Investment in Real Estate

Who does not want to own a house? Everyone! But we need to do a lot of things before we actually invest in real estate. It’s not that we do not want the house, but the issue is the amount of investment. Since the investment amount is high, we need to be very careful. Real Estate should be part of every persons portfolio. Over a period of time it always appreciates. In India the rate of appreciation is much better than it is in other countries. But the appreciation is gradual, unlike gold or equity, which has big fluctuations.  If invested in the right location, it can also give you a steady income, whatever the state of the economy.

If you already own a house, you can go for a second property. If you notice, I mentioned property and hot house. So you could also go for a commercial property and not necessarily a house. You could do it with a loan and if given on rent, the rent will help pay off a part of the loan. In addition you have several tax benefits. If you have rental income, the whole amount interest paid on the loan can be claimed as deduction against the rental income. Of course this is in addition to the 30% you get for repairs and maintenance and the property taxes paid on the property.

Now all the benefits I mentioned above are applicable if you invest for rental purposes. If it is for your stay, then the interest paid is limited to Rs. One lakh fifty thousand only. Now that we have seen the advantages, you really want to start making money or should I say, make money work for you. So how do we start? First thing to do is identify the property. Remember it is easier to get rent on a property which is close to a business center, school, market and public transport. If all these amenities are there then the cost would also be high. So you have to find a balance.

We have identified the property, which in our minds will give us a decent income. What next? Check our finances.  This is important. As, if you have planned on the finances it helps in securing a deal. All good properties are picked up fast, so if you have planned your finances, you would be able to finalize fast. Money talks, so you should have the down payment ready. With money in hand, you will be able to secure a good deal as well. Spend the maximum time on finalizing on a good property, but once you find it you have to be on a sprint. The marathon comes to an end. Do not take a loan if your EMI is going to be more than 40% of your monthly disposable income.

Don’t go by verbal promises given by the builder, broker or the owner. Their intention is to sell. You are going to put in a lot of money. When we buy fruits and vegetables also we check before purchase, so why not get the property checked. There are experts available who do this checking, yes, for a fee. But the fee is worth paying.  If you have your essentials in place, get up and start preparing.

Investment in Gold

We spoke in the earlier articles about investment in Equity and Debt. Let us now look at investment in gold. Gold was never considered as an investment option. Even if it was, the maximum amount recommended has always been 5%. But this has changed in recent years, especially with the price of gold just going up. As we all know that we make a profit if the price goes up, so any investment which increases the net worth of a person is worth investing. This is the reason for gold becoming the favorite of many.
 
Like all the people, even we want to invest in gold, so what do we do? Do I go to the jeweler and purchase gold or go to the bank and purchase gold? There are many options. Seeing the appetite for gold, many mutual funds started exchange traded funds (ETF). This gave the purchaser more flexibility, they could invest lesser amounts as well and the chances of cheating by jewelers (which was always the fear) became a thing of the past. It also increased liquidity.

 As mentioned earlier, gold is not a recommended investment. It is good only when faith is lost in the currency system of the country. It should be used only as a diversification for your portfolio, as gold has never beaten inflation. It is not a hedge against inflation, just like debt. Yes, in recent times it has appreciated quite a bit, but so has inflation. Earlier financial planners used to suggest 5% but seeing the rise in prices, they too have increased their recommendation by another 5%, some enterprising planners might go to 15% but not more.

So now if you have decided to invest in gold, it is better to go for ETF, as it is more convenient, with less risk of burglary. The risk of storage and safety is also taken care of by the mutual fund. There is no fear of the jeweler cheating you and you can sell whenever you require money. Now all you need to purchase ETF is a demat account. Happy Investing.