May 27, 2024

Will investing in real estate help in early retirement? – Times of India

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In India, investing in real estate has historically been seen to have various advantages. And for good reasons. It is feasible to leverage real estate and create wealth via the use of well-chosen assets that provide consistent cash flow, high yields, tax benefits, and diversity of portfolio. Investments in real estate can also be made without having to own, run, or finance a property via REITs or Real Estate Investment Trusts. Even in the case of home loans, early investors are usually cognizant of the fact that as you pay back your loan and develop equity in your home, your cash flow tends to become better over time. 
Yet, I have seen early real estate investors/homebuyers still worried about a key question that keeps them awake at night. How exactly can real estate investment help with their early retirement? After all, consistent work, and a retirement age of 60 are becoming antiquated in India. The ‘retire early India’ concept got steam following the US’s FIRE (Financial Independence Retire Early) movement. At the same time, most Indians lack ‘retirement savings.’ This means, that if an individual wants to retire sooner than the customary age, he or she needs to save and invest more actively, and within a considerably shorter timeframe.  
This is why in this article, I would like to help examine this very question, and try to answer it in a way that can benefit early real estate investors. This will give you an idea of why the current investment climate can in fact be a fortuitous one for the long run. 
The pursuit of early financial independence
Can you put all your eggs in the real estate basket for a comfortable nest egg?
The road to financial independence has historically been rooted in real estate investments. Real estate is indeed a great instrument to secure your retirement home, help bring in additional income sources, and therefore measure up against what’s to come after you retire. At the same time, real estate investments can also be tricky business. It can be beneficial for your retirement account with the right steps and common pitfalls avoided, but you also have to learn to improvise your investment strategies given all properties may not turn out to be as lucrative as advertised on the developer’s brochure. 
So, does putting all your eggs in one investment basket guarantee a comfortable retirement nest? A simple answer would be NO. But can investing in real estate prudently lead to early retirement? The answer is yes! A couple retired in their 20s with three kids under the age of five, by saving 80% of their income since college in 2008. By 2020, they own 5 rentals across the country, with their combined salary completely replaced by rental yields. This means it is always prudent to diversify your portfolio, examine your asset’s trends versus the inflation, policy, and investment climate, mind your expenses, pay debts on time etc. Furthermore, a second house assists retirement planning by providing rental income, long-term value appreciation, and therefore, helps safeguard retirement funds. That said, is the current investment climate viable for your early retirement? Let’s find out.
Building towards retirement in 2022
How attractive are the yields from real estate towards retirement?
As India’s second-largest employer after agriculture, the current climate is very viable for anyone wanting to build their retirement corpus early. The industry is expected to reach $9.30 billion in 2040 (+$7.58 from 2019), and contribute 13% of the national GDP by 2025. If you are not swayed by future estimations, then let us look at the recent past. 
Private equity investments in Indian real estate amounted to us$ 2.9 billion in the first half of 2021. India invested $2.4 billion in real estate in the first half of 2021, up 52% year-on-year. In terms of policy improvements toward making yields attractive, SEBI has also cut the minimum application value for REITs in July 2021 to make the market more accessible to small investors. Tax discount up to Rs. 1.5 lakh on housing loan interest and a tax break for affordable housing units have also been extended till the end of fiscal 2021-22.
This means if you are in the early phases of your career, there are abundant investment platforms, as well as policies to help you with stable ROI for the long run. Liabilities are essentially non-existent while you are young, and you have no responsibilities outside of work and family. Long-term view and appreciation potential favour land investment. Since the land doesn’t deteriorate (potentially increases in value), there are no upkeep fees. Commercial real estate is also a highly favourable asset class for passive income, yielding up to 9% returns – higher than most dividend pay-outs, including FDs.
‘We don’t have to be smarter than the rest’
We have to be more disciplined than the rest.” -Warren Buffett
It is in most Indian’s DNA to heed the call to property ownership. The playing field is ripe for the taking. The only difference for an early retiree may not necessarily be being an early real estate investor, however. It may be in he or she being consistently aware, diligent, and methodical towards their retirement fund with a few decades-long deadlines. 
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Views expressed above are the author’s own.
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