In the world of financial planning and wealth accumulation, there is a strategy that shines particularly bright, which is — Real Estate Investment. Its potential for young investors to build wealth might initially appear daunting, given the perceived high barriers to entry and market complexities. However, by recognizing time as an asset, exploring investment options, learning the proficiency of investing with the help of compounding and embracing the benefits of early investment, young individuals can lay the foundation for a prosperous future.
An evident trend in recent years is the inclination of millennials to invest in real estate before turning 30. This shift is driven by their aspirations for financial security and autonomy. By adopting effective strategies, millennials can set the stage for long-term wealth accumulation, leveraging early real estate involvement to secure benefits such as tax incentives, equity growth, and potential savings on rent. Additionally, the dream of homeownership, often seen as a marker of achievement and stability, becomes attainable during the initial phases of their adult lives.
With over 400 million millennials constituting 36% of India’s population, their collective spending power exceeds $330 billion, prompting an early foray into property ownership. A survey by CBRE reveals that 44% of young Indians aspire to buy homes within two years—far surpassing the global average. Their significant impact is evident in over 50% of 2020’s home purchases. Millennials’ influence continues to grow, crossing 54% by 2022, leading real estate firms to tailor products to their preferences. This generation’s evolving priorities drive the surge in residential real estate across Tier I and II cities, exemplifying their mindful lifestyle choices.
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Investing in real estate offers a tangible asset that can be utilized as leverage or sold for profit down the line, providing a sense of stability and security in financial planning. The substantial amount of initial capital needed for investing in real estate assets frequently deters young individuals from contemplating to invest their hard-earned money in this asset class. Furthermore, the aura of the mystique surrounding real estate—viewed as intimidating or enigmatic—can further dampen their enthusiasm. The fundamental type of real estate investment, which involves buying a home, provides not just a living space but also a significant financial asset. Nevertheless, arranging for the initial down payment proves to be a formidable challenge for many young investors. Achieving the dream of homeownership necessitates meticulous financial planning, frugality, and disciplined savings.
Proper Asset Allocation, Averaging, Investing Discipline and Compounding are the key concepts that can assist an individual in attaining the goal of homeownership. Initially when a younger investor starts their journey of investing it has to be in the form of either investing in Equities, Gold or REITs and Fractional Ownership, which are now the flavor of the season.
REITs enable you to generate income from real estate without direct ownership. Opting for these alternatives can provide a consistent revenue stream and contribute to diversifying your investments, whereas, Fractional Ownership helps you own the asset at a very low investment amount and reap its appreciation benefit along with other investors.
After accumulating a substantial sum using the aforementioned concepts, one can consider investing in commercial, residential, warehouse, or office real estate assets by putting down the initial payment.
Here are 12 tips and insights that can assist in the process of building wealth through real estate investment at a young age.:
- Dedicate time to gaining knowledge about real estate markets, various types of properties, available financing choices, and pertinent local regulations.
- Maintaining a strong credit score is crucial when aiming to secure advantageous loan interest rates. Ensure timely bill payments and uphold a positive credit history to achieve this goal.
- Start saving early for a down payment on your first property. Consider setting up a dedicated savings account for this purpose to resist the temptation of dipping into those funds.
- When acquiring a second home, contemplate the option of renting it out, as this can assist in offsetting your mortgage expenses.
- Build relationships with real estate agents, property managers, and other investors. Networking can offer valuable insights, prospects, and potential collaborators for future real estate transactions.
- Real estate markets undergo frequent fluctuations. Stay vigilant about developments and adapt your strategies accordingly. Remaining flexible can enable you to capitalize on emerging opportunities.
- The real estate market is constantly evolving, so make a commitment to lifelong learning. Continuously stay informed about shifts in regulations, financing alternatives, and investment tactics to stay competitive.
- Maintain a separate emergency fund distinct from your real estate investments. This reserve can be used to address unforeseen expenses associated with your properties, including repairs or periods of vacancy.
- Utilize technology to your advantage. There are applications and websites available that can assist you in identifying profitable properties, monitoring your financial outlays, and enhancing the management of your investments.
- If you have investments in multiple properties, contemplate the option of enlisting the services of a professional property management firm. They can take care of tasks such as tenant screening, maintenance, and rent collection, allowing you to reclaim your valuable time.
- Develop an exit strategy for every investment. Whether it involves selling, refinancing, or passing properties down to heirs, having a well-thought-out plan in place ensures you can maximize the full potential of your investments.
- Seek personalized guidance tailored to your specific circumstances by consulting with financial advisors, real estate attorneys, and seasoned investors.
Spreading out investments is a widely recommended strategy for young investors to handle investment risk smartly. This diversification can encompass different corners of the real estate market, such as commercial spaces, retail properties, and residential homes. While residential properties tend to offer stability, commercial properties have the potential for greater returns. Through diversification, young investors can strike a balance between the potential for rewards and keeping risk under control.
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Real estate has maintained its status as a lucrative investment avenue. The ongoing urbanization, business expansion and infrastructural development continue to support real estate as an asset and help in driving demand for properties upwards. This trajectory of growth presents young investors with opportunities to capitalize on emerging markets and trends, potentially reaping substantial returns.
This column has been written by Pratik Kataria, Director, Sainath Developers – The House of Kataria and Committee Member, NAREDCO Maharashtra. Views expressed are personal.