Convincing Investors

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  • 1. Convincing Investors 1

2. 2REFLECTIONS OF GREATNESS Investor buys a house, end user a home. 2 3. 3REFLECTIONS OF GREATNESS Customer types: End Users Investors Corporates 3 4. 4REFLECTIONS OF GREATNESS 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 4 5. 5REFLECTIONS OF GREATNESS 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 5 6. 6REFLECTIONS OF GREATNESS Comparison Table Gold Shares/ Mutual funds Bank Deposit Bonds Real Estate Capital appreciation Yes Yes No No Yes Recurring Income No Not Much Yes Yes Yes Scarcity Yes No No No Yes Safety of Investment No (can be stolen) No Yes Yes Yes Can be consumed Yes No No No Yes Cash Component Yes No No No Yes 6 7. 7REFLECTIONS OF GREATNESS 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. 7 8. 8REFLECTIONS OF GREATNESS Other Benefits: You can invest as little at 10% and get benefits of full 100% (schemes like subvention) Unlike Stock markets you dont have to daily monitor the prices Provide a second home for leisure farm house 8 9. 9REFLECTIONS OF GREATNESS 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 9 10. 10REFLECTIONS OF GREATNESS Type of Investors Speculators Flippers Income stream investors Eventual Users Developers 10 11. 11REFLECTIONS OF GREATNESS 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 11 12. 12REFLECTIONS OF GREATNESS 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% 12 13. 13REFLECTIONS OF GREATNESS 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 13 14. 14REFLECTIONS OF GREATNESS 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. 14 15. 15REFLECTIONS OF GREATNESS 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 15 16. 16REFLECTIONS OF GREATNESS 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. 16 17. 17REFLECTIONS OF GREATNESS 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 doesnt) Delayed project completion may affect the returns of the investment. But usually the capital is safe. 17 18. 18REFLECTIONS OF GREATNESS 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. 18 19. THANKYOU 19