Mohit Mehra

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The most common financial mistake I see among middle-class Indian families is having their entire net worth in one flat. One illiquid asset, in one city, in one micro-market, with all the concentration risk that implies. And then wondering why their wealth doesn’t grow the way they expect.

This is not a knock on homeownership. Owning where you live is psychologically and financially sensible for most people. But beyond the first home, the obsession with adding a second flat, a plot, a commercial shop unit, this is where I think many families get the allocation wrong. REITs and InvITs exist precisely to solve this problem, and most people haven’t heard of them.

What each one actually is

Direct real estate is what most Indians understand. You buy a flat, a plot, or a commercial property. You either live in it, rent it out, or hold it for appreciation. The returns come from rental yield plus capital appreciation minus the costs of ownership (maintenance, property tax, registration fees, broker commissions).

A REIT (Real Estate Investment Trust) owns commercial properties, office parks, malls, and lists on the stock exchange. You buy units. You receive quarterly income from the rent those properties earn. I’ve explained the mechanics in detail at What Are REITs in India.

An InvIT (Infrastructure Investment Trust) owns infrastructure assets, toll roads, power transmission lines, gas pipelines. The income comes from concessions and long-term service agreements rather than rent. The full explanation is at What Are InvITs.

A comparison across the dimensions that matter

The direct real estate case, honest about what works

Direct real estate has made many Indian families wealthy. There are a few reasons it has worked so well historically.

First, leverage. When you take a home loan, you put down 20% and control 100% of the asset’s appreciation. That amplifies returns dramatically in rising markets. No REIT or InvIT lets you do this.

Second, forced savings. A home loan EMI forces you to save and invest every month whether you feel like it or not. Many people who would have spent the money instead invested in a flat by default.

Third, underdisclosure of actual costs. If you tracked the true total cost of ownership, registration fees, stamp duty, broker commissions on purchase and sale, maintenance costs, property tax, vacancy losses, renovation costs, the net returns on most residential properties would look significantly less impressive. People remember the price they paid and the price they sold for. They forget everything in between.

The case for direct real estate as a second or third investment (beyond your home) has weakened considerably. Rental yields on residential properties in most Indian cities are 2–3%. After maintenance and vacancy periods, the net yield is often lower. You’re essentially betting entirely on capital appreciation, which is an undiversified, illiquid, leveraged bet on a single micro-market.

If you already own a home, what you actually own

This is the key insight for most middle-class Indian families. If you own a flat worth ₹80 lakh and your financial assets (stocks, mutual funds, FDs, gold) total ₹20 lakh, then 80% of your net worth is in one illiquid residential asset. You are massively overexposed to direct real estate already.

Adding a second flat doesn’t diversify you, it doubles your concentration in the same illiquid, non-income-generating asset class. What actually diversifies you is building financial assets: equity, gold, fixed income, and yes, if you want real-asset exposure, a REIT gives you commercial real estate rather than more residential.

Commercial real estate, the kind REITs own, behaves differently from residential. Office leases are longer, tenants are institutional, and the income is more contractual and predictable. Owning a REIT while you already own a residential flat gives you genuine diversification across real estate types, not just more of the same.

When direct real estate still makes sense

I’m not saying never buy property. Your primary home is worth buying, even at a lower net financial return than pure investing, because of the lifestyle stability it provides and the forced savings mechanism. A commercial property (shop, office) that you use for your own business is worth owning because it eliminates rent risk.

Where I’d push back is on the reflexive second flat purchased as “investment property”, bought at inflated prices in a new project, sitting empty for 3 years after possession, earning 2% rental yield on inflated book value, with all the maintenance headaches that come with tenants. There are better uses of that capital in most cases.

REITs for commercial exposure, InvITs for infrastructure exposure

If you want real-asset exposure beyond the home you live in, REITs and InvITs offer that in a genuinely accessible format. Both are regulated by SEBI. Both are listed, so you can buy and sell daily. Both distribute income regularly. Both can be bought with a demat account for a few thousand rupees.

The difference is the underlying asset. REITs own offices and malls, they earn rent from corporate tenants. InvITs own highways, power lines, pipelines, they earn fees from concessions and service agreements. If you want commercial real estate exposure, REITs are the instrument. If you want infrastructure exposure, InvITs are the instrument. They’re not substitutes; they’re different bets on different parts of the economy.

For most retail investors, I’d suggest exploring REITs first before InvITs. The asset type is more intuitive, the income source (rent) is easier to reason about, and the Indian REIT market has more established names with longer track records. Once you’re comfortable with how REITs work, InvITs are a natural next step if you want infrastructure exposure specifically.

A practical allocation thought

I don’t think REITs or InvITs need to be a large allocation for most people. A combined 5–10% of your financial portfolio in REITs or InvITs gives you real-asset exposure without overcomplicating the portfolio or introducing too much concentration in these specific instruments.

The broader allocation framework I use, including how equity, debt, gold, and real assets fit together, is in Farming Money. The point is that real assets should be a component of a diversified portfolio, not the whole portfolio. Most Indian families have the ratio inverted, with the vast majority of their wealth in one physical property.

Practical takeaway: If more than 50% of your total net worth (including your home’s value) is in direct real estate, your next investment should not be another property, it should be building financial assets that give you liquidity, diversification, and compounding that direct real estate cannot provide.

This post is for educational purposes only. It is not financial advice. Mohit Mehra is not a SEBI registered investment advisor. Please consult a qualified financial advisor before making investment decisions.