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Know the difference between investing in property vs buying one

In India, people buy properties for personal use or for investment purposes. While the majority buy a property for their own use, a healthy portion of the population looks to put their money in properties in order to create wealth in the long run. And because the justification to buy a property is different in both cases, the common factors taken into account when investing in property vs buying property are viewed differently as well. So, let’s look at a few factors to understand the difference between investing in property vs buying property.

✓ Location: To understand whether to invest vs buy property, here’s a tip - if you are buying a property for investment purpose, you would take a look at various emerging localities which can be profitable over the next few years. Deciding the location would depend more on your investment objective, whether it is medium-term or long-term. On the other hand, if you are buying a property for end use, you would look at details like amenities, neighbourhood and proximity to various facilities.

✓ Stage of construction: As an investor, it usually makes more sense to buy a property that is yet to be constructed. That’s because investing in under-construction properties has the potential to deliver quick returns. If you are buying the property in order to live in it, you would usually look at properties that are already constructed. However, that may not be the case at all times. It also depends on your need, financial preparedness and tax implications. But largely, it is the ready-to-move-in properties that are usually preferred by buyers. That’s because a delay in completion of a housing project can skewer your financial plan.

✓ Type of property: As an investor, if you are looking for a regular income, you would choose to go with apartments. If your objective is capital growth, you would consider to invest in plots. On the other hand, if you are buying it for your own use, you would make a choice based on what your family needs. Buying a plot in such cases wouldn’t make any sense. Factors like security, finishing of the house and maintenance facility would come into play here.

✓ Time horizon: Time plays a major role in such decisions. If you are an investor, you would choose a property type based on the time you have set yourself to earn a certain amount of money. For instance, if you have three to fours’ time, investing in pre-launch and under-construction projects would be preferable because its value usually increases that time period. For long-term gains, you could explore the option of investing in commercial properties. Investing in a plot can also be fruitful in the long run. As for an end user of a property, these considerations matter little. What matters most is convenience and the property’s very long-term potential.

✓ Valuation of property: If you are an investor, return on investment matters the most. Investment decisions are based on expected price appreciation over time. But that’s not the case for for buyers. In most cases, end users do not buy homes based on expected appreciation in property prices. For them, the emotional quotient is more important.

✓ Size of the property: If you buy a residential property for investment purpose, you would prefer a cozier house. That’s because smaller units are easy to let out on rent or on lease. On the other hand, if you are buying for yourself, you would prefer to buy a bigger house, although it mostly depends on family needs.

To sum up, there are basic differences between and buying and investing in properties. Although you are buying the same house, the factors that drive your choices may be viewed differently.

Disclaimer: Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.