How to make a wise property in­vest­ment

Suc­cess­ful in­vestors safe­guard their in­vest­ments by float­ing a nom­i­nal limited li­a­bil­ity com­pany for their ac­tiv­i­ties WHAT’S IN IT FOR... IN­VESTORS END-USERS

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Get­ting into real es­tate in­vest­ment with­out a proper un­der­stand­ing of what you aim to achieve, is not a good idea. There are many risks in­volved but with the right data and ad­vice, you can make a good property in­vest­ment. Here is a gen­eral blue­print.

To be­gin with, you should know what the odds are. 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. It may seem like a gam­ble but you need to be well-in­formed.

Be­fore in­vest­ing in property, make sure that you have enough in­sur­ance. Suc­cess­ful in­vestors 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-users

Property in­vestors ac­tu­ally fall un­der two broad cat­e­gories — end-users and pure in­vestors. 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 hap­pens in cases where the property is much big­ger, and the part be­ing rented out or sold would other­wise re­main idle and non-pro­duc­tive, says Kishor Pate, CMD, Amit En­ter­prises Hous­ing Ltd.

More com­monly, an end-user seeks to sell the en­tire property. This is usu­ally done for rea­sons other than re­turns on in­vest­ment like the seller may be seek­ing larger or more lux­u­ri­ous premises, or the seller may be in the process of re­lo­ca­tion, or he/she 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, he says.

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 mar­ket value. A res­i­dence pur­chased five or ten years ago would 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 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, if the owner has 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 utilise t he es­tate per­son­ally. The prop­er­ties in ques­tion can be res­i­den­tial (flats, bun­ga­lows, row houses, du­plexes, etc), commercial ( of­fices, fac­tory sheds, etc), re­tail (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 It is al­ways more prof­itable to in­vest in un­der-con­struc­tion prop­er­ties or those still in the plan­ning stage. By the date of ac­tual com­ple­tion, rates tend to be higher op­tions are wider. There is also no ur­gency in­volved as the ba­sic ob­jec­tive is profit. Since they do not in­tend to oc­cupy the premises them­selves, they can rent out the property un­til the time they sell it 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 un­der-con­struc­tion prop­er­ties or those 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 for flats that are lo­cated on the first floor. They should of­fer a good view and ven­ti­la­tion and ameni­ties such as swim­ming pool, club­house and so on. They should also be backed by ad­e­quate park­ing fa­cil­i­ties. Most buy­ers do The kind of profit an end-user can make on the sale of a property de­pends on fac­tors such as the age and state of the property, the area where it is lo­cated and its mar­ket value not make com­pro­mises on this last fac­tor, even if they give con­sid­er­a­tion to the oth­ers. Choose to in­vest in prop­er­ties by rep­utable de­vel­op­ers. This can make a big dif­fer­ence in the long run. As far as ready-for-pos­ses­sion prop­er­ties are con­cerned, cer­tain dy­nam­ics of the property mar­ket re­main con­stant, so a profit is still pos­si­ble. How­ever, a readyto-move-in 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 to property in­vest­ment and are util­is­ing 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.

THINKSTOCK

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