What to look for when investing in a property?
Here are few pointers to those who are keen on investing in real estate:
- You are in it for the long term. The fundamental premise of real estate investing has to be that you are in it for the long term and that you are looking at an effective hedge against inflation.
- Real estate is a high value commitment. Real estate is a high value commitment and unfortunately not divisible into smaller units. It is risky to look at real estate investing as a trade that you can do at will without paying the amount (purchase value) in full. Real estate does not allow partial withdrawals and when looking to liquidate the real estate investment it does take a while (and toil) to determine the right price point and do the selling transaction.
- Your house is not an investment. A house to stay, a roof above your head is not an investment. It is emotional security for your family. It may appear that prices have hit the roof and selling your only house to invest elsewhere where monthly yields will give a surplus above the rentals that he/she may need to pay. Such matters have grave consequences and must be well thought through before making the decision.
- Payment plan & Opportunity Cost. Families often perceive the construction linked payment plan to buy property as a virtue. They think this is the only effective lever one has to control one’s investment. A little paid periodically will eventually be more satisfying than the grief of delays if one has paid it all upfront. It is very important to understand that a property purchase that might have been done in a ‘construction-link’ plan is evaluated for cash-flows for subsequent 5-year period post purchase, holding period, expected rentals, capital appreciation, nature of financial goals and returns if investment done in an alternative asset class.
- Developer’s reputation and track record is the key. A builder must be researched for his delivery record in the past, goodwill, financial and moral health. In fact this aspect needs to be assessed very carefully since the entire decision to make your investment will bank on it. Also, the delays that the projects have recently undergone cannot be ignored. Builders with strong balance-sheets, successful delivery of projects with minimal delays and a reputation for quality products should obviously make it to the selection list.
- Location & Infrastructure matters a lot. We often get carried away by distant locations and cheaper product offerings in faraway lands. To my mind, real estate has a value attached to land, brick and mortar. And then, it has a locational value. This locational value is the biggest multiplier in value accumulation and unfortunately it does not come in faraway lands. It is quite simple. If you will not go the distance, others like you will also possibly not. It does good to remember that cheap real estate is an outcome of either poor demand or poor affordability. A location that has been developed into a destination, a project offering better amenities and community living enhance its value in the medium to long run. Lastly, connectivity to the location cannot be ignored. Locations that are accessible tend to fetch a premium compared to locations that are inaccessible.