Investment in real estate property has been popular for decades. Long-term investment in plots, flats or commercial properties has often paid off handsomely.
Young adults also consider real estate as a profitable investment class. They often invest in residential or commercial properties. They may even take a home loan if a deal is attractive.
The low home loan interest rates motivate you to invest in real estate. Further, and user-friendly tools like the home loan EMI calculator enable you to make informed decisions.
There are many kinds of real estate properties – residential, commercial or agricultural. ‘Profitability’ from investment in a property is a relative concept. It depends on various factors like the location of the property (in urban areas or in Tier II and Tier III cities), the timing of purchase and sale, development of infrastructure in the vicinity, and so on.
Profitable property investments
Let’s understand what type of property is the most profitable for investing.
- Residential property meant for personal use
The first property which you may acquire is generally meant for the residence of yourself and your family. Profit is not much of a concern here. You may also wish to acquire a commercial property to be used as your own office or place of work.
While selecting a property, you must check whether the basic facilities like water, power and public transport are easily available. Besides, it is important to be fairly certain that the property is marketable and can be easily sold if you intend to move your residence or office to a different place. Otherwise, your funds may be stuck in a dead investment.
Banks and NBFCs offer home loans at attractive home loan interest rates. Besides, there are certain tax benefits on loan interest and principal repayment.
- Residential properties meant for letting out
As income increases, individuals often purchase residential properties and then rent them to others. Here, the location of the property is very important. If the property is located closer to the place of work, you may fetch a higher rent as compared to a property located farther from the offices. For instance, in Mumbai, rent from property in Worli or Andheri fetches a higher rent than a property in the suburbs of North Mumbai. Besides, if one tenant vacates the property, it is easier to find another tenant. These factors make the property more profitable.
- Residential properties meant for sale
Many individuals acquire flats in under-construction properties at low rates. Once the property is ready, they sell the property to the final buyer at the prices prevalent at the time of sale. Generally, the market price of a ready-to-move-in property is higher than the price of an under-construction property.
- Commercial properties meant for letting out
Many individuals acquire commercial properties and let them out. They generally purchase commercial properties in under-construction malls or shopping centres at a low cost. Once the construction is complete, the properties fetch a high rent.
While calculating profits from investment, you must consider the net rent received from the property and reduce the interest paid on home loans at the applicable home loan interest rates.
- Redevelopment of property
Individuals may offer their own land/building for redevelopment. In return, they may be allotted some shops/houses in the redeveloped property. Such shops / houses are then let out or sold. If the redevelopment is completed on time by a reputed builder, the value of the property increases. This yields a greater profit from investment.
Redevelopment of property generally does not yield profits immediately. In case you are taking a home loan to purchase a property which is soon expected to go into redevelopment, you must use the home loan EMI calculator. It will help you know your financial commitment over time until the investment in property actually brings any cash inflow.
Real estate is a very good investment class – it assures good returns in the long run as well as capital protection. However, there is no pre-fixed formula to determine which investments will yield huge profits and which will not. It depends on the home loan interest rates, your experience, research, market intelligence and a host of other factors.
Home loan interest rates are determined by RBI’s base rate. You may opt for a home loan at fluctuating home loan interest rates to benefit if the interest rates fall. Alternatively, if you prefer certainty, you may go for fixed home loan interest rates, which are slightly higher than the fluctuating ones.
Every individual must make an investment in real estate. To ensure that you do not go overboard or invest within your capacity, you can use a home loan EMI calculator to determine your monthly financial commitment by taking a home loan.