You have learnt some of the basic metrics around which real estate markets operate and some of land type one should be careful to invest. Now is the time to “Know Real Estate”
2. For the first time buyer:
Treat your property as home not an investment. The safety and security a
home provides is manifold compared to the rental you have to pay and the
short notices on which land owners can ask you to move out. Stay invested
for a period of 5 to 7 years and you would have certainly doubled your
capital. Use the wealth created to reinvest into the new home and also
start investing small into say Plots, smaller apartments etc
3. For the small Investor:
Do not compare this to stock market. Irrespective of the boom and bust cycle
you will get very good deals and good deals are not always with the big
developer or in fancy projects. Trick of finding a good deal is:
a. Work closely with realtors who are strong in particular suburbs (do not try
to save on brokerage – that’s the cost of getting a great deal). When you send
the word be clear on budget, size of unit, rental (always take a unit which has
high rental potential), loan planned, age of the building and the location. For
ex: Did you know that older CBD apartments are priced equal or less than the
price of older apartments in the Major suburbs. Rentals however are always
higher in CBD.
4. For the small Investor:
Maintain reasonable liquidity so that in the event of a tenant moving out you
have sufficient liquidity to service loan, refund tenant deposits, invest into
maintenance and hold on for few months to either liquidate or retenant. The
advantage of having some cash reserve is that
i. You can wait to achieve the target price (realistic however!)
ii. You don’t have to give it to any tenant
iii. To a tenant refusing to pay increment you can call his bluff
Quick Flipping – you have to be extremely fortunate to be able to achieve this.
Don't ever try to invest into real estate and planning to make money with a
quick flip.
5. For the Big Investor:
This is not loan business where you give money and make 20% return. You
may have been lucky a couple of times making such fixed returns, but be
ready to lose your capital. The sure fire ways to make mid teens returns
are:
Invest with good developers, meaning professional guys with strong team
and who have cycle experience. Real estate cycles can be painfully difficult,
professionals who have experienced it would be realistic in their approach.
Real estate is not the Tech Unicorn story where a start up comes and
achieves incredible valuation. This is like the Rocky Movie – Getting hit
and keep moving forward to win.
6. For the Big Investor:
Structure your investment in a manner that there is incentive for the
developer also to work with you. Establish a minimum return expectation
(typically bank finance+5%) and then always share the upside with the
developer. This way he will work hard to deliver you the upside while earning
for himself. The moment it is a burden he will short shaft you by realising part
money in cash etc.
Trend spotting is a bad thing in real estate. Do not try and follow trends of
investing in logistics park, buyback schemes, double your money in 3 years.
