Top 5 Best Alternatives To Real Estate Investments

Real estate is a symbol of status and wealth especially in a country like India. It’s easy to understand why - the amount of money you need to buy a house is usually exorbitant. 

This means that you’d have to save a lot of money over a long period of time to buy a house. Not to forget the home loan and interest that you’d have to pay over the course of time.  

The Real Cost Of Buying A House

Buying a house is not as straightforward as you might think and it’s definitely not as simple as paying the face value of a property and owning it. There are plenty of other charges that you might incur. 

It would help to breakdown the real cost of buying a house as follows:

• Principal: The property value that varies from city to city; can range from a few lakhs to tens of crores.
• Down payment: 15 to 25% of property value
• Memorandum of Deposit of the Title Deed (MODT): Paid to the bank and ranges from 0.1% to 0.5% of the home loan
• Stamp duty: 5 to 6% of the minimum property value
• Surcharge: 2 to 3% of stamp duty
• Cess: 10% of stamp duty
• Registration fee: Up to 1% of the minimum property value
• Interest: Floating interest paid on the home loan that can range from 8-11% or fixed interest that’s between 9-12%
• Processing fee: Paid to process the home loan application and is between 0.25% to 2%
• Renovation: Paid to make the home you just bought livable and tailored to your needs
  

However, real estate is not the only good investment option that’s available to you, unless you’re buying a house to live in. There are alternatives that are known to give better returns. 

1. Asset Leasing By Grip

Asset leasing allows you to become a co-investor who owns a piece of physical property like cars, equipment, furniture, and others. Generally, the physical asset is leased to companies that have a high credit score.

In turn, the company pays a pre-agreed interest during the tenure of the lease. This has two implications for you as an investor:

• Recurring payouts: You get passive income  
• Diversification: It’s not linked to the stock market
  

Furthermore, the returns that you’ll earn can be lucrative as well. For example, Asset Leasing by Grip on Cube Wealth is generating 12% post-tax returns. Here’s an image to help you visualize the payouts.

As you can see, asset leasing behaves like the monthly rental income that you’d receive without the intensive capital that’s required to buy the rental property. 

You’re in control and you get to decide how much you want to invest to earn the desired passive income for your lifestyle and future expenses. Read all about Asset Leasing by Grip to know more. 

2. Coworking Spaces

A coworking space is nothing but a shared workspace for freelancers and employees from different industries. They can rent a desk, meeting room, or virtual office for a specific duration.

Long story short, you’ll be a landlord who either leases their property to a coworking company or becomes a business partner with the coworking company. This can play out in one of two ways. 

• Lease property: Earn passive income through the lease alone
• Business partner: Earn a share of the revenue and profits
  

Overall, the lease income of commercial real estate property can range from ₹50,000 to ₹5 lakhs or more depending on the location, size of the property, and other factors. 

But bear in mind that it would still cost a lot of money to buy commercial real estate property, especially in cities like Delhi, Mumbai, Chennai, and others. 

3. Raw Land

Buying land in India is riddled with paperwork but it gives you the freedom to build what you want on it. Alternatively, you can lease it out to earn passive income.

The location of the plot will dictate what it’s suitable for and the price you can get it at. A plot of land is priced per square feet and generally, it is relatively affordable to buy land in towns or villages than cities.

Data suggests that the average cost of buying a plot in a state like Maharashtra can be upwards of ₹5 lakhs and can reach as high as ₹2 crores. There’ll be overheard charges to get the land fixed. 

Passive income from raw land can fetch you anywhere from ₹20,000  to ₹2 lakh per month but that would depend on the “square feet” (plot size) and other factors. 

4. Real Estate Crowdfunding Websites

Real estate crowdfunding is a new form of investing that brings real estate developers, investors, and buyers together. This is broken down into two broad categories:

• Buy and sell pieces of real estate like shares
• Lend money to real estate borrowers
  

#1 allows retail investors to access prime real estate property and buy a fraction of it without the hassle of maintenance or management. #2 works like P2P lending.

But real estate crowdfunding is known to be highly risky because:

• It’s relatively new
• High minimums
• Low liquidity 
• High fees
  

A comparatively safer alternative to this would be P2P lending with RBI Certified P2P NBFCs like Faircent and LiquiLoans who give you access to thoroughly vetted borrowers and 2-3x better returns than bank FDs. 

5. Real Estate Syndications

A real estate syndication is a group of real estate investors who are divided into two categories:

• Sponsor (active)
• Investor (passive)
  

The role of a sponsor is to scout the best properties for the investors in the syndication. The sponsor generally doesn’t invest in the property but actively manages the investment for a fee (close to 1%).

The investors are passive and rely on the expertise of the sponsor to make their investment work. The investors, in turn, get a passive income (8-10% returns) and a payout when the property is sold. 

There are obvious downsides to this. The sponsor is practically a pseudo portfolio manager whose decisions can cost the investors a large sum of money. 

Conclusion

There are reasonably better alternatives to buying a second home for rental income like asset leasing, coworking spaces, raw land, real estate crowdfunding websites, and real estate syndications.

However, each alternative carries a risk of its own even though it requires a relatively smaller investment than buying real estate on your own. 

That’s why it’s best to contact a trained financial professional who can help you understand what you should be investing in based on your investment goals, risk profile, and other factors.  

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FAQs 

1. What is the main difference between real estate and real estate alternatives?

Ans. Real estate investments involve physical properties like houses or commercial buildings. Real estate alternatives are financial assets like stocks, bonds, or investment funds that offer exposure to the real estate market without direct property ownership.

2. What are some common real estate alternatives?

Ans. Common real estate alternatives include Real Estate Investment Trusts (REITs), real estate mutual funds, real estate exchange-traded funds (ETFs), real estate crowdfunding, and Real Estate Limited Partnerships (RELPs).

3. Are real estate alternatives risk-free investments?

Ans. No, like any investment, real estate alternatives carry risk. The level of risk varies depending on the specific asset or fund. Investors should consider factors like market conditions, asset class, and individual financial goals.

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