Smart ways to invest in real estate with limited capital

Source: The Economic Times

In the ever-evolving realm of India's real estate, the third quarter of 2023 has brought about unexpected changes, capturing the attention of both investors and industry stakeholders. Amidst this dynamic landscape, the significance of real estate investment with limited capital has come to the forefront. As property prices surge in both commercial and residential sectors, a positive trend emerges—investing in real estate becomes more attainable, even with modest funds. This transformative shift not only piques the interest of seasoned investors but also facilitates broader access to property investment, rendering it more achievable and cost-effective for a diverse demographic.

According to Colliers, India's real estate market has become the most sought-after investment destination in Asia–Pacific, attracting more than $23 billion in investments since 2018, with 77 percent of the total coming from Asia-Pacific, according to Colliers' APAC Trends Investor Outlook 2023.The firm also reported that institutional real estate investment in India increased by 27 percent year-over-year during the first nine-month period, with an increase in both industrial and residential deals. According to Colliers, this increase is closely linked to India's growth trajectory.

The data clearly indicates that the real estate market is full of opportunities and potential for good returns on investment. Additionally, the recent decision by the RBI to keep the repo rates steady at 6.5% has boosted the confidence of homebuyers in the real estate market.

Before investing into the real estate market, certain factors require consideration. When purchasing residential property, evaluate amenities and the neighborhood. For commercial properties, examine tax-exempt areas, proximity to warehouses, and road accessibility. Project the area's development during your investment period. Emphasize investments that ensure strong cash flow and anticipated returns.

Investing in real estate is a great avenue for one to start their career in but many people get often stuck up on the fact that “Can one start investing in real estate if they limited capital to do so?” Let’s now understand some of the ways anyone can start their investing career in the real estate market with little capital.

Investing in Real Estate Investment Trusts (REITs) can be a great way to enter the real estate market without the need to buy or own a property. A REIT is a type of real estate investment trust (REIT) that provides investors with the opportunity to participate in the income generated by the real estate properties owned by the REIT. These instruments allow investors to access real estate investment opportunities without the need to purchase or own a property outright. By investing in a REIT, investors earn a percentage of the revenue generated by the REIT’s properties. Because REITs are publicly traded on the stock exchange, investors can easily buy and sell REITs.

Recently, the concept of "Fractional Ownership" has gained popularity, involving small investments in real estate. Investors contribute funds to collectively purchase properties through various Fractional Ownership Platforms (FOPs). This approach proves cost-effective, providing the benefits of high-end property ownership without substantial investment. Fractional ownership also yields significant returns on a modest investment. Unlike traditional property ownership, which involves extensive paperwork, fractional ownership simplifies the process with online accessibility to necessary documents. Investors can easily choose properties for investment, diversifying their portfolio across different sectors and industries.

Another approach to enter the Indian real estate market is through Real Estate Mutual Funds (REMF). A Real Estate Mutual Fund (REMF) is a mutual fund that pools investments from individuals to invest in various real estate assets. Investors purchase units or shares in the fund, allowing the fund manager to diversify investments across different types of real estate. Professionally managed, the fund generates income from rent, dividends, or interest, distributing profits among investors. Capital appreciation may occur as real estate assets gain value. REMFs provide liquidity as investors can buy or sell units on the open market. This investment avenue offers exposure to the real estate market without direct property ownership, allowing for diversification and professional management. However, it also entails market-related risks that investors should carefully consider.

Last but not least when it comes to real estate investing in small towns, there are several advantages. The most obvious is the low cost of entry. Small town properties tend to be cheaper than properties in large cities. This means that you can purchase more properties for less money, resulting in a higher return on investment. Another benefit of small town real estate investment is the ability to attract long term tenants. People living in small towns are more likely to remain in their homes, so you are less likely to experience turnover. With less competition, you are more likely to charge higher rents.

As we navigate through the evolving trends and promising statistics, the narrative of real estate investment in India is not just one of financial transactions but a tale of adaptability, diversity, and the democratization of investment possibilities. In this ever-changing market, the door is wide open for investors to step into a realm where opportunities, fueled by strategic choices and market insights, promise both growth and accessibility.