Residential Real Estate – How the Industry Works

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Real Estate has always been the foremost thing to research on when investment comes to mind. But still, people are usually skeptical about where and how to begin the investment. Real estate can be a risky business if proper guidance is not available. To get better returns from the investment, it’s important to understand the industry properly.

Investments can be tricky when you have so many options present in the market and everyone around you, giving you advice as to where to invest and where not to. But it’s always better to learn what kind of investment you want to pursue concerning the kind of return you are expecting.

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When it comes to real estate, residential properties have always been a safe game for newbie investors. Residential real estate includes both new construction and resale homes. Indian real estate has seen the drastic change in the residential real estate market from the last couple of years. Despite the constant ups and downs in the market, residential real estate has been the first choice of anyone who is new to the investment process, and this has been passed on from generations.

Owning and renting residential property is considered a reliable source of constant income. We have several examples around us about people making fortune out of investing in the right place at the right time. The entire game of investment is to understand that ‘Right’ in the concept of buying a residential property.

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Before discussing the important factors to be considered in owning and renting residential property, it’s important to understand the concept of this industry. Residential Real Estate, as the name suggests is entirely built for residence purposes. To get a proper definition of the term, ‘Residential real estate may contain either a single family or multifamily structure that is available for occupation or for non-business purposes.’- according to Wikipedia. There are various types of properties like Apartments, Multi-floor houses, Villas, Cooperatives etc. Even Houseboats, Chawls and Havellies all come under the category.

Rental properties are becoming a genuine source of return in the real estate industry.  But before investing your hard earned money, it’s important to know every possible pros and con of the investment. Given below are some of the factors that should be taken into consideration before thinking about putting your money in the residential properties.

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Pros:

Investment:

In comparison to the commercial real estate, residential properties don’t burn a hole in your pocket. You can easily find options according to your budget and it’s also beneficial for someone who is thinking about starting the investment process. The rental amount increases with the value of the property, so the benefit for the landlords are usually high as one time investments in the residential properties helps them avail the benefits for a really long time.

Expenses:

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Mortgage, Interest, Insurance are some of the expenses that scare off while thinking about investing in a property comes to mind. But rental properties usually helps in maintaining these against the income from the tenants. Even the smallest piece of property can be converted into a rental property according to the need of the tenant, and expenses are covered by the rental amount.

Returns:

The return on the residential rental properties is an easy catch along with the quality of people to deal with. Unlike corporates, residential property owners are able to build a trustworthy and friendly relation with the tenants which also contribute in the long run for the landlords. The communication gap between the landlord and the tenants are usually very low. And the tenants are usually working professionals, students or families that easily manageable and doesn’t bother for every small issue.

Location:

Location plays a vital role in the residential business. If chosen properly, landlords can get a life long returns from their investments. Residential properties usually have families as tenants, so investing in a property that has all the basic amenities around, attracts better and genuine tenants. More wisely you choose your location, greater will be the return.

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Cons

Market Factor:

We have seen the drastic change in the market policies in the previous years. Investments usually come along with mortgage and other expenses. And increasing the rental amount may not be possible every time there’s a spike in the tax amount.

Resale Value:

You can’t expect the real estate to give you coveted returns, even in the bull’s market. Resale value of the property may take a while to give you a good yield on your investments. Residential real estate is affected by various factors, and it does not come with a guarantee of a thriving return on the resale value.

Maintenance:

Residential rental properties come along with the interaction with different kinds of people. And unlike commercial properties, tenants for the residential properties usually expect a semi or fully furnished property for the accommodation. So its entirely the responsibility of the owner to provide and maintain the accommodation friendly property. Hiring a professional for doing the same, is an additional expense for the owner.

Locality Research:

Finding your dream property includes lots and lots of research in order to get consistent and stress-free returns. Knowing about the locality and the government bodies working in the area is really crucial in long run. Understanding the rental investment property should be the same as you would research for the place where you decide to live.

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Residential real estate has been a source of income from ages now. But understanding it properly is still not properly explained. Perception towards investments involves various factors that are needed to be considered. But keeping in mind the amount of investment you are planning and the return you are expecting, real estate can actually provide you with the substantial value for your funds.

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