NAME - SHIVANI SHARMA

CLASS - M.COM PART -2 SEM 4TH

ROLL NUMBER – 17
SUBJECT - PERSONAL FINANCIAL
PLANNING (PFP)
ASSIGMENT TOPIC - INVESTMENT IN
REAL ESTATE
 INDEX

1. Meaning of investment in real estate.

2. Benefits to investment in real estate.
3. Ways investment real estate can be managed.
4. Risks to investment real estate.
5. Types of real estate investment trust (REIT)
6. Investment opportunities in real estate
(Sector overview).
7. Conclusion.
 MEANING OF INVESTMENT IN REAL ESTATE

Investment real estate is real estate that generates income or is otherwise

intended for investment purposes rather than as a primary residence. It is
common for investors to own multiple pieces of real estate, one of which serves
as a primary residence while the others are used to generate rental income and
profits through price appreciation. The tax implications for investment real
estate are often different than those for residential real estate.

Investment real estate can provide opportunities for investors to build wealth,
increase income, and diversify an investment portfolio. Residential investments
typically involve homes, townhouses, and condominiums.

An investment in commercial real estate might involve the ownership of retail

stores, office buildings, or storage facilities and warehouses. Investment real
estate can create capital gains for investors due to increases in property value as
well as provide rental income.

Investment real estate can provide opportunities for financial gains to

investors. Owning investment properties can help build wealth, increase income,
and help diversify an investment portfolio. Although there are many types of
properties in the real estate market, primarily, most properties can be broken
down into two classifications.

Residential

Investment real estate can include residential land and properties. Residential
investments typically involve homes, townhouses, and condominiums.
Residential properties can be multi-family or single-family units.
Commercial

An investment in commercial real estate might involve the ownership of retail

stores, office buildings, or storage facilities and warehouses. Investment in
commercial real estate is typically more involved and costly than residential
investments. Commercial property leases can be longer than a residential rental
agreement. Both the costs and profitability are usually measured on a per-square-
foot basis.

In essence, real estate investments are made to protect money and make a
profit. Compared to other investment options, real estate offers significantly
better returns, opportunities for leveraging, income tax sheltering techniques, and
a higher level of personal control. The primary goal of real estate investing is to
increase value of generate a profit through strategic decision-making and market
analysis. Investors analyze real estate projects by identifying property types, as
each type requires a unique investment strategy.

The investment function demonstrates how companies determine to invest in

such things as equipment, buildings, or machinery to expand. It assists in
explaining how such decisions can influence the economy and generate
employment. In order to achieve a predetermined return on investment within a
designated period, the act of investing involves the allocation of a predetermined
sum of money. There are numerous additional asset classes in which individuals
may invest their funds.
 BENEFITS TO INVESTMENT IN REAL ESTATE

The benefits of investing in real estate are numerous and can vary depending
on the goal of the investor. How much money to invest in a real estate property
can depend on the investor’s risk tolerance. Also, an investor’s time horizon is
important to consider when making such a large purchase or investment.

Some investors invest in real estate to diversify their money away from the
stock market. Other investors want their money invested in physical assets
instead of securities, such as equities or bonds. Two of the primary benefits of
investing in real estate, both residential and commercial, include :

Capital appreciation

Investment properties can realize capital gains for investors due to property
value increases over time. A capital gain is a profit that results from the
difference between the original purchase price and the sale price of the property.
Of course, investors can only realize the capital gain after sell it.

However, prices have risen dramatically over the last few decades as demand
for housing has increased. Both supply and demand play a role in earning capital
gains from real estate. If there are fewer properties in a geographic region or less
supply, property prices tend to appreciate all else being equal.

Rental income

Many investors buy real estate for the steady stream of income that it provides.
Whether it’s a residential or a commercial property, renters or occupants pay the
owner each month until the rental agreement or lease expires. This revenue
stream can offer a stable income for retirees and others who are looking for an
alternative source of income besides income from holding investment securities
such as bonds or stocks. Income from real estate can also act as hedge or
protection against stock market downturns and rising prices of consumer goods.

Investing in real estate offers potential for steady income and long term
growth. Pros include passive income, tax benefits, and portfolio diversification.
However, cons involve high upfront costs, market volatility, and management
challenges. Success depends on careful consideration and risk tolerance. The
biggest advantage of real estate investment is the assured regular income flow.
The rental income generated from your property not only secures the asset but
also provides a higher profit than any stock dividends. The amount of rent that a
property could reasonably be expected to fetch in the current market, based on
factors like location, amenities, and overall condition. It represents a balanced
price where both landlords and tenants feel the rent is fair and competitive. In
essence, it’s the price tenants are willing to pay and landlords are willing to
accept.
WAYS INVESTMENT REAL ESTATE CAN BE MANAGED

Leveraging investment real estate can follow numerous paths. An investor

might join a real estate investment group that pools its funds to acquire
properties. The owner or owners of investment property may hire property
managers to oversee the day-to-day upkeep and rent collection for a piece of real
estate or an entire portfolio.

A real estate investor could also look to serve on the lending or funding side of
projects with an expectation of a return on their investment. For example,
investors could be the lenders behind hard money loans for real estate. The
borrower in such an instance will likely pay higher interest rates to receive the
funds and will need to repay the loan in short order. The lender might agree to
the loan in the hopes of taking ownership of the property should the borrower
default especially if the property has the potential for greater resale value.

A real estate investor could also look to serve on the lending or funding side of
projects with an expectation of a return on their investment. For example,
investors could be the lenders behind hard money loans for real estate. The
borrower in such an instance will likely pay higher interest rates to receive the
funds and will need to repay the loan in short order. The lender might agree to
the loan in the hopes of taking ownership of the property should the borrower
default especially if the property has the potential for greater resale value.
 Investment real estate can take the form of a piece of property that is in
disrepair, or otherwise underdeveloped that is refurbished with the intent to rent
the space for a long-term return. The owner of the property might seek financing
to cover the cost to improve the real estate and make it more attractive to
tenants.

A real estate investor could acquire a property based on an expectation that

demand for space will increase because of external factors. New attractions
such as a sports arena or infrastructure development, such as a highway
extension, could make neighboring properties highly desirable. For example, a
real estate investor might buy a commercial property next door to the site for a
new theater that is under construction. The assumption is that there would be
increased foot traffic passing by the location a prime choice for retailers. The
increased demand could provide the owner with the opportunity to alleviate rent
prices as well.
 RISKS TO INVESTMENT REAL ESTATE

Real estate can involve a significant amount of upfront capital and debt in the
form of borrowing from a bank. Also, it doesn’t provide an immediate financial
gain, meaning it can take many years to make profit or get back the initial
investment.

Economic downturns can cause difficulty in finding tenants, particularly with

commercial properties. If businesses are going out of business or losing money,
they may be unable to pay their rent. In a recession, it can be quite difficult to
find tenants for commercial properties. As a result, the owner would have to pay
for the upkeep of the property and any mortgage payments to the bank for
buying the property.

There are also risks to investing in residential properties. Difficult situations

can rise when managing tenants. Cost overruns for refurbishing or repairs can
occur, and the investor may need to commit additional funds. Tenants can
always have an emergency in the middle of the night, which can lead to more
time spent managing the property.

The good news is that real estate investors can hire a property manager to
manage and oversee the repairs and collection of rent payments for both local
and out of town investment properties. However, the cost of a property manager
will eat into the monthly income received, which would translate into longer time
before the property turns a profit and the investor gets the initial investment back.
 TYPES OF REAL ESTATE INVESTMENT TRUST (REIT)

In a broader sense, the types of business REITs are involved with tend to help
classify them better. Also, the methods devised to sell and purchase shares
further help classify REITs.

The following is a list of different types of REITs.

1. Equity
This type of REIT is among the most popular ones. Typically, it is
concerned with operating and managing income – generating commercial
properties. Notably, the common source of income here is rents.

2. Mortgage
Also known as mREITs, it is mostly involved with lending money to
properties and extending mortgage facilities. Further, REITs tend to
acquire mortgage – backed securities. Mortgage REITs also generate
income in the form of interest accrued on the money they lend to
proprietors.

3. Hybrid
This option allows investors to diversify their portfolio by parking their
funds in both mortgage REITs and equity REITs. Hence, both rent and
interest are the sources of income for this particular kind of REIT.

4. Private REITs
These trusts function as private placements, which cater to only a
selective list of investors. Typically, private REITs are not traded on
national securities exchanges and are not registered with SEBI.
5. Publicly traded REITs
Typically, publically – traded real estate investment trusts extend shares
that are enlisted on the national securities exchange and are regulated by
SEBI. Individual investors can sell and purchase such shares through the
NSE.

6. Public non – traded REITs

These are non – listed REITs which are registered with SEBI. However, they
are not traded on the national stock exchange. Also, when pitted against
public non – traded REITs, these options are less liquid. Plus, they are
more stable as they are not subjected to market fluctuations.

7. Industrial and special use

This category encompasses properties used for manufacturing, storage,
and distribution, including warehouses, factories, and research facilities.
This category includes properties designed for specific purposes like
schools, hospitals, places of worship, or government buildings.

8. Land
This refers to undeveloped or vacant land, which can be used for various
purposes like agriculture, development, or conservation.
 INVESTMENT OPPORTUNITIES IN REAL ESTATE
(SECTOR OVERVIEW)

Real estate is a crucial sector, playing a significant role in india’s

infrastructural development landscape. With a current market size of $482 Bn
and contributing 7.3 % to the total economic output, the real estate sector,
encompassing residential, commercial, retail, and industrial properties, is one of
the pillars for the development of the country with its strong linkages with allied
industries like cement, steel, and building materials. The rapid urban migration,
with the anticipation of approximately 590 Mn People (39% of the population)
living in urban areas by 2036, would surge the demand for affordable residential
properties. The expected upcoming demand could lead to $906 Bn worth of new
homes by 2034, creating avenues for investment in residential projects. India’s
emergence as a global IT hub has particularly driven the demand for commercial
real estate segments, including office spaces, shopping malls etc, with the top 8
cities of india accounting for 900+ Mn sq. ft. of office stock and an upswing in
demand for office spaces in tier 2 and tier 3 cities. The establishment of special
economic zones, software technology parks (STP), and export- oriented units has
significantly supported commercial real estate in the country.

Flexible foreign direct investment (FDI) policies and structured regulatory

frameworks, such as the introduction of the real estate (regulation and
development) act (RERA) 2016, have enhanced the transparency and growth
prospects in the sector.
 The sector’s evolution, driven by technological advancement and an emphasis
on sustainable practices, including the use of eco-friendly building materials for
green buildings in real estate projects, creates avenues for the country’s
long-term growth while catering to the economic progress and demand of the
youth population. This shift in the dynamic real estate landscape signals the
opportunity for growth and innovation in this sector, thereby enhancing living
standards and strengthening the country’s market environment.

India’s real estate market is witnessing profound changes due to economic

growth and shifting population dynamics. Economic expansion, projected to
grow at 6.5 percent in the fiscal year 2024 – 25, has created an environment
conductive to property development, particularly in urban areas. The government’
s focus on infrastructure development, coupled with a youthful workforce eager
for urban living, drives this momentum.

Urbanization in india is accelerating, with more people migrating to cities in

search for employment and better living conditions. This trend is leading to a
greater demand for residential properties and commercial real estate, such as
office spaces and retail outlets.
 CONCLUSION

In conclusion, a good real estate investment should generate a positive cash

flow, appreciate in value over time, and provide a high return on investment. An
effective investment combines smart asset allocation, diversification, and well –
timed decisions about when to buy and sell. This approach allows you to build
and manage a portfolio that aligns perfectly with your financial goals and how
much risk you’re comfortable taking. Real estate investment is the practice of
purchasing property as an investment rather than as a primary residence, in order
as a primary residence, in order to generate income. It may be simply defined as
any piece of land, structure, infrastructure, or other tangible assets that are often
immobile yet transferrable to get a profit from it. An investment summary is a
document that details a business idea description and how it can be
transformed into a venture worth an investor’s support. Summary spells out the
quantities and dollar values of the various assets in your portfolio and how they
add up to create your overall asset allocation.

An investment property is real estate property is real estate property purchased

with the intention of earning a return on the investment either through rental
income, the future resale of the property, or both. The property may be held by an
individual investor, a group of investors, as a corporation.