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Top Three Real Estate Advantages: Tax Benefits, Appreciation And Refinancing

As one of the most powerful and profitable investments you can make, real estate provides regular cash flow, a hedge against inflation and otherwise unattainable leverage. These may be the top benefits of real estate investing, but they’re only scratching the surface.

I want to shine a spotlight on the benefits I don’t think get enough attention: tax advantages, appreciation and refinancing.

 

Tax Advantages

Real estate investing is arguably the best way to grow long-term wealth without lining Uncle Sam’s pockets. The only downside to the tax-slashing strategies listed below is that they take some time and research to identify and utilize — but when you can reduce or entirely erase your liability, I’d say the effort is well worth it.

General Write-Offs: Owning any real estate asset will incur some costs; that’s just the name of the game. Fortunately, most can be written off as deductions to lower your taxable income. They include (but are not limited to):

 

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• Property taxes

• Insurance premiums

• Ongoing maintenance and major repairs

 

• Management, marketing and admin-related expenses

Mortgage Interest Deduction: Beyond the aforementioned deductions, you can actually write off your mortgage interest (a real gift from the tax-code gods). As an investment property owner, you can claim an itemized tax deduction for interest paid on the first $750,000 of the mortgage debt.

 

Cost Segregation: Buildings age, just like we all do. In industry terms, this wear-and-tear is called depreciation. The IRS allows for a depreciation deduction every year, defining the asset’s depreciation rate in terms of its “useful life.” Residential properties have a useful life of 27.5 years; commercial properties are looking at 39 years. Don’t plan on holding the asset that long? That’s where cost segregation comes in.

Some items outlive others; interior carpets will need replaced before the sidewalks outside do. Cost segregation accelerates the amount you can expense in the early years of ownership and can be taken over five-, seven- or 15-year periods, depending on the items in question.

Appreciation

 

Even while the building itself ages, property value goes up over time, exponentially so in developing markets. If your asset is located in a city or surrounding suburb with positive job growth, a booming economy and an increasing population, that asset is going to appreciate extremely well.

When examining the graph below, you can easily see the rate of new, single-family homes steadily increasing, with marginal drops during periods of economic downturns.

 

Refinancing

The ability to build equity in an asset is paramount to growing wealth and realizing financial independence. As the property appreciates and the mortgage is paid down, you build more and more equity. After enough has accumulated, you can pull that equity out through a refinance. Over the long term, the cash-out can be massive. This gives you more leverage to acquire additional assets, pay off other debts or even live out a personal dream after years of hard work.

When you look at it from all angles, real estate is a goldmine of wealth-building potential. With the correct strategies, smart planning and a solid management team (this is particularly true for passive investors), you can greatly reduce your taxable income, reap the rewards of asset appreciation and build equity to grow generational wealth.

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5 Things To Remember Before Investing In Real Estate In India

Real estate is a long-term investment that cannot be easily altered. An investor without any prior experience in this sector might get carried away and make uninformed choices. However, one must note that such purchases involve a huge sum of money, several risks and sometimes they might not even offer the expected returns. In the past, numerous individuals have preferred a rented accommodation over such options. The virus outbreak; however, has established the importance of owning a house. During the pandemic, realty emerged as the safest investment option. The driving factors behind this change are depreciating rates of the Indian Rupee and low-interest home loans.

Before you make an investment here are some things to be noted –

Location and survey the property thoroughly:

Location holds paramount importance in property buying. Especially in the case of residential property, several factors such as accessibility to roads, public

transport, distance to neighbouring cities, infrastructural developments, among others, come into play. A thorough analysis of the property helps in getting a better understanding of the potential as well as liabilities it presents. Also, buyers should take into consideration the blueprint of the property and the actual size of the house. It is advised that customers should review the property through RERA and employ legal assistance throughout the buying process for enhanced transparency. Another critical aspect to consider is safety. I suggest visiting the property more than once and at different times of the day to make the best possible assessment of the location and property.

Look at historical returns of existing investors:

IF there is an option of review a set of historical transaction data, it is essential to consider this information before purchasing a property. Despite real estate being market driven and cyclical, this data is likely to throw up some useful information regarding the demand for the property, rental yields and pricing.

Title

When purchasing property, the only thing that cannot change in the long term is title and therefore it is essential to investigate the title of the property through a reputed lawyer or legal firm. This is even more important in the case of secondary sales. Title related issues are extremely tedious and expensive to resolve. One should also look out for any charges/unpaid dues that are sometimes hidden in the property documents and sale agreements by the seller and broker.

Market Dynamics:

It’s essential to understand the dynamics of the property one is planning to invest in. For residential properties, buyers should check the numerous home loan interest rates, offers provided by the developers, and Government regulations such as reduced stamp duty for women customers.

REITs:

Since 80% of the underlying assets in Real Estate Investment Trusts (REITs) are required to be operational as well as income-generating, these have emerged as one of the most viable investment options as compared to conventional property purchase. It is a way of diversifying an investment portfolio in a low-risk way. Even though the pandemic has put them under the pressure of rental cash flows, the long term scenario remains intact.

As per the Knight Frank-FICCI-NAREDCO Real Estate Sentiment Index Q4 2020 (October – December 2020) Survey, the sentiment behind real estate scores at a year-high in Q4 2020, and the scenario in 2021 looks greatly optimistic. 2021 has great potential for both residential and commercial real estate businesses. Experts suggest that to make it a smoother pathway for investors and developers, the government needs to take more quick and bold corrective measures for the housing and urban infrastructure sector. Such support will play a crucial role in boosting the demand to an unprecedented level. In addition, it is expected that these initiatives will lead to widespread growth of residential and luxury real estate across the subcontinent. This trend is acting as a catalyst for an organized rental market in cities in India.

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Steps to make the best first-time investment in real estate

Real estate investment is considered the most viable and safe option for investment in India. The first step to investing in real estate is deciding whether one wants to start with a short-term rental strategy or buy a real estate property for the long term. Before choosing, one should always consider their financial condition, the market situation, and monetary goals. The most common way to make money in real estate is through appreciation—an increase in the property’s value that is realized when one sells. Some aspects that work towards the appraisal in the value of both residential and commercial options are location, development, and improvements. Indian real estate has witnessed several transitions in the last decade, which have changed the face of the sector. Introduction to GST, RERA and the market post-Covid-19 has led to an increased interest among consumers to own a home.

The rental yield (fixed income) grows with time. Generally, this growth keeps pace with inflation. Capital appreciation happens due to demand growth. With the nation’s youth heavy demographic and upward growth trajectory, demand for property is on a rise. The dual effect of assured rent and value growth allows the realty sector to generate unparalleled returns.

 

Location

It is all about the location when it comes to investing in residential real estate. Many factors come into play here, including access to public transport, safety, proximity to one’s place of work or school, coupled with other facilities such as hospitals, malls, movie theatres, and many more. When buying in an upcoming district outside the main city, other factors should also be considered, such as distance to neighbouring cities and infrastructure projects in the area. Investors should also carry out a thorough check of the property to get a better understanding of its potentials and liabilities. Further, one should analyze the blueprint and compare it with the actual size of the flat. To enjoy a more transparent experience, buyers should review their options through RERA and take the help of a legal expert throughout the purchase process.

 

Stage of development

 

The pandemic has made people realize the value of owning a house. Further, the resultant work- from-home structure has encouraged many to consider properties in remote locations. There has also been an increase in buyer inclination towards under-construction projects in these far-flung areas. The main reason behind this is that such projects are comparatively more pocket-friendly, yield higher ROI, and are compliant with fair trade practices under the RERA regulations. The ready-to-move-in options, on the other hand, offer the ease of immediate possession and tax benefits. However, they are on the higher cost side. In many cases, the quality of construction in such units is not up to the mark.

 

 Thus, during decision-making, customers should weigh the pros and cons of both these options.

Title and other property-related documents

 

An overall check of the documents is critical to establish the ownership of the property and avoid any disputes in the future. It can help one gauge the amount of legal work required to finalize the sale deed. Buyers should be mindful of hidden charges and paperwork requirements such as documents related to mortgage or ownership transfer. These are sometimes added in the property documents and sale agreements by sellers or brokers. One should note and negotiate any ambiguous fees like local or statutory charges, impeding repair charges, and insurance premiums before purchase.

 

Resale value

Resale value is a crucial factor to consider before investing in a property. Ideally, property prices must appreciate significantly with time to ensure healthy returns on the initial investment. However, homebuyers usually ignore this while making their decision. They often focus solely on a prime locality or the budget, which can be a mistake in the long run. If one chooses the wrong house or location, the future sale price may be less than the desired returns. In situations like this, the main issues to consider are: Whether or not the property will appreciate more than the market or what amount of the investment’s potential upside is already present in the current purchase price.

 

Buying a home is not just about finding a place to stay; it is also an investment in one’s future. As it involves a massive capital outlay, this decision must be taken carefully. Buyers must consider various factors, such as the location and the likely returns on the property. A little care, in the beginning, can ensure a safe investment for years to come.

 

 

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Future Of Commercial Real Estate In India

Indians, from time immemorial have invested in gold and real estate. Before, the real estate investment was limited to residential peripherals. Now with the changing times the investments in the industry are expanding boundaries.

The future of this commercial real estate industry will be impacted by the following factors:Real estate investment trust (REIT): a famous instrument all around the world, was presented in India a couple of years prior pointed toward drawing in interest in the real estate by tapping rent-yielding resources. With the beginning of REITs, the commercial sector could observer better capital appreciation, when contrasted with the residential sector. The arrangement of REITs isn’t only an incredible shelter to financial backers, however a benefit to the developers also. For developers, it could open the worth of their business assets. They can view at REITs as a vehicle to exit, at an amazingly alluring capitalisation rate, subsequently, decreasing their significant debts.

Decline in covid cases: With the onset of this pandemic, real estate industry is the worst hit industry among others. It saw shutting down of the offices and hence reducing the demand of the commercial real estate. Now, with the situation normalising to an extent and the government relaxing the restrictions, office spaces are opening steadily.

Recovery across the metropolitan cities: The real estate industry is reviving in stages. More so in the cities, inferable from their high speed and versatile way of life. Be that as it may, Tier-2 and Tier-3 urban communities are additionally expected to drive recovery and development, going ahead. Reasons being the normalising of work distribution and work from anywhere-models by enterprises and clients alike.

Rise of co-working spaces: Co-working spaces will play a vital role in the future of the industry. The workforce is scattered and we have learnt to co-exist from anywhere within an enterprise during this past year. Accordingly a JLL Report predicts that by 2023 India’s co-working market is likely to cross 50 million square feet. It is further said that adaptable office space is probably going to develop by a normal of around 15-20 percent for each annum over the course of the following three-to-four years, albeit this trajectory won’t be straight.

The commercials real estate is gaining momentum. According to JLL Report, India’s net absorption of office spaces stood at 4.39 million square feet in Q2 bringing a 32% YoY growth in major cities. Owing to the smooth conditions that lay ahead, the future of commercial real estate looks promising

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Is Indian real estate standing at the edge of an AI revolution?

Soon, 5G will be deployed which will result in existing internet speeds going up multifold. This will lead to the proliferation of smart devices and machines.Increased devices and machines will mean more data, thereby giving further thrust to AI & machine learning-based predictive models.

AI Can Play a Major Role in Property Markets

AI is set to become a major tool that will be actively adopted for property valuation, trend analysis, and price forecasting. The current cloud-based analyses are restricted to property valuation and prediction based on a few metrics such as property type, carpet area, property price ranges, and location, among other parameters.

However, AI will enable the integration of large pipelines of algorithms with valuable social data such as logistics, social amenities & public utilities, rainfall rates, sunlight availability, automobile intensity, pollution levels, recreational activities in the district, and much more to give a more precise and accurate insight on the property market. This will not just help potential buyers to identify the right property fit but also help brokerage houses and listing agencies to speed up the entire business cycle.

Already in countries like the USA, property advisories such as Zillow, Redfin, Trulia, Compass, etc. are using Big Data-backed AI models to give actionable inputs to buyers. In India, we are using a basic AI-based model. However, the implications of advanced AI & machine learning platforms are trending forward across the industry. Interestingly, with every transaction concluded, the AI platform further evolves thereby setting the ground for faster adoption.

Property management is another significant area wherein the role of AI will be pushed forward. Property managers deal with a multitude of data about tenant profiles, tenant applications, inspection requests, and other inputs. Applying AI can streamline the data process, systematically automate mundane tasks, and lower redundancies, thereby bringing in an unprecedented amount of efficiency.

AI-enabled chatbots will also soon take the industry by storm. It will help brokers and advisories to efficiently converse and engage with multiple clients simultaneously. This will bring in increased efficiency and simplify the overall business cycle. Automated discussion over chatbots will also generate more insights and data that will help realtors finetune their decision-making.