Real estate is one of the most popular and profitable ways to invest money and create wealth. The Indian real estate market is estimated to be at USD 0.33 trillion in 2024 and is expected to reach USD 1.04 trillion by 2029, growing at a CAGR of 25.6% during the forecast period (2024-2029). Depending on your goals, budget, risk tolerance, and time horizon, you may want to choose different strategies to maximize your returns.
Let’s explore some of the most common and effective real estate investment strategies. Whether a beginner or a seasoned investor, you will find something valuable and interesting in this guide.
Answers you must have before investing in real estate
Even though investing in real estate might seem safe yet highly rewarding, much can go wrong if we don’t think it through. To make the process simple, we must answer some questions first:
- Do you want to generate passive income, flip for a quick profit, or build equity?
- How much money do you have to invest in real estate?
- How long do you plan to hold the property?
- How much can you lose or deal with unexpected expenses or vacancies?
- How much do you know about real estate investing?
Although it might sound like basics, as these are such basic questions, people tend to ignore them and incur big losses. So once your basics are straightforward, it’s time to narrow down your investment strategy. Here are some of the most popular ones:
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Rental Properties
If you have a lot of deployable money, lots of patience to double your money, and you know very little about the game of investment in real estate, then this is one of the best bets. You simply buy and rent out residential or commercial properties to tenants, which provides a steady and passive income stream with tax benefits and potential appreciation. But everything comes at a cost, and the cost of rental properties is high, including capital, management, and maintenance costs. If you are running short of luck, you may have vacancies, bad tenants, or legal issues.
To succeed with rental properties, you need to:
- Properties in high-demand areas that can meet your return on investment (ROI) and cash-on-cash return (CCR) criteria.
- To finance properties, you must either put in money directly from your pocket or you can chip in some money and take the rest as a loan at a low-interest rate for short durations.
- Manage the properties and keep them in the best shape to attract quality tenants.
- Sell properties when they have reached their peak value or when the market conditions are favorable.
Fix and Flip
This is a good strategy for people who have money on them, which they can invest for almost a year and have a high appetite for taking risks. Here, you buy a property that needs fixing up and sell it for a higher price later, making a profit from the difference.
To succeed with fix and flip, you need to:
- Find undervalued, distressed, or foreclosed properties, basically any property that is not as expensive as it should be.
- You finance these properties with cash loans and budget carefully for how much profit you can make after providing the property with a facelift.
- Fix properties with a reliable and experienced contractor to avoid any hiccups or overhead costs in the process of fixing.
- Sell properties as soon as possible, preferably within six months, and market them aggressively to attract buyers and sell them at the highest possible price.
REIT: Real Estate Investment Trusts
Not all of us have enough money to deploy in buying properties or the liberty of locking our money in for long durations. For such people, REIT opens new opportunities to invest. These companies operate, own, or finance income-producing real estate, such as apartments, hotels, malls, or office buildings. REITs are traded on stock exchanges; they are easy and accessible to invest in. So, in a nutshell, it’s like buying shares of a property or project that you can sell off once you’ve reached your goals. But be aware these are as volatile as stocks and can fluctuate similarly.
To succeed with REITs, you need to:
- Find well-managed, profitable REITs with a competitive edge in their niche or market and match your risk and return profile. Once you’ve figured this out, you are up for a smooth sail ahead.
- Manage REITs by monitoring their performance, financial statements, and news. You need to be up to date on where the real estate market is heading and adjust your portfolio accordingly.
- Sell REITs when they have reached your target price, when you want to cash out, or when the market conditions are unfavorable.
Real estate investing is a great wealth-building strategy but not a one-size-fits-all endeavor. You need to choose the right strategy for your situation, goals, and personality and learn the what, where, when, and how. You can use the pointers provided to answer those questions and make the best choice. Happy investing!
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I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.