Real estate, sometimes referred to as “real property,” is technically land plus any other tangible improvements that might be based or installed there. The improvement could be a building erected there or a street. It could be something that has been sunk into the ground, such as a septic tank.
Types of Real Estate Investment
There are five main types of real estate:
- Residential real estate: Any real estate used for residential purposes. Examples include single-family homes, condominiums, co-ops, duplexes, townhouses, and multi-family homes with fewer than five single units.
- Commercial real estate: Any property used only for business purposes, such as apartment complexes, gas stations, grocery stores, hospitals, hotels, offices, parking lots, restaurants, shopping malls, stores, and theaters.
- Industrial real estate: Any property used for manufacturing, distribution, storage, and research and development. Examples include factories, power plants, and warehouses.
- Land: Includes undeveloped properties, vacant land, and agricultural land (farms, orchards, ranches, and woodlots).
- Special Use: Properties used by the public, such as cemeteries, government buildings, libraries, parks, places of worship, and schools.
How to invest in real estate for beginners
Real estate is one of the most expensive investments that can be made in real estate investing for beginners. Real estate prices in India can range from a few lakhs to several crores. In addition to income and savings capacity, your credit rating also plays an important role in obtaining a home loan. Unless you have a reasonably high credit score, getting a loan is difficult. There is another aspect that increases the cost of real estate. Legal fees are associated with any property purchase 10% more.
Prepare For Home Loan
The first is to check your credit score. If the score is low, take steps to improve it. Why is it necessary to check your credit score? Because banks won’t lend if your credit score is below 700 for newbie real estate investing. So it is better to check the score before applying for a loan. You can check your credit for free on the CIBIL website. In addition to the credit score, banks will also want to verify “EMI Pay ability” by reviewing other documents. For a borrower, it is best to keep these documents handy:
- Latest salary slips (of last 6 months).
- Income tax Return (ITR) of last year.
- Bank Statements (of last 6 months).
- Statement of Assets (financial & physical).
- Address Proof.
- Identity Proof.
- Other documents as asked by the bank.
A combination of “credit score” and “EMI repayment capacity” will decide the eligibility of a home equity loan. Check out the Income-Based Loan Eligibility Calculator. What to do to improve loan eligibility? Before applying for a loan, try to pay off other loans (like credit card debt, personal loan, etc.).
Once the purchase intention and a large capital budget are established, research becomes extremely imperative. Look for all project information, pricing, competitive pricing, upcoming infrastructure, and development projects.
Freeze on an action plan
Beginners to the real estate world must first determine what type of real estate investment they want to venture into and why. Prepare an effective action plan to make it easier for you to envision your investment plan.
Growth of capital
The most basic point when looking to invest in a property is to consider capital growth. You need to analyze each area to see if there is any future potential for growth and development.
The location factor is something you can’t afford to miss when choosing a property. The location of the property should be well connected to all parts of the city and should also house schools, colleges, health facilities.
Should include all world-class amenities
First-time buyers who invest in a property should take the time to do a thorough study of the property before purchasing it. Not only the location, but the property must also be attractive in terms of services.
Buy REITs (Real Estate Investment Trusts)
REITs allow you to invest in real estate without physical real estate. Often compared to mutual funds, they are companies that own commercial properties such as office buildings, commercial spaces, apartments, and hotels. REITs tend to pay high dividends, making them a common retirement investment. Investors who do not need or want regular income can automatically reinvest these dividends to further increase their investment.
Ensure yourself. If you are planning to invest a large amount of money, try seeking help from an LLC (Limited Liability Company) as they will be able to help you with risk management. Joining an LLC allows you to be insured because if something happens or if something unpleasant happens, you will not be held personally responsible.
An LLC will help protect our retirement fund should something happen to your property. Once you open an LLC using your Self-Directed Individual Retirement Account, your account is that of the business and you are the assigned business owner. But that doesn’t mean that you don’t need a custodian or that you can withdraw funds for personal use. You must report your withdrawals to your custodian and you must use any funds withdrawn for the good only.
You can decide on the conditions of your investment. For this, you need to calculate the rent, taxes, annual fees, emergency funds to keep your budget active. You will need to assess the amount of financing you will need to maintain the quality of your investment. A professional property manager will help you with this.