Exploring Types of Properties in Real Estate for Investment Purposes

Investing in the right properties can be truly life-changing! 

Real estate is considered one of the most gainful investments in India. History is evidence that this statement has held true for so many individuals and families that their fortunes have changed because of real estate investments. 

There is always a first. We understand that finding and researching the types of properties in real estate may become even more overwhelming and daunting if you are a first-time investor. 

With investments, one also has to take into consideration how they can diversify their investment portfolio.

Here is a list of the types of properties in real estate that we deem as 'investment worthy' and you must read about. 

Residential Properties

Within Residential Properties, there are numerous categories, namely, single-family, two-family homes, to multi-family homes (both stand-alone and gated communities). Very naturally, each of these comes with its own rulebook. 

Investing in rental income is a sought-after practice from generations in India. Rental income is a particularly good option for those planning to leave their jobs, planning retirement or building a passive income. It can also help build wealth over time. 

Pros 

• The potential for rental income is enormous. In dense urban settlements like Bengaluru, Hyderabad, Mumbai Metropolitan Region, and Pune, where there is a high demand for rental accommodation, investing in apartments might be an excellent move. 
• Under Section 80C of the Income Act, the applicants can save up to ₹1.5 lakhs on the home loan.
• The price of stand-alone or independent housing increases over time, even if the building condition deteriorates. This is because the land value in the area might increase, too. They might get sold not for the condition of the house built atop the land but for the land price underneath. 

Cons

• Apartments may not witness appreciation in value after continued usage. Rather, once the same is lived in its value will begin to deteriorate and the owner/investor might have to invest in its renovation or sell it off depending on the building condition. 

Commercial Property 

Commercial buildings are yet another stellar source of rental revenue. Compared to the income from residential dwellings, this rental income may be astronomically higher. 

Pros

• Commercial investments are mostly high-return investments when compared to similar-sized residential properties. 
• Maintenance can become less of a hassle for the owner when the property is being rented out to MNCS, banks and brands since they manage the upkeep and maintenance of the space as per their industry standards. 

Cons

• Investments in commercial activities are high-cost investments compared to residential use.
• The liquidity of commercial investments is usually less than residential properties. 
• Commercial Properties are considered a higher-risk investment compared to residential investments. Hence, availing a loan for investment in commercial properties can naturally be trickier. 

Industrial Property 

Buildings and factories where industrial operations are carried out, such as manufacturing, storing, and warehousing of raw and finished materials, are generally called Industrial Properties. Since these activities demand huge land parcels, which are ordinarily not available within the city, such properties are sited on the outskirts of cities or away from urban settlements, where land cost is relatively cheap. 

Pros

• Industrial properties have higher rates of return compared to commercial and residential properties.
• The owner is generally free from taking care of the operating and maintenance responsibilities and taxes, such as land tax and water tax, since the tenant takes care of all the handling and operation as per their industry standards. 

Cons

• Since industries are usually single-tenant deals, it might get difficult to find a tenant once the current one leaves. 

Vacant Land 

Pros 

• Prices may increase overnight, and one can get an extremely high resale value. 
• There is flexibility in what you can do with the land. The options can range from reselling it to developing it as per your own will for using later, building infrastructure and renting the same out, giving the land on lease, using it for farming, to so many other options. 
• Suppose you decide to use the unoccupied land for residential purposes. In that case, you should be aware that Section 24 of the Income Act allows for interest deductions for jointly held properties with a home loan. Each co-applicant may also make a financial claim under Section 80 C of the Income Act. 

Cons 

• However, due to repeated history of fraud and encroachments in land purchases, getting a loan for sole land purchase may be difficult. However, if the same happens to be a composite loan, i.e., covering the cost of land purchase and construction on the same, the likelihood of getting the loan sanctioned from a bank is higher.
• The rate of interest on land loans is higher than preponderant home loans. 

Final Thoughts

The real estate market in India is at a boom.

It might get overwhelming researching the types of properties in real estate that are worth investing in, particularly if you are a first-time investor. However, everything is possible, and we only wish you success. Do remember that diversifying your investment portfolio is a smart move in the long run.