Investing in Residential Real Estate: Here’s what you should know

If you are still on the fence about investing in residential real estate and wondering how it would benefit your overall investment plan, then this is a must-read for you. Residential real estate has been an investor favorite for time immemorial and it is not going to be written off anytime soon. With the ability to generate regular income, high appreciation value and tax breaks, residential real estate investment comes with a whole host of attractive features for the investor.

Here we will look at 7 key reasons that you can consider if you are still undecided about investing in residential real estate.

Less Sensitive to Economic Conditions

Unlike commercial real estate which sees a huge swing whenever the economy is in flux, residential real estate does not suffer as much. People always need a place to live thus giving the opportunity of a constant income. A good location and a well-maintained residential space will always fetch a good rental yield for the investor.

Affordability

Residential real estate offers a plethora of options for the investor in terms of the total cost. Depending on the location, size of the home, builder reputation, and amenities, the price of the residential investment will vary and so will the rental yield. But overall, the cost will stay in a range that is affordable to the investor. With India setting out to create more affordable homes, many investors are looking to invest in this market for creating a larger holding of residential real estate.

Tax advantages

There are plenty of tax advantages not just on the investment but also on the loans you might have to take for the investment. This makes it a very attractive option for investment for many buyers. The tax structure is very favorable for investments into real estate with plenty of deductions, depreciation, and deferred capital gains options.

Rental Cashflow

A good property will always bring in regular rental cash flow. The location and quality of your investment will determine the rental yield. In India, it can range from 2-10%. But remember that this is a regular cash flow that you would be getting. Like clockwork, you will receive a definite amount of money every month. Picking the best and most responsible tenant is a great way to ensure that your regular cash flow.

Appreciation

Even in the most stagnant conditions, the drop in value for the housing market is much lesser in comparison to the commercial market. Properties in good locations and which are well-maintained tend to appreciate faster. Even in a mature market, the property will appreciate at a value higher than the interest rate your bank would provide you in a year. If you have picked up the property in a growing market, then you can expect a much higher rate of growth.

Multiple financing options

While many institutions may not be keen to lend you money to purchase stocks or MFs, banks and other financial institutions are more than happy to lend to fund your investment into residential real estate. Today there are several options floating around to ensure that more people can comfortably look at buying residential real estate. Generally, the loan component will be serviceable through the rental you are receiving for the property thus making it easier to handle the investment.

Play the long game

Buying real estate means playing the long game. It is not something that you will be able to walk in and out of overnight. Your portfolio needs to be planned for at least 5-10 years when you are looking into real estate investments. It is not about how many residential units you own but how well you manage them over time that will determine your true ROI. Residential real estate gives you the flexibility and eases to manage your loans, claim tax deductions and sell at a much higher value if you are willing to play the long game.

These are some of the facts as to why you should consider residential real estate investment because the ROI and appreciation of this sector are not slowing down any time soon.

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