Getting into real estate investment without a proper understanding of what you aim to achieve is not advisable. There are many risks involved in real estate investment. However, with the right data and advice, you can definitely succeed in property investment. Here is a general blueprint.
To begin, you should know what the odds are. The fact is that the chances for inexperienced property investors to either succeed or lose a lot of money are more or less evenly balanced. The likelihood of suffering a loss is greater if the investor does not have a good idea of the state of the local property market.
Before investing in property, make sure that you have enough insurance. Many investors who have succeeded in the property arena safeguard their investments by floating a nominal limited liability company for their activities. This is certainly an option, but not really a necessity unless you are playing for very high stakes and investing in multiple properties.
Advice To End-User Investors
Property investors actually fall into two broad categories: end users and pure investors. That’s right – even end users can technically be described as investors in some cases. These individuals seek to make a percentage of profit on properties that they are themselves occupying. This may involve partial rental or sale of a home or office, retail or factory space. This is not a very common practice, and is usually seen only in cases where the the property is of larger proportions and the part being being rented out or sold would otherwise remain idle and non-productive.
More commonly, an end user seeks to sell the entire property. This is usually done for reasons other than returns on investment – the seller may be seeking larger or more luxurious premises, may be in the process of relocation, or may not be satisfied with the property for other reasons. There may also be a need to downgrade on certain expenses such as maintenance costs. If the sale of such a property is need-based, the profitability usually reduces since the seller needs to cash in within a limited period.
The kind of profit an end user can make on the sale of a property depends on the age and state of the property, its location and its inherent value on the market. A residence purchased five or ten years ago will have appreciated in value for the simple reason that property rates are constantly increasing. The value of the property will be even higher if the location is one in high demand. However, the price that a property which was in use until the time it is put on the market will fetch also depends on whether or not it is well maintained, whether or not the owner upgraded certain features to make it more attractive to buyers, etc.
Advice To Pure Investors
Exclusive or pure investors buy property for the exclusive purpose of earning a profit on them; they do not utilize the estate personally. The properties in question can be residential (flats, bungalows, row houses, duplexes, etc.), commercial properties (offices, factory sheds, etc.), retail (e.g. mall space) and non-developed or partially developed land.
Pure investors have a better chance of making a profit in their dealings simply because their options are wider. There is also no immediacy or urgency involved, since the basic objective is profit. Since they do not intend to occupy the premises themselves, they can rent out the property until the time when they intend to sell it off at appreciated rates.
Investors of this kind should keep certain guidelines in mind:
- Location is everything. Even if rates are steeper in a preferred area, go for it. It will pay rich dividends in the final analysis
- It is always more profitable to invest in properties under construction or still in the planning stage. By the date of actual completion, rates will tend to be higher
- If one chooses to invest in residential real estate, the first preference should be towards flats that are located on the first floor. They should offer a good view and ventilation and, ideally, the use of a swimming pool, clubhouse and other trendy facilities. They should also be backed by adequate parking facilities. Most buyers do not make compromises on this last factor, even if they give consideration to the others
- Choose to invest in properties by reputable developers. The very name of a famous builder makes a definite difference on the bottom-line of the sales deed.
A quick note on ready for possession properties. Certain dynamics of the property market remain constant, so a profit is still possible. However, a ‘readymade’ property bought for the purpose of investment will have to be given sufficient time to appreciate in value. Also, certain modifications specific to a potential customer’s needs may have to be made. The cost that this involves would have to be adjusted in the final amount.
Finally, if you are new at property investment and are utilizing a housing/investment loan in order to invest in property, ensure that the ratio of self-finance-to-loan amount is conducive to a future profit. Also, double-check all legal documents. Property investment is not a game of blind man’s bluff. Fortunes can be lost for many reasons, including spurious or incomplete documentation, faulty judgment and dealing with fly-by-night developers. There are a number of bases that need to be covered to reduce the risk factor.
About The Author:
As CMD of Amit Enterprises Housing Limited, Kishor Pate is the driving force behind one of the country’s most successful real estate development firms. He is a well-known and respected personality in real estate circles.