apartment or a commercial property you must do a legal due diligence which could be a hectic process. If you opt to finance the property, your CIBIL score (a metric to evaluate your credit eligibility) should be good to get your loan passed along with having enough for the down payment.

Also, there are costs associated while owning a real estate, you need to pay a hefty stamp duty and other fees. Once you own the property, a maintenance cost is also to be paid.

Selling a Property

Well! People realise that selling a property is a herculean task. People struggle to find a buyer at the right price, negotiations, frequent visits, brokerage, deal closure taxes ughhh!

Now all these costs affect your return on investment (ROI) which you should carefully calculate.

REITS

After listening carefully to Sohan, Mohit suggests an alternative option which allows to invest in real estate with low investments. Mohits says, “Investing in real estate requires a huge amount of investment and there are a few barriers also when you want to sell and buy. For a person like me who does not have enough to pay for down payments at this early start of career and wants to capture the potential of real estate, REITs are a suitable option.”

Now Mohan is interested to know more about it and MINITIT is eager to elaborate and educate.

Real estate investments trusts or REITs are firms that offer fractional ownership in commercial properties like malls, office spaces etc and also distribute income generated from rent in the form of dividends. They are traded on major stock exchanges which solves liquidity problems and a hassle free and convenient way to invest in real estate.

Securities and Exchange Board of India (SEBI) regulates the REITs instruments and requires them to distribute 90% of the income to the investors. Sebi also strives to bring transparency in this new-age product ensuring retail investors’ protection.

Now Mohit can invest in real estate through REITs with a minimum investment amount of Rs 10,000. He can opt for REIT mutual funds and ETFs and start investing to enjoy the same returns with low investment amounts. Recently, SEBI also proposed to increase the limits for investments by mutual funds in REITs from 5% to 10% of its net asset value (NAV).

MINTIT, India’s only dedicated Mutual Fund Platform which caters to your personalised goals and accompanies you to achieve your financial milestones is eager to help you build your wealth. Depending on your profile it precisely suggests tailored investing plans to achieve your goals.

MINTIT with its diverse products is pleased to diversify your growth assets while enabling you to invest in real estate mutual funds via SIPs. So start your SIP today and connect with MINTIT to get professional guidance.

Happy! Investing. See you in the next blog.