About Author:
With just over 13 years experience in Wealth Management, business & distribution of financial products, Sumeet Vaid is considered a veteran in the industry.
He is currently the Founder and CEO of Ffreedom Financial Planners, set up in March 2009. Sumeet is a graduate from Delhi University in Industrial Relations and Personnel Management. During his career he has worked with renowned companies like Bajaj Capital, Prudential ICICI, ING Vysya, Optimix, Networth Stock Broking; where he worked at various positions from Sales Manager to National Head, Retail Sales.
He has even worked at top management positions like CMO & CEO.
Your parents always valued only three kinds of investments - bank deposits, gold and real estate. Anything else for them was always risky. And today, as you go about your finances and investment portfolio, somewhere amidst the equities, insurance policies, mutual funds, ULIPs, etc. many of us have undervalued real estate while creating financial plans and portfolios.
During the steep increase in property prices between 2004 and 2007 I had several clients who would come up to me and tell me, “I want to buy a place too.” They had seen the potential of this asset class to yield returns and provide stability.
For most individuals, especially those employed in the service industry, buying a second house purely for investment is difficult. After all there are several considerations one has to make like – paying the EMI on the second place you buy, additional maintenance charges, taxes and insurance, etc. Secondly, if you are going to buy it for investment, then how long should you hold on it and what is the return that you should expect?
When you are looking to buy into real estate for investment, ensure that you consult with your financial planner on each of these –
Liquidity
The Achilles’ heel for real estate investments is liquidity. Unlike equities or even mutual funds, real estate investments cannot be realized settled fast. It takes time to find a buyer and complete the transaction. If the seller is in a hurry, then he has to resort to distress selling. Hence, you need to have a balance between your liquid and illiquid investments.
Appreciation
While property is considered to a safe investment, conduct a proper market study before you decide on the market where you plan to invest. Some markets are likely to appreciate more than others, a study that you can do along with your financial advisor. Before you put in your money, know that you are putting it in the best place.
Tax benefits
Like you primary residence, you can write off the EMI that you pay against your income tax returns (up to a specific limit). If you plan it properly, this investment can work as towards both – generating high returns on investment and saving tax outflow.
Income
A common practice among people is to rent out property purchased for investment. I have come across several clients who have managed to create a reliable source of income by renting their premises or atleast being able to meet their EMI outflow against the rent that they earn.
Risk
Like any asset class, real estate too has its share of risks associated with the investment. You need to consult with your advisor about your exposure to the investment.
Investment in real estate involves a mix expertise of understanding the market conditions as well as your financial position. If you are buying a property to build your portfolio, get expert advice from your planner to safeguard yourself against possible emergencies. The planner can also help you to diversify your portfolio creating an ideal balance of liquidity and appreciation potential.
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