Real estate investments have become extremely popular in the last few years. Considering the expanding population of India and the resulting rise in demand for housing properties, they have the potential to provide excellent returns in the long term.
Real estate investment can help individuals diversify their investment portfolio, generate passive income, or build an asset for the upcoming generations.
However, for beginners, navigating the world of real estate investment in India can be overwhelming, given the availability of numerous options. Understanding the different types of real estate investments can help an individual make informed investing decisions based on their precise strategies and risk appetite.
This article explores five common types of real estate investments available in India. Continue reading.
Residential real estate
Investing in residential real estate refers to buying a house or an apartment. It is perhaps the most familiar type of real estate investment. One can invest in a residential property to generate passive income through rent or earn a profit through potential appreciation in its value. However, finding the right property in the right location is the key.
Residential properties can be further classified into several categories, including single-family homes, and multi-family homes. Investing in a single-family home involves purchasing a flat with one or two bedrooms and may appeal to first-time investors or those with limited investment values.
On the other hand, multi-family properties refer to large houses with three or four bedrooms, villas, or buildings containing several individually owned apartments or flats. Investing in such properties can provide higher rental income but requires substantial capital.
Commercial real estate
Commercial real estate refers to non-residential properties that can be used for business or commercial purposes. Examples of such properties include hotels, warehouses, retail stores, and office spaces.
One can typically invest in commercial real estate to generate higher rental income. One can do so by leasing commercial spaces to businesses, and such properties are usually subject to longer lease agreements. It is because companies refrain from shifting their business from one location to another unless in extreme circumstances.
However, investing in commercial real estate can be more complex and capital-intensive as it involves elaborate paperwork and other formalities.
As the name suggests, investing in raw land indicates buying a piece of plot with absolutely nothing on it. One can invest in raw land to gain profits through various modes. For example, undeveloped land tends to be cheaper than developed land, and hence, offers great potential for capital appreciation in the future.
One can also buy raw land to construct one or more housing units on it and generate income through renting or selling them. Another way to earn profits from raw land is by using it for agricultural purposes, and then, selling the home-grown products in the market at competitive prices. However, it may require a thorough understanding and government approvals.
Real Estate Investment Trusts (REITs)
Real Estate Investment Trusts, or REITs, are companies that own, operate, and finance income-producing real estate properties (both residential and commercial). They pool investments from several investors and use it to buy real estate properties, and subsequently, generate returns for investors by renting or reselling them.
Investing in REITs allows investors to make real estate investments without directly owning properties. One can gain exposure to the real estate market even with comparatively lower capital. One can also invest in REITs to provide diversification to their investment portfolio.
The shares of REITs can be traded publicly through the stock exchanges. That is why investors can enjoy high liquidity on their investments. However, one needs to be aware of the risks associated with them.
Real estate crowdfunding
Real estate crowdfunding is a new type of real estate investment wherein a group of investors pool their funds together and invest in attractive real estate opportunities. This is another method through which one can expose their investments to the real estate markets with comparatively lower capital requirements.
Unlike REITs, real estate crowdfunding is generally not available to public investors. Moreover, it does not offer as much liquidity as REITs do, which means that one’s investments may remain locked for several years and they may not be able to withdraw them in the time of need.
To Sum it Up
The different types of real estate investments come with unique advantages and challenges. Knowing how to invest in real estate, risks, benefits, and their financial goals can help investors make informed investing decisions.
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