First Time Investor? Follow These To Make Money Out Of Real Estate

Real Estate is one such investment channel which does not have any set parameter or budget restrictions or compulsory lock-in period. Instead, the property market is a liberal avenue where you can enter and exit at your own will, though risks will be higher and gains will be short but with limited obligations, real estate investment is the best way to get rich. Beginners often get confused about where to start from and what are the options available for them. Here is a quick guide for those market investors who are still confused about the first step.

REITS

Real Estate Investment Trusts are very popular across the globe but have gained popularity in India recently. In simple words, REITs are very similar to mutual funds and bonds. Mutual funds are investment channels to earn returns through equities whereas REITs offer you benefits through income generating real estate assets. As the name suggests, these are trusts which include numerous investors and put funds in income-generating properties like offices, residential societies, malls, hotels etc. These trusts are then listed on stock exchange and the investor can buy units in the trust. There is a trustee who independently holds the assets on behalf of unit holders.

While the REITs are listed on stock exchange, the funding is raised from the holders through Initial Public Offering (IPO). This money is used by the trust to buy properties. These assets are offered on lease to tenants and the rent received flows back to the investors as returns. This concept started in the United States of America, later adopted by Singapore, Australia and Hong Kong to enable investors to earn from income generating real estate properties.

For those who want to invest in property market but want to avoid direct ownership, REITs is an ideal option for them. It gives stable income minus hassles of paperwork and documentation with no budgetary restrictions. However, the risk associated with this kind of investment is that the unitholder does not have any control over trust's action of entering and exiting the market. 

Direct ownership 

If you want to have complete control over your assets, it is advisable to go for direct investment in the property market. Direct ownership simply means buying the property on your own, through your own funds or borrowed sum with the liability on you and have a rightful share in the returns generated from the property.

While there are multiple ways of generating returns from a real estate asset, the most prominent one is to rent it out to tenants. The monthly rental can be used to pay off of your home loan or can add to your share of returns. Additionally, the appreciated value of your property will be your long term gain that you can leverage once you exit the market. However, being a landlord involves many responsibilities including documentation, tenant verification, property maintenance, rent collection etc. If you are going to buy more than two properties for leveraging rental income, it is better that you opt for property management services who can manage all these tasks at a very reasonable cost.

Another way of entering the real estate market is betting on short-term real estate cycles. However, the risk associated here is higher than the previous method. Buying an under-construction property and exiting the market as soon as it gets into possession phase is one way of taking benefits of the real estate market. Since under construction properties or soft launch projects are available for about 40 percent less than the market value, an investor has a better scope of earning returns as compared to other investment channels.