Top 12 reasons to Invest in Real Estate


Date: 27-February,2019Last Updated: 27-February,2021

In today’s world investors are looking for a dynamic and diverse investment portfolio of highly attractive and secure investments from multiple sources of income. It can be seen that people are investing in Real estate realising the massively prosperous returns from this sector. History has proven time and again that longer possession of real estate is directly proportional to return on investment. The housing market has always recovered from past disruptions that caused home appreciation to dip, and for homeowners who kept their investments even in uncertain market situations, prices have always returned back to normal and also realized appreciation.

Also, the exceptional tax deductions on mortgage interest, constant cash flow from properties, operational expenses, realty taxes, insurance, depreciation (even if the property gains value) and other benefits attract more and more people to invest in real estate. Especially during the end of a Financial year, a rapid surge in property purchases is seen to the added tax benefits in this scenario.

Some of the reasons for the increasing returns and interest in this sector are specified below:

1. Rental Yield

The percentage yield from the direct rental income which can be calculated in terms of gross or net is the rental yield of a property. Over the years, industry experts have preferred to consider net rental yield, which is a ratio of expenses, taxes, and other costs to the property value or cost. The net rental yield can be negative, as it doesn't consider mortgage payments because of which many investors prefer to look at cash on cash rental yields.

2. Appreciation

One of the many benefits of investing in real estate is being able to generate wealth through appreciation, building equity, and hedging against inflation. It can also provide cash flow with passive income from rental properties. These are the reasons why real estate should be a key component of your investment portfolio.

3. Building of equity for future

One of the advantages of investing in real estate is being able to build equity. Equity is an asset that is part of your net worth. As you pay off your mortgage, you build equity. Along with homeowners building up equity, they now have the leverage to acquire additional properties to let out for rent and increase their cash flow.

4. High tangible asset value

Louis Glickman once said, “The best investment on earth is earth itself”. Other investments might see a massive dip intangible asset value but that’s not the case with real estate. An added benefit is that a Home Owner can avail Home owner’s insurance to protect their investments in real estate. Hence, it is advised to owners to procure the right policy of insurance to ensure the safety of investment in a worst-case scenario.

5. Generation of passive income

Real estate is a great source of generating passive income for many reasons. Owners enjoy an excellent rate of return, amazing tax advantages and the opportunity to leverage real estate and increase their wealth. It is famously said that “Your rental properties will work for you even when you are sleeping”. By buying several rental properties that generate enough income to cover expenses, owners feel a sense of financial freedom and growth.

6. Portfolio Diversification

Investing in real estate offers the portfolio diversification benefits of owning a physical asset. Properties are tangible assets that can be monetized either through letting out or living in the property, regardless of the market conditions. This is one of the reasons real estate is safer in terms of a swing of asset prices when compared to stocks and bonds. The tangibility of real estate helps it survive in times of other economic distress as well.

7. Tax Advantages

  • Constant Tax-Deferred Growth
  • Flexible Tax Breaks
  • Convenient Tax Deductions

8. Increased cash flow

A fundamental benefit of real estate investments is its potential to generate long term income as the mortgage is paid off. It has been seen that income generated from property investments suffices various expenses like mortgage payment, condominium fees, taxes, and various other expenses also ensuring Increased Cash Flow. Cash flow is also strengthened over time with subsequent mortgage payments meaning this delayed flow of funds will supplement investor’s retirement income.

9. Inflation proof investment

Rental values usually increase with inflation, while mortgage payments on properties remain stable. All this substantially increases cash flow and at the same time reduces the increased expense of possession of the property. It is seen that with a rise in inflation the number of people renting properties also comes up due to a hike in the cost of mortgage payments which can be expensive for prospective homebuyers.

10. Leverage

Leverage provides greater returns yet adds risk. For example, using Rs 10 Lakhs in leveraged assets to purchase three properties with down payments, instead of one for Rs 10 Lakhs cash is more volatile due to the risk being on 3 properties rather than one. The ability to magnify the investment return with financing is called positive leverage. Stocks, bonds, commodities, and art do not offer the same ease when being used as collateral for financing.

11. Paying down loans

Amortization, or paying down loans, free up more investment resources. Some investors use the increased equity in one property to free up funds to invest in other properties.

12. Inflation Hedging

A long-term real estate investment strategy is an effective hedge against inflation as the value of this asset class has historically increased at a rate similar to the rate of inflation. You are thereby ensuring that your ‘real’ or hard asset will help maintain your wealth and your standard of living.

Homes247.in Expert’s View

Time and again there has been a constant rise in demand in real estate.

As per the analysis, in terms of financial prospects, the Real estate sector has always been a widely suggested avenue to invest in.

Will Rogers once famously said, “Don’t wait to invest in Real Estate, Invest in Real Estate and Wait.”

We at Homes247.in are constantly working towards maximisation and optimisation of Return on Investment for our home buyers, which any customer-driven real estate aggregator must do.

Hence, our advise to home buyers would be to invest in real estate after careful, thorough inspections of intrinsic details and grow their wealth abundantly.

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