4 Important Considerations Before You Invest In a Real Estate AssetBy
Akhila Masapogu, 18-Dec-2019
In real estate, choosing the right property for investment is the key to reaping gains. Real estate is one of the best investment vehicles that produce high profits over the years. A thorough analysis of the market and trends, advice from experts, understanding of the risks involved are the things that are needed for a successful investment portfolio in real estate.
Investment in a property is complex than owning the property for a living, it involves risks like illiquidity, lack of transparency, political, and economic uncertainty. Each investment property is unique and, the strategy of investment for each property differs based on the use, location, neighbourhood, etc. Though it seems complicated and confusing real estate investment is not that tricky if you understand a few things. Awareness and right information about real estate investment will help in making the best decisions and in picking the right property for reaping high profits.
No matter what investment vehicle you choose to invest in, property assessment is something that shouldn't be skipped. A successful investment strategy is always dependent on careful property assessment. Investing in real estate is usually all about capital growth and also generating regular income, so choosing a property that is more likely to increase in value is the most important decision you will make. Some key factors to look into before investing are:
Location : The importance of location when it comes to real estate cannot be enough emphasized. The value of any real estate property is directly related to its location. Areas with good amenities and services like metro stations, educational institutions, etc, nearby earn high yields and good capital appreciation.
Age of the property : It’s also important to consider the age of your real estate income property before investing. Though not very important in commercial properties, if you are investing in residential property age also plays a major role. residential properties with more age yield less compared to the new properties also the capital growth is less.
Builder : Choosing a property built by a good builder with a good track record and reputation is important. A beforehand research about the developer and due-diligence of the builder is an essential part of property assessment.
Neighbourhood : Neighbourhood also affects the value of a property. A property with a posh neighbourhood will earn high yield compared to a property in a not so good neighbourhood
Due diligence is a process of the thorough study of the property details, history and the previous transactions relating to the asset to avoid any unpleasant experiences further. A good deal is only a deal that comes without any complications. Real Estate Due Diligence is the complete evaluation of a property and provides the buyer with all the needed information about the asset. Due diligence also speeds up the process of buying an asset and assures the buyer about the reliability of the property. Due diligence report cross-checks the compatibility of the property with all the legal, environmental and social laws. A thorough due diligence report from a reliable source is a basic requirement for investing in a real estate property. Assetmonk makes sure proper checks are done before listing any asset on the platform.
Real estate investment can be risky and unpredictable. Time has shown that the real estate market goes down without warning, sometimes resulting in significant losses. Some of the risks of investing in real estate include changing laws, including environmental laws; floods, fires, and other acts of God, some of which are uninsurable; changes in national or local economic conditions; changes in government policies, including changes in interest rates established by the Federal Reserve; and international crises. In the event of a downturn in the real estate market, the rental market may collapse or the value of the property may be less than the cost of land acquisition and construction. So being aware of all these risks and being precautious is crucial. As most of the investment options, Real Estate is also dependent on the risk-taking capability of the investor. Though these risks are inevitable in any type of investment, awareness about the risks will help you in tackling the risks better. This way you can lessen the risk involved in the investment. Assetmonk does a range of risk metrics as a part of its due diligence process.
Choosing an investment vehicle
Real estate is a unique asset class with several investment options. Lucrative returns, sound capital appreciation, and diverse investment options making it the most desirable asset class. But, before picking the financing channel identifying the purpose of investment is essential. Although real estate offers many investment options choosing a suitable vehicle is necessary. The objective of investment changes from person to person based on personal goals, and it is recommended to choose the investment vehicle based on your investment objective. It can be a regular income or high capital appreciation or low-risk long term investment. Also, through the various investment options, real estate offers diversification of the investment portfolio and decreases the risk involved. Information about different investment vehicles, the pros and cons, and risks involved will help in choosing the right investment medium.
Here are some of the real estate investment vehicles
1.REIT’S: Real estate investment trusts (“REITs”) are a finance medium that allows individuals to invest in real estate properties that generate income. REIT's own and operate profitable real estate assets like office buildings, shopping malls, apartments, hotels, resorts, self-storage facilities, warehouses.
2.PRIVATE EQUITY: Private equity funds are an online crowdfunding platform option where the investors directly invest in a private company. Investment in this company is backed up by physical real estate properties.
3.P2P: Peer to Peer lending is a debt financing platform that bridges the gap between lenders and borrowers. With almost no mediators involved in the process of lending and borrowing, it is an attractive asset class for investment and earning passive income. P2P platforms are great for investors to lend their money as they get more interest than any other investment option. Investment on P2P platforms can be diversified by loaning less amount of money to multiple borrowers.
4.PARTNERSHIP FIRMS: Partnership firms are another way of investing in real estate assets. Investing in a partnership firm that buys and manages real estate properties is another easy way of investing in real estate.
5.DIRECT INVESTMENT: Direct investment involves buying and maintaining real estate assets directly.
Assetmonk is a unique online platform offering high potential Real estate assets to value investors. Based on the investment objective, we offer products categorized under Growth, Growth Plus and Yield types.
Real Estate is a unique investment offering multiple ways for investment. Based on your preference you can invest directly by buying real estate property or invest through REITs, Crowdfunding platforms, Private equity or even through P2P platforms.
Before investing in Real Estate there are few important aspects to look into without fail. Property assessment, due-diligence and risk assessment should not be ignored in any case. The physical, financial, legal and profit aspects of the property should be thoroughly investigated.
Location, age, builder and neighbourhood of the Real Estate are the important factors that need to be considered. These decide the profitability of any real estate property.
Three important factors that you should consider if you are a first time buyer in Real Estate are to research about the avenue that you choose to invest through, location of the property and the type of property and builder.
Fractional ownership is the best way to invest if you want to invest with little money. Through fractional ownership modules investors can own a small share of high net worth value property. The ticket size of the fractional ownership module starts as low as 5 lakhs.
Investors choose a property with the help of an agent or a platform, choose the property of choice and invest a certain amount. Investment usually has a fixed tenure and during this time if the property is rental one investor receives rental income and after the tenure receives his money back along with a capital appreciation.