If you are a real estate investor who likes to flip homes i.e. buy distress properties or run-down properties, restore them and sell them for a profit, you might be wondering whether you can still do that in times such as now when the real estate market is dull and slow. The housing market in Indian Metros has changed over the last few years from the highs of 2014. Prices of residential properties in cities like Mumbai have stabilized and in some places they have fallen. Can a real estate investor still be successful in an environment such as this?
Truth be told, it is eminently possible to make a lot of money even in a dull and stagnant market. But the average investor needs to be much more careful. In the previous years leading upto 2014, most real estate investors could count on market appreciation to come to their aid inspite of unexpected costs and delays. When it was a seller’s market, they could count on at least breaking even and in some cases make huge profits. Let’s be honest. In the current gloomy market conditions as of Dec 2017, you wont be making those huge windfalls anymore. Which is why if you want to make decent profits in today’s real estate market you need to start with the right property. Experienced Flippers used to tell me back in the US that profit is made when the house is purchased and not when it’s sold. That is a saying that rings true now in India more than ever.
Good properties situated in good neighbourhoods and locations are always rare and when these houses come into the market, there is a veritable scramble for those properties. There are a lot more investors who have entered the Mumbai Residential market in recent years which makes competition for suitable properties all the more intense. In the upper end and luxury residential market, bidding wars are known to happen because of the interest from both investors as well as end users who want to buy a house to live in. In markets like Mumbai, finding a property that will allow a developer or an investor to make a profit after the costs of renovating and marketing is like finding the proverbial needle in the haystack.
Even in a down market it is possible for investors to make money provided they look in areas where prices are more moderate. Real estate investors who want to flip homes should look at the outskirts of Mumbai where new infrastructure projects are coming up as well as pick up luxury bungalows and villas at hill stations and getaways like Lonavala, Mahabaleshwar, Alibaug and Goa. You could even look at neighbouring cities like Pune and Nashik where infrastructure and luxury residential projects are gathering pace. Even then you must be aware of some tried-and-tested rules. Firstly, you must ensure that your projected improvements and renovations will not require you to set up a sale price that is out of line with the neighbourhood. If you buy a home on the block for 1 Cr. and if comparable homes in good condition in the same neighbourhood go for 1.5 Cr, then it makes sense not to set up a renovation budget of 50 lakhs. It is a given that you will end up exceeding your budget more often than not. Even if you do manage to stay within your budget, you will still need to ask for 1.8 Cr. in order to break even after allowing for broker commissions, carrying costs and the other miscellaneous expenses.
In the present market, trying to sell for that much over the current rates may mean a long wait to sell. It would be much easier to set a budget of 20 lakhs and make the house presentable, which would then allow you to price it closer to the market rate and eventually end up selling the house quickly. Remember your goal as a real estate investor is to quickly sell. If you are saddled with a property for months and years then it is a dud investment.
Renovation Timelines & Cost
Another aspect that can affect the end result is the timeline for renovation. If you plan on completing the renovation in one month and it ends up taking three months then you are that much behind in selling your property. If you have purchased the house with a bank loan then you are already two EMI’s down. Depending on the size of the EMI’s this delay added to the indefinite time span taken to sell the house could remove any potential for profit! At the least, renovation delays make your life as an investor all the more difficult.
Another point to keep in mind as a real estate investor is that you are not renovating the house to live in but to sell. Therefore do make sure that the renovations appeal to the maximum number of Indian buyers and not just to your own tastes however refined they may be! Ignore this rule at your own risk. Renovating a house like a French mansion when you are going to eventually sell it to a middle class family is just plain silly. On the other hand making your house look tacky and gaudy is out of line when you are marketing it to the refined upper classes! Purchasers who are paying a premium for a totally renovated and fully furnished property expect to move in and start living. They do not want to spend more money removing tacky furniture and redecorating.
Staging a Property
Lastly once the house is renovated, spend some money staging it. Read my previous article here on Home Staging. Staging is basically the furnishing of the house and making it look lived in. Studies in Western countries have shown that staging a property can help it’s chances of being sold by a whopping 40%. Unless you feel that Indians are human beings from another planet and will not like a staged home, then you must stage a house after renovating. The process of staging will end up attracting more buyers and also at the same time will also help you market the property through internet and social media channels. A lot of real estate brokers will also become interested in selling your property if it looks good in photos. Property portals will always push up the rankings of good looking homes because it makes their own websites look good! Well furnished homes on the resale market are generally a lot easier to sell. At the end of the day, everyone likes to buy and sell a beautiful home and not just an empty set of walls and floors!
Staging a home is all the more important when you consider the fact that we live in a hyper-connected world where everyone likes to share good content. Marketing photos and videos of your property through social media channels can get a lot of eyeballs and elicit interest amongst all age groups. If you have beautiful photos and videos of the property, you can post it on Facebook, Youtube, Instagram etc. thereby increasing your chances of selling the property that much faster. Conduct this little experiment. Try posting a wonderfully furnished home on facebook and see the number of likes and shares you get as opposed to the response you get by posting pictures of an empty room! Also another important point to remember is not to neglect the outside of your property if it is a villa. Improve the landscaping and make it attractive and you will make an impression the moment someone walks in through the front door. A lot of people will just drive away if your house does not look appealing from the outside.
So dear investor, if you are up for a challenge do remember that it is possible to make a lot of money in the real estate market even in bad times. Just understand that you have to work extra hard and grasp the rules of selling homes because right now you cannot count on your earlier partner of the good times – market appreciation!
Chloe is a real estate advisor with Gupta & Sen Associates. With a combined experience of over 15 years in varied industries, she is a vocal and knowledgeable ally for buyers and investors who want to make informed choices when buying a property in India. With superlative communication and marketing skills, Chloe handles our PR, real estate marketing strategy and client management.