HomeBlogKNOWLEDGEEffortless Real Estate Investment: How to Flourish with Limited Funds?

Effortless Real Estate Investment: How to Flourish with Limited Funds?

Real estate is more than just a market

It’s a world of possibilities that makes big promises: the potential for profits, commissions, cash flow, equity, and wealth. 

But will it deliver these promises to you? The answer depends on the promises you make to it.

It is a common misconception that one needs a large amount of capital in order to become a real estate property investor. I can say that there is always an exception to every such statement. If you’re at least somewhat and eager to self-learn you can begin to move with very little cash. How real estate investment can be approached even when you have very limited resources in hand, we will discuss the aspects in detail in this blog piece but let’s first look at why many new gen investors are looking to shift from the traditional methods to adopting newer approaches. 

Limitations of the Conventional Approach To Real Estate Investing

In as much as the advantages seem enticing, there are factors that should be taken into consideration, the following being the major ones:

Significant Upfront Payment: When one seeks property ownership, typically a huge amount of money is required and this is often paid in the initial stages. In case of purchasing a house, money has to be available for the down payment, cost of the transaction, and special enhancements needed within the premises. There are additional expenses that include monthly or annual payments to keep the asset such as power, safety, and the actual tax on the house.

Requires patience: There is a steep curve in real property investment. Every category of investment property has its own different theory and knowledge and also market appeal. There are time-consuming challenges that an individual will face when trying to absorb all the necessary information – without prior experience, such a person will have an attachment with the property and not know how to manage it.

Management Hassles: As a landlord, one has to focus on many issues such as repairs, maintenance, tenant complaints, and dealing with vacancies. This working management is laborious and a complicated problem as well.

Leveraging Your Loan

Leveraging a loan is one of the most powerful tools available to investors looking to make the most of allotted funds while dealing in real estate transactions, especially when they are starting off with limited funds. By using borrowed capital to finance a property, investors can control high-value assets with only a fraction of the purchase price coming out of pocket. This practice is known as leveraging and it allows you to tap into the potential of the real estate market without being in possession of the full cash amount upfront. With a well-structured loan, anyone can take advantage of low interest rates, extend their repayment timeline, and secure properties that generate rental income, which can help cover the lined up mortgage payments. The sole key is to ensure that the property’s cash flow exceeds your loan costs, allowing you to profit from the property’s appreciation and rental income without draining your finances.

Additionally, when used strategically, loans provide investors with the opportunity to scale their portfolios faster. Instead of tying up and blocking all your savings into one property, you can spread and distribute your capital across multiple properties by taking out loans for each. This approach not only diversifies your investments but also increases your potential for higher returns through the appreciation of several properties over time. However, it’s crucial to approach leveraging with caution—too much debt without proper cash flow planning can lead to financial strain. The best practice is to maintain a balance, ensuring that your loan is sustainable and fits within a well-thought-out investment strategy.

In addition to that there are several other advantages that one can avail when they are planning to leverage on the sanctioned loan:

Bank Verification: Upon some default on home loan, the bank itself verifies the legal siting of the property that you want to buy against any other loans borrowed on that property. This decreases the chances of one acquiring properties that are either ownership disputed or not safe.

Low Interest Rates: So, let’s assume at the moment, the interest rates for housing loans in India are rather low, about 7.5% to 8%. This is quite encouraging when there is a need to borrow funds because the expense of doing so is quite low.

Tax Benefits: Taking a home loan can allow you to avail of certain tax benefits whereby the interest of the home loan becomes tax deductible and this will be for ordinary citizens, lessening their actual tax payment.

Use NBFCs to Flip Properties

Although hard money lending is not as popular in India as it is in some Western countries, there are alternative sources of finance such as private lenders and non-banking financial companies (NBFCs) which finance many property investors mostly in metropolitan cities. They offer short-term loans to people who wish to buy, improve and rent out or sell the property, also known as property flipping.

Consider the situation where you locate a distressed property in Mumbai that costs ₹50 lakh but would attract a sales price of ₹80 lakh after renovation. A private lender will finance the purchase of the property and the remodelling with the knowledge that the borrower is going to make some money selling the house back at a later date (Over a traditional bank’s interest rate).

Most such loans can be a maximum of 70% of the current value of the property (after rehabilitation) and more funds would need to be sourced. Again partnerships could be the best option or you are likely to spend your 80k as contribution fees or minimum repairs.

If their interest rates are certainly high and the repayment can last a short time, the potential upside coming from the property flipping in the hot real estate markets in India is worth the risk. Just be alert on the legal and financial aspects of it and seek out reputable financial partners.

Investing in Real Estate: Enter REITs – This is the Easiest Way

For centuries, investing in real estate has been one of the easiest ways to earn. Whether it be opulent mansions, business centres, open spaces, wealthy individuals often invest a large percentage of their net worth in tangible assets like real estate. However, if you’re saying, ‘That sounds wonderful, but where would I get the money to buy such properties?’ don’t you worry. There’s an alternative and it might just be what you are looking for: Real Estate Investment Trusts, or REITs.
If direct real estate investment appears to be scary, there exists an investment of purchasing shares of real estate Investment Trusts which is far more easier. This is how they work:

What are REITS? 

A real estate investment trust is a company that holds and operates income-generating real estate. Investing in a REIT is corporate shares that carry earnings based in high-rate venues such as malls, resorts, and skyscrapers among others.

How Do They Work?

A number of people invest in a REIT and the money collected is used to acquire and operate properties. The REITs must comply with certain IRS rules such as limiting 75% of total assets to real property, and paying out 90% of its taxable income in the form of dividends. This enables the REITs to not pay any corporate tax which in turn means that the company has higher dividend payouts to its investors.

Benefits to be Expected:

REITs tend to be cheap and that makes it quite possible to create a diversified portfolio of properties for a refinancing property with a relatively small amount of capital. Public REITs also make it easy for one to buy and sell their shares in the stock market.

Key Considerations: 

Although there are many advantages to investing in REITs, they are not without their downsides. Different investments have a different tax treatment and may result in a higher tax. Non-traded or private REITs.

Should You Invest in REITs?

For many, REITs are a practical entry point into real estate investing. They allow you to invest in real estate without the need for substantial upfront capital or the hassle of managing properties. However, like any investment, they come with their own set of risks and rewards. Evaluate your financial situation, research different REIT options, and consider your investment goals before diving in. 

For genuine investment consultation and general advice on how to proceed with your minimal capital in the real estate market, reach out to Property Souk for bespoke advice and property recommendations that would bring in greater returns on your investment in the long run and will create a perfect passive income source for you.

Disclaimer: The content provided on this blog/Website is for general informational purposes only. We do not offer any specific advice or recommendations. The information presented here should not be considered as professional advice or a substitute for professional consultation. Always seek the guidance of a qualified expert with any questions you may have regarding your specific situation. The opinions and views expressed in the blog/ Website are those of the authors and do not necessarily reflect the official policy or position of Property Souk


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