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Why the Buy-to-let Concept is the Best Option for Property Investment As an income investment, buy-to-let is quite lucrative, especially when pitted against low interest rates on bank deposits and stocks.

By Suresh Rangarajan

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If you're out to buy a property as an investment, you need to shed any and all preconceived notions like you can sell off the property whenever you need and recover the entire value of the asset's price. Liquidity is not among the top benefits of investing in real estate, and the market scenario at present is indicative of just how much tough it is for property owners to find buyers willing to pay the desired price. A simple buy-and-hold strategy wherein you wait for the property valuation to rise in the future may not be advisable.

Those who paid big money and bought under-construction properties in the past can well explain the excruciatingly long wait they had to undergo before they were finally handed possession of the property. Moreover, it's usually not advisable for the buyers to take huge loans for the purchase of an under-construction property since the tax benefits are much lower as compared to that of a fully constructed property. The tax deduction on housing loan interest payments in such cases is limited to INR 30,000 per year, and not INR 2 lakh as allowed for fully constructed properties. Furthermore, any potential tax benefits you receive will simply pale in comparison to the mountain of expenses that come with maintaining a new and fancy house.

Why buy-to-hold?

Despite recent developments such as revisions in the LTCG tax rates and the general bearishness of the real estate market, the buy-to-let concept is still the best possible option for real estate investors looking to maximise the returns from their holdings. The buy-to-let concept, which refers to purchasing a property with the intention to rent it out is steadily gaining traction in India, where uncertainties in the real market like depreciating values and economic instabilities have left investors with much lower yields than they expected.

The primary factor that makes the concept of buying property to rent out is that people will always need a to live, so the demand for rental property will invariably exist. Also, real estate, being a tangible product, is by no means inflation-proof. This means that no matter how much the prices fluctuate, in the long term, property values will continue to appreciate. As an income investment, buy-to-let is quite lucrative, especially when pitted against low interest rates on bank deposits and stocks. However, investors must carefully select the investment properties, focusing on those with the maximum potential to yield decent monthly returns, as well as long-term gains. Furthermore, a well-managed investment property can give investors the following benefits:

  • One of the biggest advantages of buying property to let is that you can earn income in two ways. One is through the rental income that comes from tenants. The other is through capital growth, as the value of property will appreciate with the changes in the locality, even if the property is not modified.

  • Renting property is currently a widespread lifestyle trend, hence there is very less chance of experiencing any null or void periods in your letting. Yet, if a property unit remains vacant, the loss of rental income during that period of time could be compensated by long-term appreciation of the property.

Investing in apartments, in particular, is one of the best ways for investors to gain from the buy-to-let concept. The cost of managing an apartment is also significantly lower than that of an entire house, enabling buyers with higher capital to buy multiple units and maximize their returns through rental income from each, and build a robust, high-value property portfolio.

With the Indian real estate market bouncing back after a nearly two-year long slump, more and more investors are looking to invest in property in the hopes that the value of their investment will rise in the future. Approaching their investments with a well-calculated strategy for generating income will help these investors make the most of the present boom in the market. Furthermore, the trends among young Indians point towards a growing decline in their desire to own homes, which indicates a positive future for the buy-to-let concept.

Suresh Rangarajan

Founder and CEO, Colive

Suresh Rangarajan K (SRK) has been a passionate & intense start-up professional. A Chartered Accountant by profession he is an Alumni of the Yale School of Management. One of the early adopters of the internet world, he was part of the founding team of Citi-Times JV Under his enterprising leadership, went on to become the world’s #1 online money transfer portal & one of the most successful internet businesses in India. SRK then founded an innovative real estate enterprise called Artha. The highlights of his stint at Artha include the path breaking Startup City & Knowledge Park – Emprasa. Suresh founded CoLife in 2016 – a company that offers shared living & workspaces for Indian Millennials. Headquartered in Bangalore, it currently operates across 12 different locations. The company was conceptualised on the bedrock of community engagement, as an effort towards building a networking forum for Millennials to cooperate, collaborate and communicate seamlessly. He was conferred the prestigious Udyog Rattan award and WCRC. Ernst & Young also awarded him the “Trend Setter in Real Estate”. Suresh continues to hold board positions in Artha and Brand Accelerator (a startup marketplace) and advisory roles with more than half a dozen startups including Vear, Ubinga, TherPup.

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