Friday, May 3, 2013

Reality Check For Investing In Real Estate

Time has come for looking towards Real Estate as an investment destination. But investment in stock markets at the present juncture is fraught with dangers and may give investors sleepless nights. I would like to qualify my statement here. I am only saying that stock markets will be difficult for investors, and not traders. Traders in stock market can still make money, but the same cannot be said for stock market investors.

While stock market investing can be an exercise in futility, investing now in real estate can turn out to be quite rewarding. At this point there is an overhang in stock markets, whereas real estate market is poised to gather steam. The only problem with investment in real estate is that the requirement of initial capital is dauntingly high. So in the succeeding paragraphs I am going to discuss strategies which can help investors to surmount this high barrier of capital requirement in property purchases.

Scenario # 1.
Let us consider options for those who do not have adequate capital for investment in real estate but have a residential property/flat which they have rented out. It is generally seen that a residential property/flat worth Rs 1,00,00,000/- (Rupees one crore) will fetch them a rent of about Rs 30,000/- (Rupees thirty thousand) per month. Now if they were to sell this residential property they would have Rs 1 crore in hand. They should invest this 1 crore in 12% assured return scheme in a commercial property. Then they will get a monthly return of 1% which works out to Rs 1,00,000/- (Rupees one lakh) per month. This means by shifting over from their residential property to commercial property they stand to gain Rs 70,000/- thousand per month as income. And if they judiciously choose their commercial property ( preferably IT Space) as per guidelines I had earlier given in this blog-post , then they will also get an exponential appreciation of their property over time. Hence we find that through the strategy outlined above, they will substantially increase their monthly income and also enhance chances of improved appreciation of their property.

Scenario # 2. 
Now  I will consider a strategy for those who do not have adequate capital for real estate investment and are staying in their own house without any other property. They can sell their house and invest the proceeds in a similar manner as in Scenario # 1 above. Supposing their house sells for Rs 1 crore. By investing this amount in assured return commercial property, they will have a monthly income of Rs 1 lakh as outlined in Scenario #1 above. They can shift to a rented house of similar status as their original house for which they will need to pay Rs 30,000/- as rent. That means after paying the rent, they will be left with Rs 70,000/- as spare income per month. Now they can go for buying a new residential flat under construction from a reputed builder by taking loan. EMIs for this loan can be easily met with the extra Rs 70,000/-. in hand, with lots of money to spare. I am saying this because till completion of  the flat, they will only be paying only the interest component of money disbursed by bank so far, called Pre-EMIs. And once the new residential property is ready for possession, they can move into their new flat, thereby saving the rent amount of  Rs 30,000/- they paid per month. So when the EMIs actually start, they will have Rs 1 lakh as income coming to them per month which will easily cater for these monthly EMIs. With this strategy they will have two properties(commercial plus residential) to appreciate in time, instead of just one residential property. Of course here they will have to initially pay 20% of the basic sale price (BSP) of the flat before sanction of  loan from a bank.

A reputed builder in Gurgaon who is selling commercial property(IT Space) with 12% assured return and whom I can vouch for is Vigneshwara Developers. For complete details you may contact their General Manager(Marketing) at this number : 09359210404

And yes, be ready for my next set of trading calls of May series which will be on the sell side. You will get my recommendations in this blog one day prior to entering the trades. Take care!!!