Why is real estate a superior investment strategy than the rest?

Historically, real estate investment involved creating structures and renting them out to tenants. While the majority of these purchases were for single-family homes, some were made in modest commercial spaces like stores or warehouses.

Until the development of real estate investment trusts (REITs) and fractional ownership, however, real estate investment was not a viable alternative for the average retail investor. Each makes it possible for everyday people to put their money into commercial real estate, which is a far safer investment than homes.?

It's crucial to remember that many investors have diversified portfolios that include commodities like gold and financial instruments like mutual funds and term deposits in addition to commercial real estate. Does this imply that real estate can be substituted for the others, or that the others may be substituted for real estate?

Here are just a few of the ways in which real estate investing outshines other investment classes.

1. Real Estate Vs Gold

The normal investor who does not wish to get engaged in stocks, shares, and the like typically invests in gold or fixed deposits (FDs). People can now invest in gold whenever they like thanks to paper gold.

In 2010, a 100-gram piece of 24K gold was worth roughly INR 1,85,000. The same 100 grams will cost you INR 5,12,800 as of the 5th of May, 2022. An rise like that in investment over just ten years is quite remarkable. Still, the price of gold over the past six or seven months has shown considerable volatility.

By the same token, gold is a finite resource, thus it stands to reason that its value would rise as its supply declines. Unhealthy is the asset's sensitivity to changes in its demand and supply. Even a patient investor would have a hard time predicting when the optimum time to sell would be, given the volatility that occurs over even a few months.

2. Real Estate Vs FDs

When starting out as an investor, a fixed deposit (FD) is the most rudimentary tool at your disposal. For longer-term deposits (three to five years), FDs offered a maximum interest rate of 13%, peaking in the 1990s. Forget about the "nominal" rate of return that investment plans typically offer; today, the rule of thumb is to focus on your actual rate of return. In order to do this, just use the following formula:

Real Rate of Return = (1+Nominal Rate)/(1+Inflation Rate) – 1

The Reserve Bank of India (RBI) boosted the repo rate by 50 basis points in June 2022, which is expected to prompt several banks to increase their FD rates. But how significantly would that impact your financial investments? As of May of 2022, you can get an FD rate somewhere between 3% and 6%. You can use the tool to determine if the projected return on investment meets your expectations.

Real estate in the conventional sense can be used to secure agreements that allow annual rent increases for residential structures. Tenants of commercial properties typically agree to a lease with comparable terms. The notion that commercial real estate will always be useful is one of its many advantages.

Although residential tenants may choose a building based on aesthetic preferences, commercial tenants select a structure based on its proximity to customers and its capacity to support the company's operations. Thus, companies that rent out commercial space recognize the importance of being physically present in the neighborhood for reasons including financial gain, legal protection, and convenience of transportation.

3. Real Estate Vs Mutual Funds

Although market volatility is not one of them, investing in real estate is not without its share of risk. Mutual funds, on the other hand, are subject to a great deal of market risk because they invest in stocks and shares.

Keep in mind that the emergence of REITs and fractional ownership has helped to solve many of the problems plaguing conventional real estate investment. With the Union Budget of 2022, SEBI will be responsible for regulating fractional ownership platforms and real estate investment trusts, bringing much needed transparency to the real estate investment market. This type of strategy has greatly diminished the size of the initial investment, making it much simpler for even small investors to enter the real estate market.

Additional benefits of real estate investment over others

Lucrative ROI

The real estate market offers stable returns, even if they aren't particularly high. The stability element is particularly useful in commercial real estate because leases can last up to 20 years. The value proposition of real estate cannot be overlooked by anyone seeking a passive income source and a long-term investment aim.

Liquidity

Uncertainty over the availability of funds is a factor in most investing decisions. Even if nobody brings it up, it's probably still on people's minds. When you invest, it's natural to want quick access to your funds in case of emergency. Unlike mutual funds, which can be turned into cash in as little as a day, real estate typically takes much longer to sell. Investment arrangements like Real Estate Investment Trusts and Fractional Ownership do not eliminate the need for a well-thought-out exit strategy.

Tax Exemption

Tax breaks are available for investments in both real estate and mutual funds. This is because mutual funds have a more generous tax exemption, making them an attractive investment option. You are eligible for a tax break of up to INR 1.5 lakh under Section 80C of the Income Tax 1961. Although the tax benefits of indexation for real estate are far smaller than those for mutual funds, they are still the