Residential Real Estate Compare

Additional Useful Information

• Since residential real estate transactions involve large amounts of money and heavy legal compliance, they take a lot more time to be completed as compared to equity and debt investments.

• When it comes to residential real estate, ownership is usually classified as direct ownership. This means the investor has all the rights on the property for an indefinite period.

Returns *

• Residential Real Estate do not guarantee any returns. However, the probability of negative returns are medium.

• The returns from Residential Real Estate depend on the location of the property, economic growth, demographics of the population, etc.

• However, Residential Real Estate investments typically have lower returns as compared to other investment options such as debt and equity.

• It is important to note that there are regular expenses which an investor must bear for maintaining the property. This reduces the overall returns on investment.

Risk Level

• Residential real estate is considered a high-risk investment.

• Residential real estate investments come with risks such as poor location risk, failure to pay rent by the tenant, poor maintenance by the society and other issues.

• It is always worth doing thorough due diligence on an individual property under consideration. Every property comes with its own unique risks and potential rewards.

Liquidity

• Residential real estate investments are relatively illiquid as compared to debt and equity investments.

• Investors can decide to sell their residential property at any given time, but there is no guarantee of a sale. This is because investors (buy side) will have unique requirements, that the property may not be able to fulfill.

• The illiquidity constraint may also come into play because at any given time, not everyone will have funds ready to deploy into a real estate investment.

Interesting Facts

• Residential Real Estate investments have the characteristics of both debt and equity investments. Like an equity investment, when an investor purchases residential real estate, the investor owns that property. In equity investments, investors own part of the company. When investors receive rental income, this is seen similar to interest income in debt or dividend income in equity.

• Residential real estate can be used as collateral to obtain a loan from a bank or a financial institution.

• Residential real Estate investments are considered a good hedge against inflation. This means that in an inflationary environment, as prices rise all around, real estate prices also generally increase in line with inflation.

• Residential real Estate investments have a low correlation with equity and debt investments. This is why it can be a good investment option for diversification.

Tax Implications

• Earnings received from Residentail Real Estate are taxable.

• When investors sell residential real estate, the difference between the Sale Amount and Purchase Amount is typically called “Capital Gain” or “Capital Loss” (if sale amount is lesser than the purchase amount).

• The tax that the investor must pay is –
• Situation 1 – If the property is sold within 2 years of buying, the investor must pay tax on Short-Term Capital Gains (STCG). This short-term capital gain is added to the taxable income of the investor and tax is to be paid according to the tax slab.
• Situation 2– If the property is sold after 2 years of buying, the investor must pay tax on Long-Term Capital Gains. There is a new flexibility in calculating long-term capital gains (LTCG) tax on real estate. Investors have two tax options for property bought before July 23, 2024:
• New Regime: A 12.5% LTCG tax rate without indexation benefits.
• Old Regime: A 20% LTCG tax rate with indexation benefits.

• There is no tax in case of “Capital Loss”.

• The buyer of the property has to pay an additional tax on purchase called stamp duty which varies from state to state but is typically between 4-7%.

• Any rental income that investors receive from their residential real estate investments is added to their taxable income and taxed as per tax slab.

Where To Invest

• https://www.magicbricks.com/property-for-sale-rent-in-Mumbai/residential-real-estate-Mumbai

• https://www.99acres.com/property-in-mumbai-ffid