We wrote the first part of the article, and now it is time to further continue the topic. In the first installment we looked over the importance of determining one’s intent for the property, location and evaluation. We also shed light on some common real estate scams to spread awareness amongst one time buyers and newcomers to the real estate market.
Speaking of new investors; this article is here to aid their confusion when it comes to investment. The scope of real estate industry is massive as it grows by the day. This can prove to be quite intimidating for individuals who are looking to, or have just started investing in the real estate industry. To help you avoid making the hasty decisions and mistakes that new investors or one-time buyers make; we will take you over more aspects to consider about a real estate dealing. The 2nd part of our article will take you over the importance of maintaining finances in your favor, knowing the importance of a property’s surrounding as well as equipping yourself with the knowledge of real estate market.
As we stated in part one that Pakistan’s growing real estate industry is providing excellent investment opportunities for people of all backgrounds. Many seasoned investors and newcomers are coming to take their business 1 step further through real estate dealings.
Considering the cash flow of a property:
The term cash flow refers to the money that is left behind after the cost of investment and expenses of property is taken out. Everyone experienced in real estate dealings sets a budget for themselves when going to invest into property. In the real estate business where there are always chances of some unfortunate situation that could end up a property resulting in a loss upon investment. An example can be considered where you have developed into under development projects and the project gets abandoned or delayed leaving you at a financial disadvantage.
Always make sure that you cash flow is positive. That means that you have money left behind after investment to bounce back from any errors or mishaps with the investment. Trying to take a heavy loan to get your hands on a single property which doesn’t go as intended can result in a devastating condition for the investor and could cause them to go in debt.
In case you have invested into a property, there are different ways you can achieve a positive cash flow income. Investing into rental properties is a great way to start to ensure a safer cash flow from the rent lease’s passive income. Moreover looking to buy houses and other properties to sale off at a higher value at a higher price is another way of getting a positive cash flow. Spending on an existing property to renovate it and modify its layout (if allowed) to fit a certain vision and class that enhances its value is also a great way to generate a higher cash flow from a property.
Maintaining financial stability:
The aspect of keeping a close watch on your property’s profits and losses through the market trends and keeping a positive bank balance is very important for any businessman. Trying to maintain financial stability in a way that it favors you is always going to be your number 1 priority when investing. Try to stay away from heavy loans. As touched upon previously, if the market rates crash or some development project you invested into gets abandoned or sealed; chances are you will go in a big debt.
For Pakistan the issue of crippling interest based debts is solved, due to the concept of Islamic banking; however if you are signing up for interest rates, always make sure you can recover.
Another way to avoid the devastating effects of loans is going for an installment based payment plan. This is rather becoming an increasingly common practice amongst single time home buyers. Most of the Pakistani middle class needs to dedicate time and opportunity to pay for a fully functional property and getting property on monthly or yearly installments to pay off the property is a much more convenient way to invest. For seasoned investors, getting to buy property on a installment based plan might be detrimental in case the market in fluctuating however if you correctly predict the property to be fully paid for by the time the market rates rise; the payoff can be huge.
Developmental state of a property’s surrounding:
The developmental state of the property’s surrounding is a great indicator to what kind of returns an investment will yield. By the developmental state, we mean considering the general area, a part of town or a residential society or project a property is located in.
If you are taking a property in an area that is under development, the advantage of doing so is that you can buy a property at much lower costs due to the surroundings not being as well developed. The intent with such property is to take it to a time and place where there is a lot of development in the surrounding and likewise sell off the property at a much higher rate than what you has invested in. to predict whether a property investment in an under development area is going to be fruitful or not, try to look up the developer’s recent projects to determine their reputation and success with development.
Pakistan already has some big names in the game of real estate development. Projects of Bahria town have dug their roots in the heart of the big cities like Islamabad, Nawabshah, Karachi, Lahore. DHA is also a big contender that is nationally renowned for providing state of the art infrastructure and an opulent living experience. There are already amazing developments done by these developers. In Islamabad Bahria town is spread over number of phases with Bahria town phase 8 being their latest work in the capital.
Investing into developed projects like Bahria Town, DHA or renowned parts of a city like Gulberg Islamabad, or areas rising in development and popularity like Ghauri Town Islamabad are going to give good return on investments. Successful hubs in real estate industries are always the hotspots of business activity. If you want to ensure success and quality of an investment then always go for investment in well developed regions.
If you are from Islamabad and looking for a great area to invest into; Bahria Town Phase 8 is a great place to look into. Not only is it supervised by the already renowned Bahria Town, being a relatively new development it has a lot of space to be invested into. As the development of Bahria Town Phase 8 grows over time, the returns upon investment will only be further secured.
Studying the market:
In a one line statement the real estate market basis on the principle of buying and selling for profitable returns. However it is needless to say that that is all, if it was so; there wasn’t a need for any online blogs and articles out there to guide people, neither would real estate agents exist.
There is a lot of understanding that goes into the investment of property. You have to analyze the current situation of the market as well as predict some direction the market might take in the near future. For example you are investing into a property that is in a very well developed area will cost you more. In the near future, the investments being made in market shift to a newer development. Properties in this area or project were of very low cost prior to the development over time. Here the persons who hastily invested into a highly popular areas did not take into account the change in market; smart investors who invested property in a under development area (keeping in mind that it had the potential to attract a lot of attention) would get a lot higher return on their investments.
Real estate market can seem simple on the surface but it might be the tip of the ice berg you are looking at. The factors covered in the 2 part article covered the most important determinants to insure a good real estate investment.
This part took you over the importance of maintaining financial security as you dive into investments as well as keeping a keen eye on the real estate market situation. All the while we warned you of the deep oceans of crippling debt that hasty investors could get into.
To sum it all up; the real estate market can be a great investment opportunity as a lone standing business or to diversify your business portfolio if you have the time and space to invest. It can provide you with a steady flow of cash through renting or get you big deals by simply buying and selling of property.
