Evaluating your property investment

Evaluating your property investment
Mon Dec 14, 2009 9:12am


Investing requires discipline - one can’t blindly invest money without knowing what one is getting into. Investing into Real Estate is no different. Here is a checklist that you should use when evaluating your property investment.

1. Desirability of the location: This is the single most important criterion to value real estate.

2. Reputation of the builder and quality of construction: Properties by some developers are worth a lot more than others because of quality. Don’t always go for the lower price because there could be huge execution risk with less reputed builders

3. Payment terms: Time-linked or construction linked payment plan, and cash vs. cheque component. This will affect your cashflow in other aspects of your personal finances. (Click here to know more)

4. Project approvals and licenses: This might affect your ability to get a home loan if project approvals have not come through yet.

5. Contractual guarantees: For assured return schemes get a written guarantee from the builder and post-dated cheques in your name. Understand the delivery date of your project

6. Demand and supply: Over or under-supply will affect both the capital appreciation potential and the rental yield you might expect.

7. Floor space index and carpet area: Local rules on the built up area and the available square footage (carpet area) might reduce the usable area. Recognize that what you pay for might not be what you get


Tips on the process of Real Estate Investing

When it comes to the process of making a property investment and exiting from it, there are a few things that you must keep in mind.


1. Transaction costs: When you buy or sell property, there are many transaction costs associated with these activities. You might have to pay a brokerage fee to the intermediary. If you have made a gain on the sale, there will also likely be a resulting capital gains tax liability.

You will also face some expenses related to the stamp duty at the time of the transfer and registration costs of the property. All these costs can add a material amount to the purchase or sale price of your investment.


2. Liquidity: Unlike stocks that you can sell readily and convert into money in the hand within a couple of days, buying and selling property takes time. Your ability to convert your investment into cash in hand is quite restricted.

Its not uncommon for deals to take up to one year, and still fall through at the last minute. So if you feel that you can sell your property to pay for your child’s education abroad once he/she gets admission, you might be in for a shock. To have easy access to this money, you might be better off putting it into a financial asset that you can access at a short notice (e.g., fixed deposit, or liquid fund).


3. Cash: Property investments are not always the cleanest when it comes to cash versus cheque component of paying for deals. Unlike mutual funds where KYC norms require that the investment be made in cheque and the PAN card details be shared, real estate investments can have a huge cash component to them. This might not suit everyone.

http://in.reuters.com/article/personalFinance/idINIndia-43604720091214?sp=true