Real Estate Sector has the best Returns, Start your Investment Journey in this way

There are many methods of investment prevalent at present. People invest in stock market, invest in mutual funds. Invest in gold. People who are a little old-minded give importance to investing in bank FD and real estate. The returns in bank FD have reduced considerably these days. But returns in real estate beat all.

Sudarshan Lodha, Co-Founder and CEO, Strata, says that real estate as an investment vehicle has been the most sought after and promising for investors globally. Reflecting a consistently positive trend of returns, real estate investment has been witnessing a growth and expansion trend for the last few years. He tells us some ways in which investors can invest their money in real estate.

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This is the Traditional/Conventional Investment Model

The easiest way to invest in real estate is to buy a property or lease it for a long term and then let it out to tenants—residential or commercial tenants. The process is simple but requires a large initial investment and includes annual maintenance costs. Make sure the property is free from any legal hassles, get it on lease, buy it upfront or through a loan.

Please Get Registered

If it is a commercial property, you will have to get the necessary registration done at the office of the Sub-Registrar with two witnesses and follow the procedures mentioned there. Once the property is registered, you can send advertisements or spread the word about its vacancy in the market. The tenant must accept and sign the lease agreement and then the monthly rent will be your passive income from the property.

Tenants can also keep on Overlapping Lease

It is a good idea to have tenants with overlapping lease periods in the same property. By doing this your property never remains completely vacant. It also helps in timely maintenance cost. You can also hire a property management firm to handle all this for you, but you will also have to pay their commission fee.

Fractional Ownership

Fractional ownership has also become a trend in real estate. After the success of REITs in India, it is gradually gaining momentum. It also provides a cost effective investment option. Similar to a REIT, it involves multiple investors focusing on a single asset, selected through in-depth market analysis and historical rental performance. After confirming the growth potential, the asset is listed for investment on the firm’s website.

How Does this happen?

In this approach a special purpose vehicle (SPV) manages the investment including maintenance costs. This is especially the case for commercial properties with leases of three years or more. Lease terms of certain commercial properties may be 5-7 years, yielding 8% to 12% rental returns. Investors can diversify into commercial spaces such as offices, warehouses, laboratories, parking lots and industrial floors.

Easy to Get Out

It is convenient to exit fractional ownership through the portal or services of the management firm, allowing the sale of your share or waiting for new tenants to decide on keeping or selling the property. The recent SEBI regulation for fractional ownership platforms has further boosted investor confidence in this real estate investment avenue. The Securities and Exchange Board of India (SEBI) approved a framework to facilitate SM REITs. This is an important development for the fractional real estate market, as it will open up new investment opportunities in the sector while strengthening investor confidence.

Investing in Real Estate through ETFs, Mutual Funds, REITs

These three are not the same, but they can be placed in a similar category. Exchange-traded funds (ETFs) and mutual funds can be purchased that are themselves invested in real estate. It is possible to buy ETFs that invest in real estate stocks such as publicly traded home builders. There are ETFs that also invest in REITs (real estate investment trusts). You can find mutual funds that invest in real estate developers and property management firms.

While ETFs are passively managed by the fund manager, mutual funds are actively managed. ETFs and mutual funds offer high liquidity and low costs, but the downside is that there may be no monthly dividends and you may not get any returns unless you sell shares at a profit. The advantage of ETFs and mutual funds mainly lies in their low investment costs. REITs, on the other hand, allow investment in multiple real estate assets through a single fund. Think of it like a mutual fund composed entirely of real estate assets or loans secured by real estate.

Which Option should You choose?

Real estate investing offers benefits, but it’s important to align your approach with your priorities. Consider factors such as investment size, desired liquidity, cash flow frequency and risk tolerance. Owning, leasing and flipping property requires substantial investment, experience and a deep understanding of the local market. Managing tenants, assets and finding buyers become additional responsibilities. For those avoiding lump sum investments, mutual funds and ETFs offer an approach, although they lack regular cash flow. REITs offer quarterly dividends, some even monthly, with relatively low minimum investments. However, investors suffer losses in the asset mix. Fractional ownership is gaining popularity, allowing investors to choose profitable assets and sell their ownership if expectations are not met.