Is Micro Investment such as investment in property profitable?Samar Javed17 December 2018
This is exactly the question what every single investor, new and old ask if investing in a property is profitable in the long run or not? Nevertheless, there is a peculiar resemblance between the stock market as well as the market of real estate today. Given that the equity market on an overall looks feasible, there are numerous stocks in real estate which are worth the investment.
The real estate market is not the same as it used to be during 2005 and 2008. As of now the focus of real estate has transcended from premium new launch properties to an affordable and mid-range price segment. Nowadays, the investors are also investing ample of their time to conduct thorough research such as visiting the site of the property multiple times before buying them.
The investors never forget about the credibility of the developers, house having the right size as well as great price tag. Investors have also figured out that the micro markets are doing well and they offer great value to them. Many established real estate investors follow two straightaway mantras for determining which property is better to invest upon and the two mantras could be found below:
The One-Percent Rule
When an investor starts looking at the property to invest in, they are much likely to have a lot of options to ponder upon before concluding. The One-Percent Rule isn’t a tough neither is it a complicated equation rather the one per cent rule simple rule that the investors utilize which helps them in narrowing down their options efficiently and quickly.
The experienced investors think about the One-Percent rule as a simple tool that they use in determining whether a property deserves a closure look or not. The one-percent rule states that the property must have to rent one-percent or more than one per cent of the complete upfront cost. According to the one-per cent rule if a new property has a price tag of Rs 10,00,000 inr, then the rate of rent should be 10,000 per month.
Hence, a property which is valued at 20,00,000 should be rented at 20,000 per month and so on. The one-percent rule is confined to only the total cost of property’s upfront, which furthermore indicates that the new investor has to add the closing cost, purchase price, repair cost to make the property rent able. And if a property doesn’t live up to one-percent rule then it better onto the next one.
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The second factor is the Cap Rate
Once the investors have narrowed down their search to a handful of properties, then comes the time to look at the rate of capitalization which is also called “cap rate.” The cap rate is helpful in calculating the potential return of a property based on investment.
The rate of capitalization can be found out by dividing the net operating expenses of the property by the price of purchase. The cap rate is not comprised of the mortgage payment. Each of the investors has their mantras to determine the acceptable capital rate. In general, the rate of capitalization should be as high as possible.