how lucrative is real estate investment

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How Lucrative is Real Estate Investment

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Real estate falls under one of the major investment hubs that

one looks for. At the same time a house, apartment or a property

is a place to live in and is a life time investment of oneself with

one’s life time savings as well.

To sell the house that one lives in is often the last option that

one has in search of liquidity. In this stance let us evaluate real

estate as an option of investment.

Real Estate Investment





The house one lives is considered to be cash flow negative which means

that instead of generating income and liquidity it requires money to maintain

it.

If you talk about rent generating capacity it is actually half the amount of

EMI that the house or a property generates. One may argue that the capital

appreciation and the value is also there.

In case of land or any other assets like gold that is not there. You can’t

income keeping the asset to generate or increase in value at the same time.





In case of properties bought on loan the catching up of the earnings over

costs happen only when the loan amount is closed and the entire loan is

repaid.

If you take an investment in a flat or an apartment from an income

perspective this is perhaps what the situation turns out to be.

Let us suppose that you buy a 1000 sq. ft. of an apartment in one of the Tier

II cities which will be around Rs. 2, 500 per sq. ft. This will lead to the house

costing about Rs. 25, 00, 000.





If you procure a loan of Rs. 20 lakhs which is 80 percent of the amount

and the loan tenure is for 15 years the EMI that you have to pay is Rs.

20,300.

But on contrast to that the rental price in these cities may even cross a

limit of Rs. 10, 000 which is virtually lesser than half of the EMI.

If it is assumed that your rental income increases at a rate of 5 percent

each year the rent will equal the EMI on the fourteenth year and the loan

tenure is of 15 years.





Another aspect that needs to be considered while calculating the income generating potential of a property is that any property has maintenance and especially the apartments which also grows year on year.

Thus considering all these it can be said that a fully paid property can only be an income generating asset and before that it is a liability.One thing that needs to be kept in mind is that the property does appreciate in value and that can only be used or encashed when the property is sold.

In common parlance the selling of the property is generally the last option that one has which one may have to do for liquidity. But this is also true that capital appreciation is also a point of advantage and becomes a favourable factor when one obtains a loan on mortgage of a property. From this perspective capital appreciation is one of the positive factors that houses and apartments offer.





This is also not true that the value of the properties only appreciates and they never depreciate. On the contrary the economic turmoil of the current times is because of the drop of the real estate prices on a global scale more than expectation.

Real estate does appreciate in prices but capital appreciation is of value when the property is sold. The value can also be tapped by the mortgage of the property.

The house that we use for dwelling purpose is not able to generate income and it has a negative cash flow.Rent is a stable income but in most cases it is not the same as the EMI and much lesser but it is profitable only when the loan is closed or repaid.





But this is also true that capital appreciation is also a point of advantage and becomes a favourable factor when one obtains a loan on mortgage of a property. From this perspective capital appreciation is one of the positive factors that houses and apartments offer.

The next comes the mid income segment of housing which is again driven by the IT and the ITeS sector employees.

But the west on the other hand has not been so successful in attracting high end realty apartments or villas mainly due to the infrastructure bottlenecks. This area is mainly the industrial hub of the town with of course many residential areas popping up in the last decade or so.





Property Buying Tips :

Pre-launch Flats Vs. Ready-to-move Apartments

Now is the right time to buy a house or property in Bangalore

How to buy a flat being Cautious to avoid Problems

Increase of Smaller Homes in Indian Realty Market



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how lucrative is real estate investment

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