Top 10 Investment tips for Real Estate
I sometimes get these ‘conspicuously conspiratorial’ calls from some developers and brokers about a tip OR a Golden opportunity that they would like to share with a few close friends. I call this conspiratorial as I am not a firm believer @ all on these limited period offers, where the promise is spectacular returns.
I am sure many more people would be flooded with offers, and some may fall prey to these, and go ahead with their investments.
I thought, I must compile my top 10 tips to the audience who seek to “think through, rather than jump-act.”
Tip # 01 THERE ARE NO TIPS !!!
Small investments into real estate SHOULD NOT be based on hearsay OR tips. I haven’t come across tips which have been accurately predicted the gains, unless somebody is manipulating it a la the stock markets. Remember – There are no sacrifices in real estate investments, and don’t expect any. Never be tempted by the “Once in a lifetime-limited period offer”. Ideally, create a portfolio rather than just accumulating property based on tips.
Tip # 02 DON’T TRUST THE SELLER
When have you come across a seller who says that his product is not the best, or really value-for-money? Rather than go by what is represented, go by what is evaluated. Ensure that the valuation of the said property is projected properly for three milestones – Short, Mid and long term. Remember, you are making an investment and unapologetically, evaluate the growth of your money. A thought – Don’t buy all cash down in one go, as this exposes, and dissolves the responsibility of the seller, be it the broker or the developer / owner.
Tip # 03 DON’T OVERESTIMATE / DON’T GET GULLIBLE / DON’T OVER-COMMITT
I come across many an investors who have sought abnormal returns from their small investments and have got caught between their initial investment and the commitments to further pay. To our prying senses, this predicament is the outcome of over-estimation of increase in valuation, committing more than what one can safely invest, without over stretching the available resources. Also, if your intent is to Dorent, never overestimate the returns, as your purchase price is going to be a function of the expected returns.
Tip # 04 NEVER EXPECT UNEXPECTED GAINS
The promise of the seller of small realty investment is mostly multifold returns over other instruments of investments available. This is not always correct. Please benchmark a reasonable minimum ROI on an annualized basis, and be concentrating your strategy around it, rather than speculative higher returns. Speculations seldom deliver. Informed decisions are closer to the expectations. Wishful thinking is only a masquerade for the ‘not so pretty’.
Tip # 05 DON’T KILL THE GOOSE BEFORE IT LAYS EGGS
For the returns to be delivered in small investments, it is but pertinent to take a mid to long term view. One has to be very clear on benchmarking and the time to exit. Do not exit on the expectation of better results in yet another project, based on tips from any source. Differentiate between the products and projects on offer.
Tip # 06 WHAT IT COULD BE, RATHER THAN WHAT IT IS
Like they say-the three golden indicators of sound real estate investment is – “1) LOCATION. 2 ) LOCATION.
3) LOCATION”. Make sure that you are able to visualize what would be developed, rather than what is promised to you by the seller. NEVER IGNORE THE RISKS, AND, LOOK JUST AT THE PROJECTED RETURNS.
Tip # 07 DON’T EXIT WINNERS AND BUY LOSERS
Though taking a critical view of your portfolio is very important, it should not so happen that on a promise of better return, one tends to exit a property which is towards the maturity of the appreciation. Please ensure that the value appreciation graph has plateaud on the existing investments, before deciding to withdraw from the same. The biggest mistake is not to admit one. Don’t repeat past mistakes.
Tip # 08 THE PEOPLE BEHIND
Be it the developer, the builder, the realtor or the canvassing consultant, be sure that they are presenting the GROUND-REALTY, rather than sell the dream. Ensure that they are backed by sound research on the subject, and have the ‘intent & ability’ to translate vision to reality. Do they have the motivation, the vision, the cash flow, right partners etc.? Also, for the managers amongst the buyers / investors, remember, it is the 5th P of marketing which drives the first four. Ideally, other than the seller, be sure of the ground realty of the project through a consultant, who can be unbiased in the analysis and recommendation.
Tip # 09 INNOVATION AND VALUE SELLS
As consumers for various products and services in our daily lives, we do notice and track the technological advances, the product innovations etc. Why not the same for real estate? As we understand, if you make an investment, even for the long term, your purchase would come up for sale in sometime in the future. And if the buyer then does not see any value, he won’t offer you the price you wish to command. Hence, be sure that what you are planning to buy today is innovative enough, to make a value proposition tomorrow. Remember, every property is created for occupation, not investment.
Tip # 10 DON’T BE AFRAID TO ASK AND ACT
My colleague Ajay Dabas’s favourite advice to client is – DON’T HAVE PERCEPTIONS ON THE VALUE, DEBATE IT. We strongly recommend that as a buyer, please pose all the questions that you have to the seller or recommending agency, so that you make an informed choice, rather than an impulsive one. Once convinced, ACT immediately. Having said some of the facts above, we also experience instances of a lot of prospective investors being afraid to take the first step.
The classical joke that we share amongst our colleagues is that a striped ass cannot ever run like a zebra. If you want to bet on winning derby, know the pedigree.
The same holds true for the developers, the consultants and the brokers. Make sure you bet on the winning one.