Convincing Investors


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Convincing Investors

  1. 1. Convincing Investors 1
  2. 2. Investor buys a house, end user a home. REFLECTIONS OF GREATNESS 2 2
  3. 3. Customer types:• End Users• Investors• Corporates REFLECTIONS OF GREATNESS 3 3
  4. 4. What is the competition?• Their own business• Spending on depreciable assets• Financial instruments like : Stock / Mutual Funds / Bank deposits / Life Insurance• Precious Metals: Gold / Silver / Copper REFLECTIONS OF GREATNESS 4 4
  5. 5. How does it fare?• Real estate investment is the only investment which gives all of the following: – Recurring income in case of constructed property – Capital appreciation – Full security (gold can be stolen, companies can go bankrupt, banks may close) – Ability to consume cash component REFLECTIONS OF GREATNESS 5 5
  6. 6. Comparison Table Gold Shares/ Bank Deposit Bonds Real Estate Mutual fundsCapital Yes Yes No No YesappreciationRecurring No Not Much Yes Yes YesIncomeScarcity Yes No No No YesSafety of No (can be No Yes Yes YesInvestment stolen)Can be Yes No No No YesconsumedCash Yes No No No YesComponent REFLECTIONS OF GREATNESS 6 6
  7. 7. Other Benefits:• Capital appreciation linked with inflation, so investment is automatically hedged against inflation• On a rental property the loan repayments are partly done by rent, so you get full returns on part of capital invested. For example: You invest Rs. 50 lakhs in a flat of Rs. 1 crore, (remaining amount is a loan) then from day one you earn return on Rs. 1 crore. REFLECTIONS OF GREATNESS 7 7
  8. 8. Other Benefits:• You can invest as little at 10% and get benefits of full 100% (schemes like subvention)• Unlike Stock markets you don’t have to daily monitor the prices• Provide a second home for leisure – farm house REFLECTIONS OF GREATNESS 8 8
  9. 9. Other Benefits:• Leverage: Real estate investment can be mortgaged, unlike stocks and mutual funds.• Home loan has income tax benefits. Also rental income attracts lesser tax than Interest income on Bank FD• Recent budget has given further tax benefits on home loans for first home buyers REFLECTIONS OF GREATNESS 9 9
  10. 10. Type of Investors• Speculators• Flippers• Income stream investors• Eventual Users• Developers REFLECTIONS OF GREATNESS 10 10
  11. 11. Type of investments and returns:• Apartment : Capital appreciations and rental• Bungalows: Majorly capital appreciation• Office / shops: capital appreciation and rental• Preleased properties: lesser risk• Plotted Land: capital appreciation• Agriculture land: capital appreciation and retention of status as a farmer REFLECTIONS OF GREATNESS 11 11
  12. 12. So how to convince:• New property: – Pay 25% right now to start earning 10% return on 100% – So book a flat for Rs. 25 lakhs an 1 year later you get a appreciation of Rs. 10 lakhs (as the flat value is Rs. 1 crore) – When you sell it once its completed, usually the property appreciates approximately 25% REFLECTIONS OF GREATNESS 12 12
  13. 13. So how to convince:• New property: – With a subvention scheme, 10% is paid right now and remaining 90% at the time of possession – This is even easier to convince as the bank releases the payment to investors only when the construction get over in stages – Saving on interest costs as bank usually charges interest from builder, while cost of property is fixed, so saved from inflation REFLECTIONS OF GREATNESS 13 13
  14. 14. So how to convince:• Old property: – There is no risk no delay in delivery or non delivery of real estate due to construction delays – The property can be touched and felt – The property can be bought on loan so in case liquidity is a problem, it can be solved – Usually comes with some finishing, more carpet area and neighbours. REFLECTIONS OF GREATNESS 14 14
  15. 15. So how to convince:• Recurring income or Yield based property: – The yields of pre leased properties have fallen drastically in last 5 years. From as much as 12% net return in 1 year to 5% subject to service tax. – The important factor is : return should be calculated only on the white portion of the property – A McDonald will give a lesser yield than a mom and pop store: Stability of income is more imp REFLECTIONS OF GREATNESS 15 15
  16. 16. Risk Factors• All investment options have risk factor. Remember there is no return without risks.• Liquidation is the biggest risk in real estate.• Another risk is maintenance, as most properties require some expense even if empty.• Clear title, paperwork and time to do transaction are few problems. REFLECTIONS OF GREATNESS 16 16
  17. 17. Risk Factors• Educate investor looking for recurring income that they need to furnish the property also• If the tenant leaves the income may stop(but capital appreciation doesn’t)• Delayed project completion may affect the returns of the investment. But usually the capital is safe. REFLECTIONS OF GREATNESS 17 17
  18. 18. Always remember:• Advise the investor to invest in a property only if you are sure that you can match the customers expectation from the property like: – Resell at 25% higher amount after 2 years – Get a tenant• So do not over commit or you will loose your customer for life. REFLECTIONS OF GREATNESS 18 18
  19. 19. THANK YOU 19