5 Solid Reasons You Should Start Investing in Real Estate Young
For the average Indian, our 20s and 30s are eventful times; “quite happening”. A lot happens during these years- people graduate, get their first jobs, some get married too, and most youngsters get trapped in the loop of overspending and trying to save money at the same time. Wouldn’t you agree? At the same time, we start to explore investment options and typically end up at dividend stocks or mutual funds, even crypto more recently. We do look at real estate from one tiny corner of the eye but generally avoid it considering the high-end ticket sizes. While, the average minimum capital required to invest in residential property ranges anywhere between Rs. 50-70 lakh, investing in commercial real estate is typically beyond the reach of a retail investor, generally valued at 25-30 crores. (Source) Source: Mike Abraham Business Research But, it’s also true that our 20s and 30s are the most ideal time to start investing in real estate. Why? Time on our hands: Real estate is by no means a “get rich quick” scheme. People invest in real estate for the long-term value appreciation of a property. As the wise saying goes, “Time affords many things”, and it couldn’t be truer when it comes to property investment. In most cases, well until something drastic occurs, the longer we hold the property the better the returns are(owing to factors like compounding, amortization, etc.). Towards the end of our 20s, we do strive for a certain term called ‘Financial Freedom’. And undoubtedly, real estate investment can play a major role in accomplishing that. Millennials, who make up 36% of the nation’s population with a spending power of more than $330 billion, have entered the real estate market, accounting for 54% of home buyers by 2023. (Source: Times of India) Compounding Interest In the words of a genius: Compounding simply means earning interest on both your initial investment and the interest levied on that investment year after year. It really is a miracle. And to enjoy the sweet pleasures of compounding, you must hold your investment for a longer period. Let’s understand this through an example. Ayaan (because we’ve got to have a modern name today, don’t we?) invests 10000 Rs at an interest rate of 8% for 5 years. He’ll get Rs 14,693 in return. In another case, Ayaan decides to hold the investment for 15 years. The aggregate amount he’ll receive is Rs 31721. His investment more than tripled in 15 years. And that’s the power of compounding over time. Youngsters in their 20s and early 30s have plenty of time on their hands, and if they decide to invest wisely in real estate, the return is going to be off the charts. In a nutshell, the sooner you invest the better. Real Estate Appreciation Unless you’ve been living under a rock for the last 100 years, you will be aware of the tremendous appreciation rate of real estate properties. And that’s why it’s such a popular investment option out there, almost a no-brainer. So, if you’ve seen people regretting why they didn’t buy a plot or a property in the 90s and early 2000s, you’ll know why you should invest in your 20s and 30s. Early Break-Even For those who might not be aware, break-even is a situation when the revenue generated levels up with the total cost associated with the business, after which point your business turns profitable. In real estate investment terms, the break-even point is when the total income generated from the property (through monthly income or rentals) equals the total spends from owning and managing the property. Total Income = Total Expenses Commercial and residential real estate, against the mortgage/loan, maintenance, and other costs, turns profitable faster if you invest at an early age. Imagine you’re 45 and you’ve paid off everything and, now it’s your time to enjoy the property, maximize the cash flow, and reap all the benefits. Versus someone who invests at 40-45 and still faces loan liabilities. Understand Financial Management Nothing can teach you better financial management than being right at the centre. As a young investor, you will have the responsibility of managing all the cash inflows and outflows on the property. You’ll be handling the money coming in as rentals, as well as diverting it against the home loan. In this process, you’ll learn: Financial education Setting aside money to invest regularly from an early age encourages financial literacy. These saving and investing techniques then extend to other aspects of financial management, like budgeting, cash management, and planning financial goals. Market Experience Starting early gives investors more time to experience and learn about different market cycles, including booms and busts. This experience will be key in developing an understanding of market dynamics and economic indicators. Set and achieve goals Early Investing encourages you to set and work toward financial goals, such as saving for big purchases, building an emergency fund, or planning for retirement. Long-term vision Investing early develops a long-term view of your finances. It helps you understand the importance of delaying instant gratification and go for long-term investments over short-term gains. How to invest in your 20s and 30s “Yeah yeah, we get it. But as youngsters, we don’t have that kind of capital to invest in real estate” And that’s the whole purpose of this blog. In this section, we’ll prove that real estate investing is possible at a young age and with an average salary. There are a few ways you can explore the ever-growing realm of real estate and hold a card on the table. Let’s discuss them one by one. Real Estate Investment Trusts (REITs) REITs are firms that own, operate, or finance income-generating properties such as commercial buildings, apartments, malls, warehouses, and data centers, among others. These companies are publicly traded on the stock exchange and all the other major exchanges, and they let you invest without the hassle. Think of them as mutual funds for buildings, spreading your risk across different