Investing In Commercial Spaces

Learn how you should invest in real estate - commercial spaces.

It depends on the builder's cash flows and his portfolio mix. When the property is ready, if the builder's cash position isn't favorable, he may go in for an outright sale. But if he were solvent, directly leasing out would be a more attractive proposition for the builder, given that he would earn much more than in the bond market.

Builders who wish to sell also offer guaranteed returns to the investor by taking up the onus of finding a lessee. The investor here can get an agreed return from the builder. In effect, this works out as a loan for the builder, who is able to raise the money equal to the value of the property at 10-11% interest.

The important thing is to see how much the property can earn today and its ability to sustain and enhance the earnings in future. The opportunity to realize capital gains cannot be overlooked. But an analysis of how much the value of the property will go up based just on the projected inflation rates may not be very useful.

One thing that is assured in the real estate market now - and that's likely to hold good for two more years - is the abundance of quality supply. Therefore, it makes more sense to invest in a preleased property. The profile of the tenant is crucial; getting a reputed multinational brand would reduce the risk to almost nil.

When investing in commercial property, get sense of vacancy in the surrounding areas. While the seller might be giving you the positives, if there are a lot of vacant properties around, you need to find out the reason.

While you gauge the market, it makes sense to plan your cash flows. The concept of rent discounting is catching on among investors across cities. This is how it works: you can get 75-85% of the future rental value from your bank upfront, at 10-12% interest.

Suppose you invested in a property and leased it out for nine years with a three-year lock in period. Now you can get about 30% of the value of property instantly from the bank. You can use these funds for generating further assets that can yield higher returns for themselves. The funds could also be deployed in other business. This helps accelerate the rotation of funds - a concept at the core of business.