02 Jun 2022

A millennial's guide to investing in real estate

Real estate investments, when done at the right age, at the right location, and with the right brand, can prove to be fruitful in the long run. They can help you dream of an early retirement plan. Here's a millennial's guide to wise real estate investments.

The whole world is eager to invest, and for all the right reasons. The benefits are countless: the return on your assets can be utilised as a regular source of additional money for your day-to-day living expenses. You can also reinvest the funds to compound your wealth. Merely saving money is not enough – making the right investment is critical for higher returns.

One quality investment that is the talk of the town today is real estate. Real estate investments often yield consistent cash flows, good yields, tax advantages, and diversification with well-chosen assets - and are a great avenue to build wealth. Investors make money through rental income, appreciation, and profits generated by business activities that depend on the property.

Here are six tips for you, as a (soon-to-be) real estate investor, to get going on your real estate investment journey:

Start early, enjoy later

As property values rise with time, investing in real estate at an early stage gives you ample time to explore and identify the right property to invest in, leaving you with high-value properties in the later stages of your life. Being a millennial comes with a unique advantage - a larger appetite for risk. What's more, you are also eligible for better loans that offer more extended repayment periods. It is time to make the most of these incredible benefits. By investing in properties by credible developers in growing areas, you can ensure high returns and secure your future, availing the luxury of an early retirement.

Do a financial health check

Before investing your hard-earned money, it is critical to complete a thorough check of all important factors.

  • Step one? Self-introspection. Evaluate your long-term income potential, risk appetite, and investment capacity.
  • Next, develop a strong understanding of the micro-market. This means considering location and futuristic infrastructure growth - it is always a good idea to be aware of where the government is investing in infrastructure and invest accordingly.
  • Before investing your hard-earned money, it is critical to verify all your documents. Be aware of factors like hidden charges, fees, repair charges, insurance, etc., to make informed investment decisions.
  • Other crucial aspects to know beforehand are details about the developer and project timelines. Make sure you examine the developer's track-record and financial credibility - they should be a trustworthy name approved by RERA.

Evaluate all opportunities

The growth of real estate will be significant because of its advantages. Here are some ways you can get started:

  • Invest in residential or commercial properties. These are traditional, proven investment options that yield good returns.
  • Explore fractional investment options or new investment channels in real estate like AIFs (Alternative Investment Funds) - AIFs are funds founded or incorporated in India that is privately pooled investment vehicle that collects funds from sophisticated investors, both domestic and international, to invest in line with a stated investment philosophy for the benefit of its investors.
  • Evaluate schemes provided by credible developers as investing in properties under pre-launch schemes can often be beneficial. Example of these include buy now - pay later schemes or rental schemes provided by commercial properties. However, do ensure you go through the terms and conditions carefully.
  • Depending on your risk appetite, you can also explore investing in commercial or warehouse properties
  • Buy REITs (Real Estate Investment Trusts) – These are companies that hold or finance income-generating real estate in a variety of property sectors. Why invest in them? You can earn dividends from various assets without owning any of them.

Aim to maximise your ROI

The investment horizon directly impacts the Return on Investment (ROI). It is important to carefully evaluate the real estate segment you want to invest in (be it apartments, plots, office spaces, or even retail), calculate your risk appetite, and invest accordingly. Early investment in plots with a greater than ten-year period ensures the maximum gain. A good rule of thumb is that the larger the investment tenure, the better the return. It is also critical for you to plan and monitor your entry and exit for capital gain protection. Similarly, it would help if you considered tax implications to maximise the ROI.

Get everything ready

Start building a solid credit history and credit score as early as possible. This will benefit you immensely when securing loans with good rates. Before investing, thorough research is mandatory as it strengthens your investment knowledge and will help you be aware of diverse investment options through comparative studies. When it comes to real estate investment, brands are crucial, and you need to be cautious before deciding to invest.

Follow the trends

Sometimes it is beneficial to follow the crowd because that is where the highest returns lie. Fractional Investments (FI) are the newest trend. With this approach, you invest in real estate as a percentage holder with others without being the sole owner of the property. Commercial and retail spaces are also attractive, with a 5-9 percent Internal Rate of Return (IRR) depending upon location and property, among others. Another trending investment option in residential real estate is semi-luxury homes.

With this guide, you are now ready to begin your journey in real estate investment. So, start today and invest in your future.

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