Investment Ideas

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Buying property as long-term investment

27 Feb, 2015

A regular investor in India holds buying property in high esteem. The ownership of residence is in fact a prized possession. However, as an investment adviser will likely tell you, your primary residence is not an investment at all. This is based on two main attributes that go along for all investments. One it can be sold quickly, without impacting the price, and two it provides a regular return on investment.

So now what we are looking at is an investment option in property besides the ownership of a residence. With the recent financial climate of continued stock market volatility and the probability of interest rate cuts, investing in real estate looks like a viable option. In addition, a cool down in the aggressive real estate market should make it easy for investment.

Return on investment

There are two types of potential returns from property. First is in the form of rent received from letting out the property and the second is from the property increasing in value overtime. Since property investments are not liquid in nature, which means you cannot withdraw monetarily from real estate quickly, it is in essence a long-term investment option. This basically means you will need to sell the property in order to make money, which in turn is not a very quick process. The idea behind buying investment property is to make a profit in the long term as price/ value of the property goes up.

Invest to invest

Buying property is not as easy as locking money in a fixed deposit scheme with your bank or investing in shares and mutual funds. You need to spend a considerable amount of time and energy looking for a suitable property. Once the investment has gone through, it takes a reasonable amount of time to find and manage tenants as well as arrange for day-to-day maintenance work on the property. Or you can choose to assign these tasks to a property manager/ broker in return for a percentage of the rent. The manager will not only take on the tasks of finding tenants but also collect the rent and deal with maintenance issues and tenant communications on your behalf.

Investing In commercial property

Buying commercial property is also a good option for those trying to diversify the investment portfolio and angling for a healthy rate of return. In the long term, the gains from commercial property may be substantially different from those arising out of residential property. Income from commercial properties often comes from contracts of rent, which is paid by business tenants in return for occupying the property. As a result, the leases are often arranged over a long period with generally a clause, which ensures that rents are not lowered in the duration of the lease, even when the markets are not doing too well. 

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