Various Ways to Profit as a Real Estate Investor
If you are a real estate investor looking to profit from India’s real estate boom then your profits will be influenced a great deal by the kind of financing you can obtain. If you are taking a loan to invest in properties then right from the very beginning you must start thinking about your creditworthiness. Once you buy a property by taking a loan then the clock has started ticking. You need to have plans to sell it or refinance it in a timely manner.
To be a successful real estate investor you need to have the right plans and strategies to achieve your financial goals. Most of the goals that we all want are – wealth, health and happiness. These goals are vague and surprisingly most people also have vague goals on how to go about achieving these often elusive life goals!
But these goals do not have to be vague especially when we talk about the world of real estate investments. You should ask yourself – what kind of monthly rents or returns from real estate would be enough for you to enjoy health, wealth and happiness? Owning a single apartment or a second home would be enough for some people while others might want a villa or a sea front property or a number of rental properties or maybe even a retreat in the mountains. But what all these people share is a definite goal expressed in terms of the property. Thus being clear in terms of the type and number of properties you will hold in the future will help you become a successful real estate investor according to your own ambition.
What about You
If you are a budding real estate investor and you are reading this you should firstly ask yourself what kind of properties do you want to own? Until we buy atleast one property we usually don’t have an idea. Its not about how many properties you want to own in the future as it is about the fact that you have something real and achieveable as a goal.
Your current age, your family background, your professional or business qualifications and your present financial status will help you define your goal. Start setting a goal for yourself by selecting some kind of property in an area and a price range that you can qualify for if you are taking a housing loan. That goal may change. The price range may go up or down. But atleast now you have a goal.
Below are three strategies out of which one or two might suit you best:
- Buy / Hold / Occupy
The main objective in this option is to buy a house or other property using it as your primary residence, building equity over time by paying off the home loan and benefiting from the appreciation of the property as the years pass by.
- Buy / Hold / Rent / Cash Flow
This strategy calls for buying a property and holding it purely for generating rental income. The property generates cash flow through rents. As you pay off the home loan, side by side your equity also grows as you benefit from the property’s appreciating value over the years.
- Buy / Renovate / Sell for Profit
The main strategy here is to buy a somewhat run-down property and unlock its hidden value through renovation. This can be both a short term as well as a long term approach. You buy a property which is below-market price due to it’s condition and restore the property to neighbourhood standards. Thus appreciation of such a property will be faster than normal and the investor can cash-in on the built-in equity of the property. You could also buy one or many apartments in a run-down apartment building and then cash out when the redevelopment happens either by selling the flats to the developer or waiting to get possession of larger and brand new flats in the newly redeveloped building and then rent or sell the new flats at a considerable profit.
- Flip
Flipping is a quick in and quick out strategy. This requires the purchase of distressed properties or properties with legal issues, correcting with the help of a lawyer whatever legal problems the property may have, renovate it quickly and then sell them without any delay. The owner has no intention of staying in the property nor does he want to rent it. But finding a sufficient inventory of flippable properties is an onerous task and can become a serious obstacle to realizing long-term success in the world of real estate investing.
What type of Property Should you Initially Buy
I have said it before and I will say it again. If you are earning well buying a home should be top on your priority list. If you are paying rent right now, buying your own house should always be your first real estate acquisition. What kind of property you buy and the size of the property is unimportant. More important is the fact that you should own property. As a real estate investor once you buy a property you are no longer on the outside looking in. You are in the game!
How Long to Wait Before Selling
If you have taken a loan to buy a property then its always a good idea to sell the property before the adjustable rate comes into effect. Its also a good idea not to wait until the last moment before doing so. Being a year early is better than being a month late.
If the house is in bad shape do not sell the property before the property is renovated. Most real estate investors will part with any property if they get a buyer for their price even if the property is not in its best shape. But do not make a quick sale. As the saying goes, “The only time you lose money in real estate is by selling”. If you cannot get the absolute best price that you want, hold onto the property until you do.
For planning over extended periods of time, it is realistic to assume that properties will appreciate by 5% every year thanks to compound interest. Compound interest is the interest that is added on the original amount of money that generates it. Thus if the value of a 1 Cr house increases by 5% every year or by 5 lakhs then its value has increased to 1 Crore five lakhs in year two. The house then generates another 5% interest which amounts to ₹ 5,25,000. So at the end of year two the house is valued at 1 Crore ten lakhs twenty five thousand.
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