How to begin planning to invest in a property portfolio for retirement

A shocking 42 percent of consumers in India do not have a retirement plan or alternative source of income, according to PGIM’s India Mutual Fund report. If you are thinking of investment options for your retirement, chances are real estate and property will be at the top of your list. Many argue that real estate investment is still one of the best investment options today and for soon-to-be retirees, can help them establish a consistent source of passive income. In fact, with India’s property market to regain its footing this year, it may be the perfect time to begin building a property portfolio with retirement in mind. However, unlike other options, real estate investment is also one of the most capital-intensive options, often carrying higher values. It also takes additional planning and considerations, if you are to successfully build a property portfolio.

Be Clear About Your Financial Expectations

According to estimates from Colliers India, the real estate market is set to grow 4 percent this year, despite the pandemic. Experts maintain that real estate is great for portfolio diversification but it should also align with your retirement goals. Before beginning to build a property portfolio for retirement, think of what you want from it. For instance, are you looking for regular streams of income or a lump sum amount to increase retirement savings? Your attitude to risk and property management is also important. Some may want to be more hands-on and opt for rental properties while others choose Real Estate Investment Trusts.

Work Out A Defined Budget And Your Ability To Service Loans

If handled correctly, a property portfolio investment has formidable chances of a great return- particularly since it has been a high-growth industry in recent years. It also has a lower risk profile than stocks and therefore is a great way to diversify your investment portfolio. However, you also need to ensure your finances are ready for real estate investing, including potential costs of ownership like stamp duty and transfer fees. If you opt to invest in a REIT, you may have to pay an upfront fee and incentive fees.

Additionally, if you need to seek financing for your real estate investment, you will also need to think about your ability to service monthly payments of a home loan. Be sure to distinguish between APR and APRC mortgage rates so you can have an idea of what your monthly payments could be and find the best deal for your retirement budget. If you do choose a home loan, you may gain relief from the interest component by claiming it as a deduction under Section 24 of the Income Act.

Spend Time Understanding How Tax Would Affect Your Retirement Income 

If you invest in rental property, it would be worthwhile spending some time understanding your tax obligations. In India, rental income received from property investment must be reported to the government using Form ITR-1 (for reporting income from salary, one house property, and agricultural income up to Rs 50 lakhs).

When calculating, be sure to take advantage of the standard deductions allowed of up to 30 percent for repairs and maintenance costs. If you do sell any properties in your portfolio, you would be liable to pay capital gains tax. Understanding the different kinds of applicable tax and their implications for your retirement income is key to efficient tax planning for your retirement funds.

Although many of us put off planning for retirement until much later, the truth is there is never a better time to do so than right now, and investing in a property portfolio is a great place to start. Before you begin building a property portfolio, there are a few things you need to think about: your budget, your end goals, and the impact on your tax obligations. Address these and you will be in a good place to begin building a successful property portfolio to support your retirement dreams.

Subscribe to our newsletter
Subscribe to our newsletter
Sign up here to get the latest news delivered directly to your inbox.
You can unsubscribe at any time