Successful real estate investments are about a lot more than buying cheap property and selling it at a profit. Plunging headlong into property investment without a proper understanding of what you hope to achieve is not a good idea.
This is not to say that real estate investment is always a chancy proposition. Backed with the right information, you can definitely succeed. Here is a general blueprint for successful investment.
To begin with, be aware of the odds. There are chances of a loss if you don’t have an accurate idea of the state of the property market – and the changing values of your investment. Before you make a serious property investment, ensure that you have adequate insurance coverage.
Some successful property investors bulwark their investments by forming a nominal limited liability company for this, and you may wish to consider this option. Consult a knowledgeable lawyer who is savvy about the legal aspects of your local property market.
Kinds Of Property Investors
Property buyers fall into two broad categories, and we’ll discuss both of them briefly:
1. Actual Users
Such individuals seek to make a percentage of profit on properties that they are themselves currently occupying. This may take the form of partial rental or sale of a residence or the sharing of office or factory space with another business entity. It only makes sense if the part of the property being rented out or sold would otherwise remain idle and non-productive.
A more rewarding option is the outright sale of the property. This is often done for reasons other than investment – the seller may be seeking larger or more luxurious premises, in the process of career-based relocation, or unsatisfied with the property for other reasons. There may also be a need to downgrade on certain expenses such as maintenance costs. Since the sale of such a property is usually need-based, the options are reduced drastically.
The kind of profit one can make on the sale of a property in current use 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 current demand. Of course, the price a second-sale property will fetch will also depend on whether or not it is well maintained, the facilities it offers, the area it is located in, etc.
2. Exclusive Real Estate Investors
Such investors buy property for the exclusive purpose of making a profit from it, and do not utilize the estate personally. Residential property investment is usually in flats, bungalows, row houses, duplexes and township properties, while commercial property investments are focused on shops, offices, factory sheds, etc.
In the current scenario, commercial property investments are less lucrative than residential property investment, because the absorption rate for residential property is much higher. Property investments are also done in 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 timing the market for optimum profitability. Professional 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
* Choose to invest in properties under reputable banners. The very name of a famous builder makes a decided difference on the bottom line of the sales deed.
* It is always more profitable to invest in properties under construction or still in the planning stage. Here, the investor has a say in the kind of property he or she wants. Till the date of actual completion, rates will tend to be on the higher side
* Properties available for ready possession – though instantly available – do not allow for much picking and choosing on the above-mentioned points. However, since certain dynamics of the property market remain constant, a profit is still possible. 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.
Property buyers are becoming increasingly specific about what they want. If one chooses to invest in residential real estate, the first preference should be towards units 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. Township properties are your best bet on that score, since they provide all these and more.
In conclusion, real estate investment is not a game of blind man’s bluff. Nor is it ever a totally risk-free proposition, especially where spurious documentation, faulty judgment, market crashes and other unforeseen circumstances are concerned. There are some bases that need to be covered to reduce the risk factor:
* If you are utilizing a bank loan in to invest in property, make sure that the ratio of self-finance to the loan amount is supportive of a future profit
* Double-check all legal documents
* Investors need to do their homework and gain sufficient knowledge of current real estate trends.
Avinash Gokhale is Director – Marketing & Corporate Planning, Pharande Spaces – a leading construction and development firm operating in the PCMC area of Pune, India.
You may reprint or quote this article with full credit to the author and a link back to PunePropertyBlog.com