Benefits of Property Investment in Real Estate


Date: 24-April,2019Last Updated: 10-June,2021
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Rental properties are owned by individuals apart from their primary residence that is purchased with the intention of renting out the property to tenants looking for a home and henceforth earning some returns and equity on the side. An investment in Real estate by buying a property and renting it out has been the ultimate investment choice of many successful investors over the years. If you take note of the investments of wealthy and successful citizens of the society, it can be seen that a big portion of their successful investments were rental properties.

An investment in Real estate by buying a property and renting it out has been the ultimate investment choice of many successful investors over the years. If you take note of the investments of wealthy and successful citizens of the society, it can be seen that a big portion of their successful investments were rental properties.

Rental properties are owned by individuals apart from their primary residence that is purchased with the intention of renting out the property to tenants looking for a home and henceforth earning some returns and equity on the side.

Owning a property in addition to one’s primary residence is a way to increase your capital wealth. The key advantage is the fact that your tenant pays your mortgage and as time passes by, your equity grows. Not only this, you end up owning a physical capital asset that makes income continuously. As per the latest Indian Real estate trends, about 47% of rental properties are owned by individual investors.

Now, let's discuss the key advantages of investing in Real Estate:

1.Can be bought using Leverage:

Financers and tenants contribute to the cost of the property and help build potential return. The investor need not have 100 per cent of property cost to buy it.

2. Ability to be flexible in investment options:

Unlike other investments, the flexibility to invest more in Rental Property. The extent of investment is decided by you.

3. Self-management of property:

In the rental property sector, the owner is responsible for the property’s prospects. The freedom to take a prompt decision based on factors decided by you enables the owner to ensure the wellbeing of the property and good returns from the property. There is no need to depend on someone else’s discretion to ensure the optimal management of your property.

4. Endless demand for rental properties:

The real estate market might up and down in general but rental properties have been known to be in demand consistently. Unlike a trending stock or the latest tech trend, rental properties will always be in demand and will give returns for long. Also with the rise in student loans and overall debt, the probability of people moving into rental homes is definitely higher in the future.

5. Evidence of success:

This is one of the few investments having a valid proof of concept of the safety and stability of the investment. Millions of successful investors have been known to build wealth by being landlords and leasing out residential property. Its worked for a lot of people before then why not now?

6. Stability and predictability:

In times of recession and market collapse, rental properties are the most stable and predictable investments. The key is to not get greedy in desperate times and trust in the long term prospects of rental properties.

7. Variety of options:

In this class of assets, rental properties have a vast variety of options to choose from. Ranging from Single-family homes to apartments to high-end homes to office spaces, the number of options is endless.

8. Buy below market value:

The ability to buy a property of value higher than it’s cost is the coolest advantage residential properties have. The fact that you can find properties below the market value is one of the best options of buying in real estate and a good means to build capital wealth.

9. The best source of Passive income:

In times when active income has become difficult to earn and time -consuming rental properties have become the best source of passive income with the ability to even outsource the responsibilities of being a landlord.

10. Insider trading is legal:

For the investment aficionados when an investor makes a profit based on their access to private information it is called insider trading. It might be illegal with other assets, but not with rental properties. Knowing the current and future prospects of a property and then making decisions that result in profits is absolutely legal in this sector.

11. Multiple options to make a profit:

  • Cash flow
  • Appreciation
  • Loan pay down
  • Tax Benefits
  • Net operating income

Experts in the Real Estate sector have advised investors time and again that despite having a property, investing in real estate repeatedly is a means of building wealth, continued liquidity and rise in equity.

Some might question is this too good to be true?

We are here to burst that bubble.

Rental property investments have been one of the top choices of numerous successful and wealthy investors over the years. Learn from the wise and experienced they say, first time and amateur investors must look into the wealth growth graphs of prolific investors from a generalistic perspective. Understanding the vision behind their path and following or adapting certain aspects can help investors build capital wealth.

Before investing in Rental properties, certain metrics are to be looked into. The return on investment is essential to ascertain the security and growth of your investment.

How to calculate ROI on Rental Property ?

ROI = (Net Profit / Cost of investment) x 100

So, expecting and ensuring a reasonable return on investment is obvious. Calculating the true ROI of a rental property involves factoring in all costs arising from the possession of the property apart from the purchase cost. Whatever the final figure tells you helps you realise the future prospects of your property investment.

The factors affecting the initial cost of investment are purchase price, closing costs, final finishing charges. And the factors affecting Net profit are revenue and expenses. The difference between revenue and expenses gives the net profit.

The variables for net profit are:

Revenue:

  • Rental income: Rent charged every month

  • Mortgage paid down: Share of property ownership

  • Change in property value: Additional equity apart from the mortgage amount based on current residential real estate prices and rental prices

Expenses:

  • Finance: The amount paid in principal amount and interest when the property is taken out on a mortgage.

  • Homeowner’s Association Dues: Dues paid towards community amenities.

  • Property insurance: Cost of Property Insurance

  • Property Taxes: Amounts paid towards state and local taxes. These taxes keep changing every year. Unless a reassessment of the property is done, it is likely that the prices are hiked annually.

  • Vacancy: When a rental property is vacant, certain expenses are incurred additionally with the standard annual vacancy rate at 5 to 8%.

  • Maintenance: Every property will incur certain expenses towards the maintenance of the property on a monthly and annual basis and these expenses can be pretty unpredictable. These expenses are essential to ensure the upkeep of the property and at the same uphold the competitive advantage of the property in the market.

  • Time: If one were to follow the Time is Money ideal, the time that an owner spends towards the property is also accountable towards expenses. Whether it is fixing a specific issue or the overall management of the property, the time spent on the property must be worthy in returns.

Another important fact is that the dynamics of the financial prospects of the property keep changing every year and hence there’s a need to recalculate return on investment every year.

Homes247.in Experts View:

Advantages like capital growth, ongoing cash flow and significant tax benefits make rental property investments the best in class investments. However, if rental properties are bought the wrong way then it is possible that they drain out your finances towards the end.

The keystone to financial success in rental property investments is buying them the right way.

The need to look into all aspects with the utmost care and attention is essential.

The complexity of the variables pertaining to the health and performance of rental property investments make it absolutely necessary to make the right decision.

Considering all variables and ensuring optimisation to maximise return on investment is key to the prospects of your investment.

Another important factor is that these investments must be analysed in a long term perspective rather than being a typical cash cow.

Hence we at Homes247.in suggest all our homebuyers to get in touch and ensure the safety and accuracy of your investment.

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