For many, buying residential property to let is an attractive income investment in a time of a volatile stock market and low return in other popular alternative investments. Property can fetch rental income and has an upside potential for capital appreciation in the long term. Whether you buy property for self-use or investment purposes, there are a few important parameters that you have to keep in mind such as size, location, timing, budget, quality and amenities. However, as an investor, though, you will need the lens of an investor, not home buyer.
If you are buying a residential property for self-use, timing is a critical factor in making a decision to buy under construction or ready to occupy property. However, buying property for investment can provide a lot of flexibility in terms of choosing a location and time horizon. If you are buying the property for investment, it is advisable to go for under construction property. This gives you the decent time to arrange for funds and offers flexibility in payments. Moreover, the upside potential for under construction property is also high.
When choosing a residential property for self-use, selecting a location often depends on considerations like distance from own work place, children’s school, native place and social amenities. However, if you are buying a residential property for investment, the decision should be based purely on appreciation potential. You can always choose any promising location and need not pay much heed to personal choices. I do not mean the most expensive or the cheapest. It should be a location where people would like to live, and that can be for a variety of reasons. Promising locations can always fetch you a good return whether it is rental yield or capital appreciation. Further, if you are planning to let the property, always think about the target tenant and choose the property accordingly. For example, if you are buying a property near a commercial hub, your target tenants should be young professionals and the property should be modern and stylish.
Another difference in buying property for own use or for investment is the financial planning. Like any other investment, the property investment comes with no guaranteed returns. Most investors make the mistake of relying hugely on rental yield when buying property for investment purposes.
If you are taking out a mortgage to buy a property for investment, never rely heavily on rental income as the property may sit empty for a month or two. Investors also need to have a keen awareness of the interest rate environment – how higher rates might affect their expected net return and the market for their property.
Lastly, a big difference between buying a property for self-use or investment is that you should not fall in love with the property you invest in. The primary objective of an investor is to make money thus make an exit when you have achieved your financial goal.
About the author
Surabhi Arora, leads the research team in India and has more than 13 years of experience in carrying out multi-disciplinary research and analysis in the area of finance and real estate industry. Surabhi specialises in real estate economics, policies, commercial and residential real estate research with in-depth knowledge of market dynamics across major markets in India.