7 Reasons Why Real Estate is the Best Long Term Investment
“Ninety percent of all millionaires become so through owning real estate. The wise young man or wage earner of today invests his money in real estate.” – Andrew Carnegie
Let me start
by categorically stating that real estate is really the best asset class you
can acquire to accumulate wealth over long term.
The key word to note here is – long term. Real
estate is not an asset class to be bought with a near term vision. Real estate
is like a mango tree. When you sow the seeds today, you can’t expect the fruit
immediately. But will adequate care, it is sure to give you sweet mangoes in
future.
What makes real estate a lucrative long term investment?
Long-Term Wealth Creation
Ask your
parents or your grandparents the price at which they bought their first house
and what’s its value today. Over long-term, real estate has always delivered
good returns. It creates wealth for you as well as your future generations.
A Regular Stream of Passive Income
Apart from
capital appreciation, properties also yield rental income. More importantly,
the cash flows it generates are more or less a predictable stream, making it
easier for you to plan your overall finances. In a way, is may act like a
retirement fund for you and it also keeps up with the rate of inflation.
It is Resilient
Real Estate
is not as volatile as other investment assets like equities, making it a far safer
bet. For instance - Investors wealth eroded by approximately Rs. 11 mn crore in
the stock markets, in a single day when the WHO’s declaration on corona virus
came. Gold has also lost its sheen and has become more volatile over the last
few years.
Diversifies the Investment Portfolio
Apart from being less volatile, real estate also reduces the overall investment
risk of your portfolio by diversifying your investments. It is important to
understand that real estate returns are often inversely correlated to those of
other assets, thereby reducing overall portfolio volatility.
Can be Leveraged
Another
advantage with real estate investment is that you can benefit from leveraging.
You can avail home loan at attractive rates for buying the property, thereby
increasing the potential returns.
Multiple Tax Advantages
You can
avail multiple tax benefits like deduction of interest paid on home loan, deduction of home loan repayment, claim 30% of the rental income as standard deduction which reduces
your taxable income from property, etc. (Do
read our article Tax Benefits of Buying A House for more insight into it)
A Source of Emergency Fund
You can
avail top-up loans on your properties if a sudden need arises.
Overall, housing is one of the three basic necessities of mankind. In India, the mortgage to GDP ratio is still very low (around 10%). This coupled with factors like favourable demographics, rising nuclear family culture, easy availability of finances, overall improved affordability, social distancing & work-from-home mind set post the current pandemic, etc. indicate that structural demand for housing will remain high.
Neha Agrawal - Co-Founder, OPENMINDS
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