Secure Your Financial Future – Investing In Real Estate - Magnolia Realty
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Secure Your Financial Future – Investing In Real Estate

30 Nov 2020

It is a fallacy of modern culture our primary focus is on immediate gratification. The idea of planning ahead of retirement, especially for the younger generation, isn’t very appealing. For this reason, most of us have this idea that the retirement funds will simply take care of themselves.

Investment in a sense is not just important, but absolutely necessary. To succeed and take advantage of real estate investing to help you reach your dreams, we’re going to assume you’ll agree to make a few small sacrifices early on. From there, we’ll show you where those small sacrifices might take you from an investment standpoint.

What Will Be The Ideal Property For Investment?

You must look at the property that would be with an assumable loan that would be comfortable and fully amortized within the desired time frame. The best scenario is when your down payment is exactly the same as your investment nest egg.

There may be a case when you can’t find a suitable property that can pay off on its own merits. Also, it may not work out when you pay your rent as well as monthly installment, so one solution is to buy a property where you can compromise a bit. Perhaps a smaller property as a part of your investment plan, giving maximum down payment and finish it off quickly. Later, you can sell the property and invest in a bigger property.

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Principle reduction is another method where you can keep your existing property, and should look into refinancing it to generate the cash necessary to invest in income property. You can take the advantage of lower market interest rates, cash out a section of their equity, or minimize the monthly installment with a longer repayment term.

Real Estate Always Plays an Appreciating Game

Suppose you are probably thinking of buying a property in Rajarhat, Kolkata, now, you need to ask yourself, “Does analyzing a flat in Rajarhat, Kolkata, do anything for my future?

It is not just where you live, but how much your new abode will be appreciated in the near future. It mostly depends on the locales and the property itself. In the case of an investment point of view, locality always takes an upper hand, but the bottom line is that a real estate investment, regardless of locality, gives an opportunity to acquire an appreciating asset.

Principle Components of Real Estate Investment

When you invest in any residential real estate, the principal components are:

  1. Cash flow
  2. Loan reduction
  3. Appreciation
  4. Tax benefits


Cash Flow (as per the construction payment plan)

The most concerning for investors is the cash flow component. In simple terms, cash flow this money in your pocket after all expenses have been paid. Cash flow is not exactly the component of wealth building, but it is obviously one of the factors. To know the cash flow, you need to know a further subset of components:

  • The annual gross income
  • The annual expenses
  • The total debt payment on your loans

Loan Reduction & Increase your Equity

Loan reduction is another important component of your investment. When you buy a property, the primary equity is your down payment. Nonetheless, with the help of tenants (if you want a good rental yield), your equity will dramatically increase over the years. You pay your loan payments using tenant income. Although in the first few years, you won’t notice a significant minimization of loan because you will pay much interest on your loan. But in the later years, your monthly loan amount pays down the principal at a rapid rate, which significantly increases your equity.

Appreciation of your Property

The value appreciation of your property is the third component of your equity growth. The appreciation of real estate primarily depends on inflation and demand. The appreciation rate is directly linked to the general inflationary rate of the nation’s overall economy.

Demand appreciation is connected to four fundamental economic principles.

  • Scarcity
  • Transferability
  • Utility
  • Demand

It is not the single factor, but the combined effect of all these four factors that appreciate a property and also depreciates a property on the other hand.

Tax Benefits

The fourth component is the tax-sheltering benefits.

a) Income tax benefits can be claimed only after the completion certification of the property.  Under section 80C, the tax deduction is can be taken on the annual principle amount(upto 1.5 Lac.)

b) Other  tax benefit on interest component (under section 24, upto 2 Lac.)

c) There is another section 80EEA has been introduced applicable for the first-time buyer, and the value of the property should be less than 45 Lac.; hence there is an additional deduction of 1.5 lacs.

d) As per the government norm, anyone can have two self-occupied properties. It means you do not have to show the rental income, and the interest you are paying can be shown as a loss from property.

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