Why Invest in Real Estate:
At a time when multiple other markets are showing growth at a neck break pace, the question arises: why should you invest in real estate at all? Some of the explanations you should think about include the following:
- One of the safest choices you can make is investing in real estate. Due to tax relief granted by the government, the sector experienced development even during COVID-19 lockdowns.
- Real estate, in contrast to other industries, can increase in value. This is accomplished by giving the tenants improved amenities. A builder may request a greater price than the going rate if they compete and offer superior amenities to what others are giving.
- Real estate is intertwined with numerous other businesses; hence governments frequently use tax incentives to encourage sector growth.
- Banks are eager to fund your projects as long as your records are spotless, and your projected real estate investment is solid.
- One of the most straightforward assets to pass down through the generations is real estate since it is visible.
- Real estate has several benefits, so even if you decide against using it as your main source of income, you may still use it to generate a passive income.
Location of property:
The location should always come first when making an investment in a home. After all, a home cannot be relocated to a more upscale area, and a storefront cannot be removed from an unused strip mall.
Your location ultimately determines your ability to make money, including the demand for rental properties, the kinds of properties that are most in demand, the tenant pool, rental prices, and the potential for appreciation.
In general, the best location is the one that will produce the most return on investment (ROI). To choose the best sites with the highest return, it is suggested to conduct research ahead.
Risk of revenue/property rental worth:
Many invest in real estate because it offers a reliable source of income. However, there is always a risk associated with that source of revenue because the landlord is exposed to the credit risk of the tenants, which could lead to cash flow gaps because of unanticipated downtime or vacancies. In fact, one of the major real estate risks that could have an impact on your income is rental risk.
Cash flow:
Due to the immovability of real estate, supply and demand have a bigger influence; as a result, consumers move between markets in response to changes in price brought on by these forces.
Like in any other market, a significant rise in supply could threaten present home values. Indirectly, additional units must be absorbed by the market and remain empty for some time before value growth may restart, or directly, where the increase in supply causes the value to remain more or less constant.
Lack of Liquidity:
When you need money or simply want to cash out, selling stocks or bonds is a straightforward process if you own them. However, when it comes to real estate investing, it isn’t always the case. A lack of liquidity may force you to sell your house for less than it is worth or at a loss if you need to sell it quickly.
There isn’t much you can do to reduce this risk, but if you need money, there are ways to tap the equity in your house. For residential rental properties, you might obtain a home equity loan, a cash-out refinance, a commercial equity loan, or an equity line of credit (for commercial properties).
Integrity of the Property’s Structure:
A certain way to lose money on an investment is to underestimate the costs of maintenance and repairs. Repairing structural damage or treating asbestos or mould in commercial buildings might easily cost tens of thousands of rupees.
Fortunately, you may lower this risk by performing a comprehensive inspection of the property before buying it. To “look under the hood” and discover any hidden issues, use a knowledgeable and reliable property inspector, contractor, mould inspector, and pest treatment specialist. If a flaw is found, figure out how much it will cost to fix it, and if doing so would prohibit you from making a respectable profit, either include that cost in your agreement or walk away.
Finding better holder/tenants:
A certain way to lose money on an investment is to underestimate the costs of maintenance and repairs. In order to decrease the risk of vacant properties, you would like to keep your investment properties occupied for structural repairs or mould treatment in commercial buildings. Problematic tenants, though, could emerge as a new concern as a result. The cost of having a bad tenant can be more (and more of a hassle) than having no tenant at all. Tenants with issues are those who: Make payments late or not at all (which could lead to a drawn-out/expensive eviction process);
- Property damage
- Delayed notification of maintenance problems
Even while it can be challenging to totally rule out the chance of a troublesome tenant, you can reduce the risk by carrying out a careful tenant screening procedure. Make sure to run a credit and criminal history check on each application. Verify any red flags, such as late payments, property damage, or evictions, with each applicant’s previous property.
Property Taxes:
Investors in real estate are subject to a number of taxes. Taxes on capital gains, income, and real estate are a few examples. There is a possibility that at least one tax will change over the investment period due to the numerous taxes. For instance, property taxes may change during the course of the investment, producing unfavorable outcomes. Investors should be aware of changes in tax law and make appropriate plans.
Conclusion:
Market risks are constant, and before making any financial decisions, investors must take them into account. The OADD (Ownership, Approval, Demand, and Delivery) process is one framework that can aid investors in estimating these risks. Investors have the option to confirm that the property’s ownership is legitimate and has all essential permits. Finally, investors can look at the project’s demand and the owners’ strategies for achieving the promised ROI.
Aura Properties is a renowned company dealing with all the approved and hot products in CDA/RDA sectors. We provide free consultancy regarding real estate investment you can contact us regarding any query.
Research & written by:
Sanah Abbasi