HOW TO CREATE WEALTH IN REAL ESTATE
Some Cautions & our advice: Firstly, Every developer tries to recover almost 40 – 45% of the project cost within the first year, from the buyer. If the buyer is not prepared for the same, he incurs additional costs towards interest etc. which are negative margins from the capital appreciation.
Secondly, always factor in about 8% cost escalation and change in specifications, which can be a variation, esp. if you have invested during the early stage.
Thirdly, at the possession stage or at the time of leasing, almost 5-8% of the project cost has to be incurred for basic internal renovations, finishing & furnishing needs.
Therefore, always be sure that the quoted price at the time of booking is not your NET LANDED COST.
WHO: Recognize that that there are two vital links between you and your financial acquisition; the developer and the consultant. You must be sure about the professional competence of both, while selecting your investment project. Vision, competence, Intent & ability are the key words. Make sure that both are competent enough to understand the complexities of documentation needs and are not pushing you unidirectional towards any one product.
Our advice: In your professional life, do you enlist vendors and consultants? If not, then why trust non-professionals with your money? Please seek guidance from professionals who not only sell, but also are able to furnish you information about macro demand mapping spread over @ least the project completion phase. That is where people like me “EARN” our bread and butter.
WHAT ROI: Most successful realty investors define their expectation matrix based on ROI, on an annualized basis. They monitor their portfolio well and never short sell in distress. They ensure that their money grows and manage their funding in such a way that asset creation and liquidity both are managed.
Our advice: Please fix three different ‘Milestones’ for review and the exit strategy should be based on the same.
1. Time bound – Review every six months, or as advised by your consultant.
2. Price bound – Review at appreciated price points. Ideally, @ every 15% increase in the base secondary market price for your investment.
3. Opportunity bound – Evaluate short term exit strategy for long term in another project.
Let’s not forget, YOU INCUR A COST every time you sell, and buy.
Remember, Rental returns are a very vital component of the process of recovery of interest costs, and the sum total of the rental returns + capital appreciation is always higher in commercial office space, than residential. It could be higher in retail projects, but with higher exposure & risks.
Then pursue the HOW. First step is to equip you with a professional consultant who would be able to give you a more holistic picture about the macro analysis, the SWOT of the projects and the projections. Look for consultants who source business through proven track record of advising right.
We always believe that the investment recovery cycle may be 3 years for the developer and the investor, but the period stretches to 30 years, as far as the end user is concerned.
DEDUCTION: It is the end user who determines what kind of ROI the project should have. We suggest that look at investments which the end user would see value in. That way, even if capital appreciation does not happen in the shot term, the expected returns would be delivered in the long term, towards completion of the project.
We would like to recommend to our readers to “Make informed decisions, rather than incidental appreciations”
This article was published in a few leading Newspapers & magazines like Khaleej Times, Realty Plus etc.