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How to Invest in Real Estate Online: Ways and Strategies for Wealth Creation
American investor and businessman Robert Kiyosaki said, "It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.” Indeed shares a wisdom word for all investors; however, it raises the alarm bell regarding risking your investment. Undoubtedly, the two prominent questions that often pop up in investors' minds are: earning a greater return and securing the investment from market fluctuation. No wonder; it’s a double-edged sword when it comes to reaping the larger benefit. Traditional investment beliefs favor low returns, with security as the most prominent factor. Real estate has earned the reputation of being a safe and secure investment option. Yet it would be inappropriate to beat the leak without getting into the details of the changing pattern of the investment. The modern advancement of financial innovation and technology allows an investor to invest in real estate online, which can turn out to be a perfect mode for wealth creation. In this blog post, we will try to develop a better understanding of investment in real estate and formulate strategies accordingly.
How does it matter? With the growing importance of internet penetration, every sector is experiencing new challenges and opportunities to go global. Investment is one of those areas that has witnessed phenomenal growth, even in real estate. It has given enough leverage to meet the needs of the needs of small investors who need to park their investments in big projects as well. Most importantly, the advent of REITs helped investors manage their liquidity concerns. An investor can or cannot have ownership title, subject to the investment method and certain guidelines. Some of the investment methods also facilitate stock exchange trading and are easily accessible. There are the following benefits associated with it:
- Hassle-free rental income: such investment models allow investors to get rental income from their investment without managing the property. Unlike traditional real estate property, where an investor owns the property, takes care of it, and manages it for greater rental income, it is not only tension-free but also removes the dependency on managing the vacancy rate to get the desired rental benefit.
- Easily accessible: online platforms provide a benefit to investing in various high-end products along with the benefit of diversifying the portfolio so that a mediocre or small investor can also invest his money to enjoy greater benefits with low capital investment.
- Transparent and authentic: the online investment platforms provide detailed information about investments, available properties, and options so that an investor does not have to worry about keeping and maintaining records of every penny that he invests. This also helps to build trust among the investors and offers a variety of choices to choose from.
- Risk mitigation: an investor can diversify his risk across different property options beyond the geographical boundary to mitigate the chances of risk. One can invest in any property that is strategically situated or has a location advantage. By doing so, he can also earn a greater return on his investment and protect his investment from market fluctuation.
The available investment options are: There are various investment options available to investors through which they can invest in real estate more smartly. These are:-
- Fractional Ownership Platforms (FOPs): Fractional ownership platforms, or FPOs, offer great benefits to investors looking to invest in high-end properties without making a huge investment in them. These platforms provide the opportunity to own a fraction of the property, along with other property benefits such as rental income and profit upon sale. These platforms also provide the luxury of managing the property and rental activities, so investors have no need to worry about the tenancy rate or taking care of such properties. The recent development of the Securities and Exchange Board of India (SEBI) to introduce small and medium REITs (SM REITs) is a significant step that not only provides a regulatory framework to monitor and safeguard the investments of investors but also offers greater transparency.
How it works: FOPs allow multiple investors to acquire properties through a pool of funds. Investors can invest by purchasing shares and tokens against their investment amount. SM REIT guidelines pave the way to form REIT with a minimum Rs. 50 crore and below the amount of Rs. 500 crore. Such platforms come with capital appreciation and rental income benefits. Stock exchange-listed REITs offer transparency, risk mitigation, and rights and returns to investors. However, there are also unlisted REITs available, so it is advisable to carefully study the offer document before concluding an investment in them.
- Crowdfunding: This is yet another type of very popular platform, also known as real estate marketplaces. These platforms serve a dual purpose: on the one hand, they assist property developers in generating funds for their operations, and on the other, they connect investors to find the right property option to invest in. Most importantly, any investor can start his investment with a low investment in a big or high-end property. Such investment models provide detailed information about the projects and share financial projections so that investors can have a clear idea and make up their minds accordingly.
How it works: It offers a variety of investment options for investors to partner with. An investor can choose the equity investment option, where he can get or acquire a share of the property against the investment that he makes. After being operated on or sold, the investor gets the best return on their investment. However, one can also go for a debt investment model, where he or she can lend the money for a specific property as a loan and earn interest. A third option is also known, which is known as crowdfunding campaigns, which are designed to highlight a specific project's requirements for funds. Unlike traditional investment methods, these platforms have lower minimum investment criteria so that more and more investors can invest.
- Proptech Funds: Such an investment model is considered a new-generation real estate investment model. The perfect confluence of future tech-based solutions brings forth innovative solutions for customers that influence them to invest in different properties. However, these companies do not promote any property but offer a range of tech solutions as an aid to property developers and customers alike. Murali Krishna, principal at Spyre VC, explains proptech funds as “investing in companies that develop real estate technology innovation, offering a regulated way to participate in the tech evolution of the real estate market.”
How it works: Proptech funds are usually a way to invest in those companies that develop innovative technologies that can be used in real estate to promote and augment the business. It comprises various modern-day techniques such as the usage of AI for property valuation, data analysis for marketing insight generation, property tours through 3D or virtual reality, property management through machine learning, etc. The biggest benefit that investors enjoy is getting dual industry benefits, such as real estate and technology.
- Mutual Funds and ETFs (Exchange Traded Funds): Mutual funds and ETFs are professionally managed securities that diversify the investment into a pool of diversified properties. This helps the investors purchase different property options, such as residential, commercial, industrial, and so on. Thereby, the overall risk will be managed, and a stable investment portfolio can be maintained.
How it works: These funds are more prominent and gaining importance because of their unique benefits and features. By investing a minimum amount, any investor can own such funds. The investment is segregated and divided into different property types, which acts as a hedging mechanism to mitigate the risk. If any property solution experiences a downfall, the same can be managed through other diversified investments. Moreover, an investor can also experience great returns and growth based on his risk profile and investment.
- Real Estate Investment Trusts (REITs): Similar to mutual funds, REITs are yet another popular way to provide investors with the opportunity to invest in a variety of properties by purchasing their shares. Usually, such companies own the property and allow investors to get the dual benefits of capital appreciation and recurring rental yield. These trusts can be small or large and listed or not listed with the Security Exchange Board of India.
How they work: Registered or listed REITs can be traded on major exchanges. An investor can invest in different properties through them with no geographical constraints, unlike traditional property investment. Register or listed REITs offer greater transparency and security and are monitored and managed under the guidelines of SEBI. The biggest benefit of such funds is greater liquidity.
Things that matter the most: Despite having plenty of benefits such as risk mitigation, security, high yield earning, capital appreciation benefit, and liquidity, certain key points must be kept in mind before planning to invest. These are:-
- Investment amount:- Among the various alternatives available for online investment, it is really important to plan how much investment you wish to make. Different platforms have different investment thresholds. This will help you understand and decide which platform suits you best.
- Property Types:- The two basic things that one should think about while making the best and smartest investment are choosing the right property option as per the requirements. Different property options offer different yields, e.g., commercial property offers greater rental income than residential property. Another important thing is choosing the property location in addition to the property type. Strategically situated properties generate a greater yield in a shorter period, along with greater property appreciation in comparison to other property investments. In the case of SM REITs, an investor should park his money for completed projects and revenue-generating properties.
- Investment structure:- Every investment has certain constraints and limitations, and so does their investment structure. Investors must carefully evaluate the risk, exit option, and their rights before choosing the investment option.
- Lock-In Period:- Similar to investment structure, different online investment models have different lock-in periods. This period varies from property to property and platform to platform; therefore, one can choose the best option that meets his requirements.
Conclusion: In the age of digitalization, investors look for various online modes available to park their investments. However, a careful consideration of various market aspects such as property options, investment amount track record, risk associated, and exit plans One can easily choose the right investment model to invest in real estate online. However, it is also advisable to seek professional advice when choosing the right investment model. It will help you to plan your success to attain financial goals and manage the risk.
