10 rules for Investing in Real Estate

Real estate investment in India

Table of Contents

When we hear the word real estate, the first thing that our mind registers is property dealing. The second thing that occupies our mind is good money. However, it is not as easy as it sounds. There are certain rules and regulations that the person interested to invest in real estate should always know: 

Location:

This is the most important factor when it comes to real estate business. The return that you will get on your invested property is derived by the location it is situated in. An investor earns in real estate either through rent or by capital appreciation, which are totally based on the location only. So, select the location where the options for changing is less so that the person you shall be renting to won’t think of vacating anytime soon and the rents for such locations are generally high. 

Quality:

No matter what we are purchasing, quality is the first thing that we assess. If your property is of better quality in terms of everything that’s important from a renter’s point of view, you will not be able to earn more rent but also be able to retain your renter. Quality also plays an important role in capital appreciation. 

Demand Vs supply:

There are certain preferable locations where people often either wish to stay or are preferred by offices. So, a real estate investor needs to be aware about the supply of properties in the area that are most preferred by the people. If the supply is more, then people will have more options and the rents will go down. 

Market rent Vs in Place rent:

Whatever price you put on the rent, it should be in line with the market rent. It means that an investor must be aware of the prices at which new places are rented in current time and his own rent should be near to that only, otherwise the renters will try to move on to cheaper options available around. 

Quality of tenant:

The one who stays at your place adds quite a great deal of value. If you have invested in a flat, then try to look for a renter with a good job and good social linkage. In the case of an office, try for known companies. They not only add value but also pay you right on time. 

Re-decorating interiors:

Whenever someone rents a place, it’s generally the tenant who maintains its interiors as per his preferences. So, if the tenant has done everything with just the minimum basic done by you, then it’s more likely that the tenant will stay because of the cost incurred by him on that property. 

Actual rent:

Whenever an investor is looking to invest in real estate, the first thing he compares is his own investment with the returns that he’ll get from it. Though the developers will always try to lure an investor by including the re-decorating rent too, as an investor, one needs to understand as to when he’ll receive the rent on the additional fit-outs done. Because after that, the rates are bound to drop down a bit. So, always calculate the total actual rent before investing in any property. 

Rent structure:

The amount that a tenant will pay you for the property that you have rented or leased to them differs for commercial and residential purposes. While talking about a commercial property, they follow the structure of maybe 9 years lease with an increase in rent every 3 years. Also, the investor needs to set a proper agreement with regards to the tenant vacating the room so that he won’t incur a loss. All these factors shall determine whether the returns he’ll get on investment will be worth it or not. 

Security deposit:

This is a safe side that any investor takes while giving away their property to someone on lease. So, when a tenant asks for a lesser security deposit and that too for a relatively shorter lock-in period, be aware of the fact that he might be still looking for options. So, set the security deposit and lock-in period in accordance with what you want as returns. 

Multiple investments:

Don’t put all your eggs in one basket. Similarly, don’t invest all of your money in one place only. In case the returns from one property don’t live up to your expectations, you will have other options to look forward to.  

Investment is a risky business, no matter where you invest. Therefore, make the decision wisely after giving it a proper thought.