Should I invest in Flats or Villas?

More often than not, this is a very BIG question in front of an investor who is willing to invest a fortune in Real Estate. What is the correct option, we really don’t know; but we can have an analysis based on few parameters that we think are important in this regard.

Where do I want to invest?

The motive behind asking this question is to know about the development level of the intended investment area. The choice of investment will differ based on whether it a Tier 1 area or Tier 2/3 area. This is because the scenario of development and mentality differs in the above mentioned areas.

Go for flats	Villas may be considered over flats
Reasons	Reasons
·         Trend of apartments (flats) is more likely to be matured in Tier 1 cities	·         More and more new apartments are being constructed as this trend is emerging in smaller cities
·         Only a selected few prefer Villas	·         Villas still are looked upon as primary option for residence
·         Resale of flats in Tier 1 cities is not a very big issue; one can find several buyers easily	·         Resale of flats becomes a headache in these towns as buyers are few and have many new options to choose from
·         Flats’ value appreciate in these cities	·         It depreciates here
·         Rental prospects are good	·         Rental prospects are meager
·         Villas’ prices touches sky	·         Villas are still available at affordable prices

Closing thoughts:  Considering these above points and many others, we feel that flats have still a long way to go in smaller towns and villas have lived their life in the Tier 1 cities.

                                               

                                                      ------ Thanks for reading RealT Horizon J ------

Rent by Price Ratio: Real Estate Valuation by Rent

Continuing our RealT valuation series, we now bring to you – Rent by Price ratio. In our post – “Valuation by Rental Prospects - Real Estate Valuations” we discussed how an individual should take into consideration the rental prospects while valuing a property. Today let’s discuss whether or not a prospective rent enough?

Facing dilemma: Which property to select?

Many a times, we get confused making choices between different assets. It becomes tough to select one from a choice of 2-3 properties. In such confusions, the decision is generally made based on only apparent features (aesthetics, size, location, ease of transaction etc.). To provide a rationale to this dilemma, we bring to you the concept of Rent by Price ratio (RP ratio).

Rent by Price Ratio (RP)

As is self-explanatory from its name, RP ratio means:

This gives you a fraction which can be used very effectively for evaluating more than one property together. To state in simple words, this ratio gives you the percentage of initial price that you can recover per annum by rental income.

How to make the choice?

Let’s take a scenario that you have a choice to make from among the following options:

Property	Prospective Rent	Price	RP Ratio
Prop1	INR 25,000 pm	INR 7.5 million	4.00%
Prop2	INR 20,000 pm	INR 5.5 million	4.36%

                                                         Source: Real Scenario of 2 properties in Hyderabad, India

As both the properties provide awesome investment opportunities and are located opposite to each other, it becomes increasingly difficult to make a choice among the 2.

But looking at the last column (RP ratio) in the above table, it becomes very clear that Prop2 provides a return of 4.36% against 4.00% of Prop1.

Hence it makes more sense to go for Prop2, than for Prop1.

Dilemma Solved, Decision Simplified B-)

Closing Thoughts: We formulated the above concept and analysis while facing a dilemma on making the choice on the above 2 properties only. This RP ratio provided us a yardstick to go for Prop2 & we followed it; you may not. It’s just indicative, not a sure shot approach to making decision.

------ Thanks for reading RealT Horizon J ------

Real Estate Valuation: How to increase value of your Property?

This is in continuation to our real estate valuation discussions in our last posts:

• Valuation by Rental Prospects - Real Estate Valuations
• Can Value in Real Estate be created, artificially?
• Valuation of Real Estate: How can you value your RealT?

Everyone, including you & us, is looking to make money in real estate & increase valuation of assets. Today let’s discuss how you can increase your assets’ worth manifolds, just by a small manipulation.

Recipe to Increase Asset Value

This might look like an unorthodox and risky approach to some of our readers, but it works.

‘You find an uninhabited area in the city, almost barren land, where no one would want to reside. Increase the worth of the area and exit gracefully.’

To explain in detail, let’s consider the following real case study:

Following is the satellite snapshot of an uninhabited area in Udaipur, Rajasthan (India).

Satellite snapshot of Chitrakoot Nagar, Udaipur

Surely no one would prefer to build a house in this part of the city. But now let RealT Horizon guide you on how to create value in this region.

If you look carefully, you will see some upcoming development in the nearby region (as shown below).

Potential & developing areas marked in red

As the area is uninhabited, most likely you will find the land in the potential marked area in the above snapshot at very nominal price. Now as an investor you have following choices:

If you go for this option, you will help others and make losses yourself. You will purchase the plot and struggle to receive the returns which this property is capable of providing.

You will create a handsome chunk of fortune for yourself by this decision. Suppose you have bought 3 plots here. Construct a building on one plot and sell it at par with your costs. Once one building has been constructed in the area, the prices shoot up for the remaining plots. Now you can make a good fortune on your remaining 2 plots.

You miss out on a golden opportunity in this area.

The reason why this area will develop in due course of time is because there is a developing area in the vicinity.

So in this manner, you have created money out of a barren land, just by streamlining your investment decisions.

Disclaimer: The above analysis is based on our understanding and experience. What happens in future will totally depend on your due-diligence about the area in the picture!

------ Thanks for reading RealT Horizon J ------