Property ROI: You Can Smell the Money

ROI, or Return on Investment, is the profit you make through any sort of investment. Investopedia describes ROI as a performance measure that is used to calculate the efficiency of an investment. It is also used as a way to compare one investment to another. Different types of investments can provide different levels of ROI; short-term and long-term have some of the largest differences, but buying commercial property versus residential property can have a major impact as well. When looking for investment opportunities that can provide the best ROI available, you’re going to need to do some legwork. Research is your friend when it comes to deciding which property will provide the best ROI you can get. When doing your research, following these tips can help in finding the best possible investment.

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Investment Length

When looking for investments that will provide you with the best ROI possible, you first need to decide whether you are going to aim for short-term or long-term. Short-term investments can work with property, but they rarely, if ever, provide an ROI that can compare with a long-term investment. Financial gains made with short-term investments are also universally taxed higher than long-term gains, so unless you’ve found a potential short-term investment with particular circumstances, it’s always going to be smarter to look for long-term. Business Today states that the majority of property consultants suggest a minimum holding period of three years, but the best ROI gains usually start coming in somewhere between five and seven years. According to The Economic Times, three years is the minimum time period to hold on to a property investment for the long-term gain tax regulations to kick in.

Rents and Captial Gains

One of the best facets of property investment, whether long or short-term, is the potential for multiple sources of ROI. Not only will you gain ROI through capital gains (the general appreciation of the property price), but you can also earn profit through rent if your property investment has the capability. According to The Times of India, rental yields on residential properties in a number of major Indian cities range from 2 percent in Delhi to 3.5 percent in Mumbai. While this might seem very minimal, combined with capital appreciation, the gains can reach up to 20 percent or more when annual compound growth is factored in.

It’s possible to aim for an investment that focuses on rental gains, but if you’re looking for the best ROI possible, rents should be a secondary concern. Finding a property that has the potential for high capital appreciation over a number of years is the best way to find an investment that can maximize your ROI.

Sources of Information

Like just about any situation, knowledge is power when it comes to property investment. There are a number of sources you can use to gain information and work on your research. Jago Investor highly recommends looking into Residex, a relatively new index for tracking various aspects of real estate across India. Residex is maintained by the National Housing Bank of India and is updated every six months.

Another source of information you can use is the Global Property Guide. Not only does it provide information about potential investment opportunities in India, but you can diversify your holdings even more by finding investments elsewhere in the world.

Another good source of property information is the Unitech Group. They have information on property markets all across India and can radically help you in your research.

Pitfalls and Mistakes

There are a number of potential pitfalls and problems you need to work to avoid when working on finding investment properties. One of the most common is not doing enough research. It can’t be stressed enough, research is critical in finding a worthwhile investment. If you jump into an investment without proper forethought and information, you can be ruined if something goes wrong that wasn’t anticipated or if a minor detail about the property turns into a major problem.

Another common pitfall in property investment that people often fall into is in the calculation of ROI, states Jago Investor. Too often, investors calculate the pure, absolute returns on an investment without factoring in any additional circumstances or details. A 30 lakh investment that will turn into a 60 lakh return some years down the line may look incredibly enticing, that’s a 100 percent ROI! But it’s easy to see the pot of gold at the end and ignore the fact that the original investment is 30 lakhs. Not only is that a good chunk of money, but the 100 percent ROI isn’t guaranteed and it could turn out to be less if the market shifts. And market fluctuations are always going to happen. Going into an investment without factoring in potential market changes is a recipe for disaster.

Finding investment properties that will provide the best ROI is not going to be easy, but it shouldn’t be too particularly difficult either. As long as you take your time and do your research you should have no problem in finding the investment properties that fit your needs best.

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