Real estate is considered as one of the most money-spinning investment options. By investing smartly in real estate, you can easily earn huge profits as much as double or triple returns in just a decade. The focus here should be given majorly on the word ‘smartly’ because, let’s be honest, real estate investment has its own risks as well. You need to make smart choices while investing your money in real estate to ensure that your investment pays great returns. In order to increase your chances of getting higher returns, firstly you need to choose the location of investment smartly. The area where you plan to buy your investment property should have positive growth signs so that the price of the property increases at a faster pace and you get better returns. To help you make a smart investment, here is a five-point checklist to identify a potential growth area.
- Gentrification - The first thing you should keep in mind before selecting a location for investing your money in real estate is gentrification. Gentrification is the process of reviving the dilapidated areas by means of renovation. While searching for investment property, opt for the areas which are experiencing gentrification as it leads to rise in property price once the area has been gradually metamorphosed into a better neighborhood. The best way to find areas which are undergoing or about to undergo gentrification is to look out at the residents of the area. If more young people are starting to inhabit the area it would soon be experiencing gentrification to suit their needs. If you can point out new cafes/restaurants established or newly renovated homes in the area, it is on the verge of gentrification.
- Infrastructure Development - By infrastructural development, we mean development in terms of the amenities, connectivity, and transportation in that area. An area that about to experience infrastructural development would certainly be a great bet for investment. Large government infrastructure projects like new highways, metro, schools, universities, hospitals, bus/train stations etc., are a good sign that the price of the area would only increase in the coming times. Moreover, builder projects like construction of malls, shopping complexes etc., could also ensure that the area would be profitable for property investment.
- Ripple Effect - Ripple effect can be understood by the ripples in a pool of water when a stone is thrown in. The ripples spread and the waves reach the far edges of the pool. You need to catch this ripple effect in real estate India as well before making any property investment. In order to find the area experiencing this effect, you need to study the nearby real estate market that has recently experienced a high growth. Next, you need to check out the nearby or adjoining locations and study their property market to calculate the variation in property prices. An area that has around 5% variation in property price as compared to the newly developed high growth area then it is good for investment as it would also soon be affected by the ripples of growth from its surroundings.
- Cash-On-Cash Return - While making an investment in real estate, you need to understand the cash-on-cash return from that investment. Dividing the net pro forma or estimated cash flow from the property investing with the cash equity aka the cash invested in the property to find the cash-on-cash return. Make sure that your cash-on-cash return is positive to have gainful returns from the investment. You need to study the market and get an analysis of the rental rate that you can get from the investment property to calculate your cash flow. A positive cash-on-cash return is a big yes for investing in a particular area.
- Supply-Demand Dynamics - Another important thing you need to do while searching for investment property is to examine the supply-demand dynamics of that area. The supply-demand ratio of any area is the key driver of price growth. You need to check the property supply and compare it with the demand for property in that area to examine this factor. If the supply of property is less or minimal as compared to the demand for property in that real estate market, the price of property in that area is sure to soar high in coming times. You can check out the rental yield of the area as areas with high-demand and low-supply usually have higher rental rates.
So, if you are aiming at earning great returns on your real estate investment do a good research on various areas of your city and then filter the key locations judging on the factors discussed above. Areas that show these positive signs of growth would be a perfect fit for investing your hard earned money.