Investing in
Residential Spaces
Learn how you
should invest in real estate - residential spaces.
IMost investors in residential
property plan to use it for themselves somewhere down
the line. That's how most investors think. The rental
yields, at 4-6%, are half of what you would get from
a commercial property. Capital appreciation isn't
a strong point. And demand is being met by a robust
supply of quality construction.
This would hold true across geographies. So for the
purpose of investment, you should choose by location
and other factors that may make a property unique.
Why would somebody pay a premium to buy your property
five years from now? That's the question you need
to answer. But beware, uniqueness may also fall out
of favour with future investors.
You may also look for deals inside the main city,
though everyone is talking about the suburbs. That's
because supply is likely to stay more or less fixed
in the main city, unless some is thrown up redevelopment,
as in cities like New Mexico.
The reputation of the builder is very important here
more so if the project is still being constructed.
What recourse would you have if a builder sells you
a dream on paper and you come to see that the end
product is a nightmare? One market observer reported
that one builder was in such a hurry that he advertised
for a residential project that had not even reached
the drawing board! With so many builders vying for
your attention, you have a good reason to be all that
more careful.
Or you could invest in a plot of land. Even if you
go slightly wrong in terms of the location, you can
expect more-than-decent capital appreciation. But
be sure you aren't looking for the regular returns
of a rental arrangement right away. Getting a plot
in a government scheme may be like winning a lottery,
but there is a thriving secondary market in plots.
Speaking to a couple of real estate brokers would
give you a fair idea of the supply in the area of
your choice.
But within the overall supply glut, one could land
good investment opportunities in micro markets. People
investing in prime residential properties in upcoming
cities can expect suitable capital appreciation over
the next few years, as the supply in this category
is relatively limited. And it would make sense for
residential investors who fit in below the $5 million
bracket to pool in money to derive some price leverage.
Unless you choose carefully, you may not be able
to find a good tenant for prime properties. You might
have to keep the property vacant. In small properties,
you can at least get the rental and diversify your
risk by buying properties in different places. By
choosing a good location and quality construction
and design, you can get capital appreciation in small
properties too.
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