Pre-Face to Property Guide

Here we will be discussing for you the Goal Oriented Property Acquisition Decision making which is as simple as 1-2-3, and covers the fundamentals of Real Estate Investing.

This property guide has a three-step model that addresses your Investment Goals:

• Step 1: This Step will help you to determine the amount of Invest to be made.
• Step 2: The second step helps you to identify the type of property best suited to you by comparing with the two broad categories, i.e. Property with land & property in an apartment/ complex.
• Step 3: The Final step draws conclusions by considering the amount of investment as determined in step 1 and the property type as finalized in step 2.

1. Should I opt for a property that is built on Land or one in the Apartment/ Complex?

Buying a property is a tough decision and choosing the right type of property is even more complex because one has to identify the amount of Investment to be made and the area where such property is to be acquired. The Major decision which revolves around a property buyer is whether to buy a property that is built on a piece of land or one that is in a multi-story Apartment or Complex such as a residential Flat or commercial space in a complex.

1.1 How much should I spend on property acquisition?

Well, the property-owning decision is always to be taken as comfortably as possible without any sort of exertion. However, there are certain goals for property acquisition such as Capital Appreciation, Rental Income, or both or to cut down the present expenses or to improve the present working & dwelling condition.

1.1.1 Residential Property Decision Making

There is an ideal rule that helps home buyers to take sound property acquisition decisions and it works effectively in most of the scenarios the rule is the 5-20-30-50 Rule, where 5 means that the property which you want to acquire shall not be more than 5 times of yours’ or yours’ family’s annual income, the 20 in the rule says that the tenure of your housing loan shall not be more than 20 years and the 30 means that the Home Loan EMIs shall not be more than 30% of your monthly income and the 50 means that you should not spend more than 50% of your monthly income on EMIs which includes your Home Loan EMI, Vehicle EMI, Durable Goods EMI, Etc. and the rest you are free to enjoy your life.

For E.g. A family’s monthly income is Rs. 1,00,000 so it happen to be 12,00,000 annual Income now the family should consider buying a house whose maximum value is Rs. 60,00,000/- and shall spend Maximum Rs. 30,000/- per month as home loan EMI & the tenure for home loan shall be maximum 20 years and their maximum EMI spending shall be Rs. 50,000/- per month which includes every kind of EMI so as to remain financially stable.

1.1.2 Commercial Property Decision Making

However in the Commercial Segment, one needs to apply prudence such that it shall benefit one’s business where the property acquisition decision may span all the way from capital appreciation, to rental income to lowering business expenses, as the property acquisition being capital expenditure one merit that holds utmost consideration is that the annual savings made in real terms shall be able to beat one’s Internal Rate of Return(IRR), or the savings made shall be somewhere near about one’s IRR so that the remaining uncovered may compensate for the capital appreciation. However, where the goal is capital appreciation, the IRR may be given less weight at management’s discretion.

1.1.3 General Consideration for Both the Residential & Commercial Segments

One shall consider the location connectivity factors such as Roads, Communications, Infrastructural Developments around the property, taxation benefits, and other considerations as one may think fit.

1.1.4 Conclusion as to Property Acquisition

Keeping in mind for Home Buyers the 5-10-20-30 rule and the IRR for the Commercial Property Acquirer or your acquisition goal such as Capital Appreciation, you might have determined your Amount of Investment.

Now in the next section, we can choose a Property that is built on a piece of plot or one in the apartment or complex Which may be a Villa, Bungalow, Gala, Rowhouse, Flat, Studio Apartment, or Penthouse in the Residential Segment whereas in Commercial Segment the option available to you may vary among Commercial plot, an independent shop, Commercial space in Mall/ Complex, Industrial Production floor, Industrial Plot, Warehouse/ Godown.

2. What kind of property will be best for me the one that is built on a piece of plot or the one that is in the apartment or Complex?

Once you have decided on your Investment Amount and the area, the goal is to be kept in mind so that a lucrative offer doesn’t affect your decision.

For the Residential Segment the goal may be to Economy living or only Dwelling and nothing else, Capital Appreciation, Rental Income or both.

For the Commercial Segment, the goal may be to, lower the revenue expenditure, Capital Appreciation or rental yield, or both.

The guide below may help to choose the property that fits your needs and serve the Pros & Cons of each property class.

2.1 Initial Investment

2.1.1 Property With a piece of land

A property with a piece of land may need much more amount of investment owing to its certain capabilities such as expansion and flexibility to develop.

2.1.2 Property in an Apartment or a Complex

These classes of properties are relatively cheaper than the first one as there is no scope for expansion & flexibility to develop. This low cost happens to be the big advantage for such properties, which makes them attractive.

2.2 Ability to generate returns

Any kind of property which is in remote areas or poorly connected areas doesn’t have much probabilities to generate returns. It needs to be there in a good location.

2.2.1 Property With a piece of land

Well, Land always wins in a time horizon of 5-8 years and above and may generate unbelievable returns in far future.

2.2.2 Property in an Apartment or a Complex

These class of properties tend to generate better results in a time span of 3-5 years. However, there may be exceptions provided the property is not located in suburbs and construction quality holds merit at last this class of properties can’t beat the Land.

It is to be noted that for an apartment or complex to generate returns it has to be future-ready (i.e. it will be accepted in the future as well) like an apartment that does not have a lift loses its value. Likewise, if certain necessary advancements are made in residential complexes in the future which become necessities in the future the present ones may suffer a loss.

These properties have the ability to generate higher rental yields.

2.3 Expansion & Use Convertibility

2.3.1 Property With a piece of land

This class of property has expansion as its major advantage as the Floor Space Index (FSI) is increased by local authorities the expansion plan may be implemented after certain permissions and the property usage such as commercial or residential may be altered and the expansion or development plan may address the use.

2.3.2 Property in an Apartment or a Complex

Expansion option isn’t available in these class of properties. However, you can change its use from commercial to residential or vice-versa after certain permission and there is limited scope of development to address the change due to structural standings.

2.4 Amenities, Security & Maintenance Costs

Well, maintenance costs are proportional to the amenities available.

2.4.1 Property With a piece of land

Generally, a property with a piece of land may not have many amenities. However, builder-developed plots have the amenities as proposed in the development plan that may match the Apartment or Complex. Well, this class of property gives you the flexibility for pay as you go.

2.4.2 Property in an Apartment or a Complex

These class of properties usually comes with proper amenities. One thing to note is that if you don’t utilize certain amenities still you will be charged for that owing to the nature of expenses being pooled to every member.

2.4.3 Security Issues

Apartments are more secure when compared to independent properties as they are well guarded by watchmen and surveillance systems.

However, nowadays builder developed plots are also well-guarded with watchmen & Surveillance systems.

2.4.4 General points regarding Amenities & Maintenance Cost

Say for Eg you don’t go to the gym even then you will be charged with a share of your maintenance in the gym when in the flat. However, in villas or Bungalows, you will not be charged and have to depend on an outside gym.

On certain occasions, there may be possible that there may be too much crowd in the common areas such as gardens in Residential Apartments specifically on weekends.

2.5 Ownership

2.5.1 Property With a piece of land

There is a great sense of ownership as the piece of land is registered in the buyer’s name.

2.5.2 Property in an Apartment or a Complex

Generally, the land is collectively owned by the Resident Welfare Association of each society.

2.6 Construction Considerations, Privacy Issues

2.6.1 Property with a piece of land

The construction considerations are not an issue for such properties and they can be built easily compared to apartment buildings.

There may or may not be privacy issues which again depend on how much space a unit shares with other units.

2.6.2 Property in an Apartment or a Complex

The construction consideration may be an issue as because there is almost no room for redesigning and other stuff. And these properties do take much longer time in case it is to be reconstructed.

Also, when the developer plans to place to wings too close that becomes a suffocation kind of thing to residential units especially.

There may or may not be privacy issues which may wholly depend on the openings of the door and windows.

3. Conclusion

The Conclusion we will be discussing will be based on your property acquisition goal.

3.1 Long-term & Capital Appreciation

The property with a piece of land may serve both the goal long term holding and capital appreciation because it has the ability to generate higher returns than other real estate asset classes.

3.2 Short-term & Low Initial Investment

A unit in an apartment or Complex may foster to achieve this objective because the construction value of an apartment does not lose out the value in short term and the rental yield is generally higher however capital appreciation may not be much more.

You are free to draw a number of conclusions by choosing your own considerations and reach a decision.

Here, at dindoli properties, you can find numerous properties and can contact directly with the seller.

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