Tips to Avoid Risk at Real Estate Investment as Beginner

Kamlesh Yadav K

This age is the entrepreneurial age. Everyone is looking forward to starting their business. Unlike before, people are interested in finding safe and secure sources of income. People want their money working for them rather than working for money their whole life. There are many ways to invest your money to earn profits but here I am going to tell you a bit about real estate investments.

Real estate is related to dealing with the properties like land, houses, factories, hotels, buildings, etc. In India, it is the second-highest economic sector in generating revenue. There are different types of real estate. But there are two main categories – Physical investments and non-physical investments.

Physical investments require owning properties like land, house, buildings, etc.

Non- physical investments do not require ownership of properties.

Talking in Layman’s terms, physical investments required a big amount of money to invest and non-physical investments require comparatively very less amount money to invest.

Investing in physical investments can yield higher returns but it requires having a huge amount of money upfront. Investing in non-physical investments has comparatively lower returns but you can start with a lower amount of money. Non-physical investments help you to invest in multiple real estates at once which is helping you in diversifying your portfolio.  

Physical Investments

1. Real Estate Valuation

It involves selling your property when the property rate goes up in the market. Like every other economic sector, it is based on a basic principle called ‘Demand and Supply.’ When the area of property gets scarce and busier to build or develop any other property the property rates of that area will go up.

Although it is a risky business because one cannot predict property rates but real estate appreciation can give you a higher return. 

2. Cash flow Revenue

When you buy a property and rent out to another it will generate a steady income for you. You can collect money on a weekly or monthly basis which can generate a steady cash flow for you. 

3. Land

You can buy land and develop a commercial or residential and then sell it to another person. But before buying land you should have deep knowledge of building regulations, flood plains, local residential and commercial market, zoning codes, etc.

If you do not have an idea about these, you consult a professional real estate agency such as Roodland which has many years of experience in the real estate business and can guide you in doing the right investment.

Non-physical Investments

1. Real Estate Investment Trusts or REITs

This is a risk-free way to invest in real estate with a very low amount of money. You can invest in REITs in a stock exchange where a real estate company is listed. This company takes a risk which involves in real estate properties and makes their profit. As an investor in the company, you will receive profit from the increase in share prices.

Some public REITs offer large amounts of liquidity and dividends which will be given to investors. REITs have proven to get an annual 8% return on an average residential property whereas for commercial properties it can go up to 12%. 

In India, mainly people invest in the above options. There are other options also like contract flipping, short sales, vacation rentals, commercial real estate, fix and sale, etc. These options are subjective to the laws and regulations around you.

No matter which options you are choosing in real estate it has always yielded an average of 8% growth.

In 2020, major cities in India have shown an unexpectedly high 13% return on real estate properties. The real estate sector is often compared share market for annual growth and profit returns. Comparing to the real estate share market has higher returns, good liquidity. But risks in real estate are significantly lower than in real estate. Unlike the share market, you can deduct your tax expenses and it can generate a steady cash flow. 

There are also some potential risks involved in real estate. With a clear mind and professional guidance, you can easily avoid those risks.

Here are 5 tips to avoid risks in real estate as a beginner investor

1. Know the actual price of your property

Whenever you want to invest in any property you should be able to calculate the ROI of that investment. Apart from the cost of the property, there are other hidden expanses of real estate properties that can elevate your property cost value. These expenses might be maintenance fees, utility fees, taxes, etc.

When you are buying any property make sure that you consider all the hidden expenses so that when you decide to sell that property you can yield a great ROI on your investment. 

2. Know your property

When you buy a property understand its purpose. You can redevelop a property and sell or try to hold that property and rent out to create a steady income. 

3. Know the location

This might be the biggest concern you should have while buying any property. For example, when you buy a 400 sq. Ft. 1BHK room in tier 1 cities like Mumbai you may have to pay around 70 – 90 lakhs INR but when you want to buy some area property in tier 2 cities like Ratnagiri the price may come around 20 – 30 lakhs INR.

To avoid buying a property at a higher price you can make a checklist so that you can estimate the value by yourself. Inspect the property and surrounding area by yourself, check how accessible the property is and how easily utilities and necessities are attainable.

To further inspection you can check how safe is the neighborhood, noise in the area, any river, lake nearby, etc. Sometimes these slightest things also can affect the prices of a property. 

4. Consider increasing the value of your property

After you buy a property the price might go up in a year or two due to scarcity and inflation in the economy. But to gain higher returns, you should consider adding value to your property by renovating and fixing things.

For example, if you have a room in Mumbai, you can remodel the kitchen with modern amnesties, increase security around your home, fix the leakages if there are any, etc. While fixing and renovating you should keep in mind to not overspend and make changes that are needed not what you wanted. Overspending will affect the ROI on your property value. 

5. Know the law

In real estate, it’s not necessary to know all the rules and regulations but you should at least have to know the laws and codes of an area of the property you are going to buy. You should understand all the regulations that are involved in transactions of your property.

For this, you will need a help of a professional who is involved in the real estate business for a long time. Making yourself legally secured is an important step in real estate investing. 

In Summary

Investment should not be made in a rushed manner. Proper information, trends, statistics should be in check. Do not hesitate to consult a professional agency such as Roodland before investing in any property.

With enriched experience, Roodland understands your needs, expectations and will work with you to achieve your dreams. Best wishes for you in real estate investing!!


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