How to invest in real estate: Check the top 6 low-risk strategies

Investing in real estate is often seen as a rewarding investment option compared to other asset classes. However, it can also come with significant risks. A slowdown in the realty sector due to several factors, from macroeconomic conditions to policy changes, could affect investment returns.

Investors with a well-planned financial strategy can minimise risk while still capitalising on the potential growth prospects.

Focus on stable markets

When considering investment in rental properties, it’s vital to choose stable markets. This means looking for areas with strong economic indicators, such as high employment rates and consistent population growth. To assess market stability, investors should analyse historical property trends and forecasts. Investigating local amenities like schools, healthcare facilities, and infrastructure can provide insights into the desirability of a location. Additionally, local community groups and other sources can help investors understand any future developments likely to affect property rates. By concentrating on these factors, investors can make informed choices that lead to steady income and reduced volatility.

Real Estate Investment Trusts (REITs)

Real Estate Investment Trusts (REITs) offer a practical way to invest in real estate without the complexities of property management. A REIT pools funds from multiple investors to purchase and manage a portfolio of real estate assets. This structure allows individuals to invest in a diversified range of properties while benefiting from professional management. Investing in REITs can be done through the stock market, where they are traded like shares. This offers high liquidity and relatively low costs compared to direct property investment. However, investors should be aware that REITs may not provide monthly dividends, and returns typically come when shares appreciate in value. In India, several REITs focus on commercial properties, residential projects, and even infrastructure. These provide a good way to gain exposure to real estate while spreading risk across various assets.

Fractional ownership

Fractional ownership allows investors to own a share of a property without bearing the full financial burden. This model works similarly to REITs, but the focus is on individual assets rather than a diversified portfolio. In fractional ownership, multiple investors pool their resources to purchase a specific property. A management company conducts a thorough market analysis and evaluates the potential returns before listing the property for investment. This structure typically includes a Special Purpose Vehicle (SPV) to handle the administration of the investment and cover maintenance costs. Fractional ownership can yield rental returns of 8% to 10% with the potential for significant internal rates of return (IRR). This option allows investors to diversify their portfolios across various types of properties, from commercial buildings to residential projects, thereby reducing overall risk.

Renting out existing property

If you already own property, consider renting out a portion of it to generate income. Whether it’s an extra room or an entire floor, renting can provide a steady revenue stream with relatively low initial investment. Before proceeding, it’s essential to draft a comprehensive rental agreement outlining terms and conditions to protect your interests. While this strategy may require managing tenant requirements, it allows you to generate income from an existing property without significant investment.

Turnkey properties

Investing in turnkey properties is another viable strategy for those looking forward to capitalising on real estate investments. These properties have already undergone renovations and are ready for immediate rental, eliminating the need for additional investment in repairs. Turnkey properties often come with professional property management services, reducing the burden of day-to-day oversight. While the upfront costs may be higher due to their ready-to-rent condition, this strategy can provide immediate rental income, thereby mitigating the risks associated with property investment. However, investors should be cautious, as turnkey properties may yield lower returns compared to properties needing renovations.

Invest in real estate funds

Real estate mutual funds or exchange-traded funds (ETFs) offer another method of investing in real estate with reduced risk. These funds invest in various real estate assets, allowing investors to gain exposure to the market without directly purchasing property. Investors can select funds focusing on specific sectors, such as residential, commercial, or industrial real estate. These funds are managed by professionals who handle the complexities of real estate investment. While they provide diversification and liquidity, it's important to research the funds' performance history and management team before investing.

In conclusion, investing in real estate need not be laden with risks. With the right strategies in place, investors can effectively minimise their exposure while still reaching their financial objectives.