How Investment in Real Estate Gives You More Than Just Tax Benefits

Friday, July 1, 2016, 6:00 AM | Leave Comment

The growing trend of investing in real estate has been taking the financial world by storm. If you’ve been trying to raise funds for your dream home, then getting financial aid from a bank or an NBFC can help you out.

With a good property to value appreciation rate over the last decade, real estate investment are turning out to be one of the safest and most reliable means of increasing your net income.

If you’ve been wanting to jump on this bandwagon only because of the tax benefits, then you’re in for a surprise.

Apart from helping you save on excessive tax payments, an investment in real estate can also open up a lot of financial opportunities for you.

Let’s take a look at a couple of other benefits this investment entails.

  • Tax benefits

    Under Section 80C of the Income Tax Act, you can claim a tax deduction on the principal amount of your Home Loan, with a ceiling of Rs.1.5 lakh. You can claim deduction on the housing loan interest charges for up to Rs.2 lakh as per Section 24 of the Income Tax Act.

    According to Budget 2016, first-time homebuyers can claim an additional tax deduction of Rs.50,000 on the interest paid for a Home Loan of up to Rs.35 lakh.

    If your spouse is willing to apply for a joint Home Loan, both of you stand to benefit from the tax deductions. When a Home Loan is shared between two co-applicants, both parties are entitled to tax deductions on both the principal and interest charges.

    In case you’ve applied for a Home Loan to invest in an under-construction property, you’re liable to get a tax deduction on the interest charges paid.

  • Cash flow

    If you’re planning on occupying the property, you can reap the benefits of your investment only when you sell it. But if you want to generate income from the property, you can either lease or rent it out to generate a positive cash flow.

    A properly maintained and managed rental property will work as a steady source of income. This constant income can be used to repay the loan amount, build your business, fund your trips, or invest in real estate.

  • Inflation

    Income from real estate investments tends to increase faster during a period of inflation. If you’ve taken a Home Loan, then as an investor, you’d get to maintain your returns without risking your asset, as your EMIs won’t change.

    The principal amount of the loan would remain the same irrespective of the inflation and the rate of interest won’t fluctuate much unless your loan is subject to inflation as per the loan policy. This means that if you have rented out your property, you can continue paying the same EMIs and keep the outstanding balance as savings.

    On the other hand, with inflation, the cost of your property will increase. You can increase the cash flow from your property by raising the rent or increasing the lease value, based on the current market trends. You can also sell your property to acquire more profits.

    If you’ve invested in multiple properties, then you can take advantage of capital growth across a variety of assets.

  • Property appreciation

    Real estate is a long-term investment and, generally, has a greater appreciation value when compared to other forms of investment. The net worth of your property, when combined with your monthly income, will help you build a hedge against inflation. Unlike volatile gold rates, real estate comes with a higher return rate.

    By adding real estate to your investment portfolio, you can continue to enjoy high returns while minimising the risk involved.

  • Sale of the property

    While getting regular rental returns might seem like a good passive income, you can also liquidate your property to gain higher profits. You can increase the value of your property by upgrading its appearance and functionality.

    The resale value of your property can be your capital gain, which can be used to finance another property purchase or invest in other monetary instruments. However, make sure that you time the sale of your property to get the best out of the current market situation.

    If you’re interested in gaining short-term capital, then you can sell your property within the first three years of purchase. To gain long-term capital, you can sell the property after three years of purchase and get a 20% concession on your capital gains during tax calculations.

Investing your money in real estate can open up a lot of opportunities for you. If you’re short of funds, you can always approach your nearest bank or financial institution to fund your property.

However, ensure that you check your eligibility for Home Loan before you signing up.

Lastly, research market conditions, study tax implications, and evaluate loan terms and conditions thoroughly before you make this financial decision.

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