Leveraging in Real Estate and knowing when to Exit

LEVERAGING IN REAL ESTATE

When the cost of borrowing money is cheap you can get a better price for your real estate because the leverage is better. Leverage is the difference between the rate of return on a “free and clear” basis and the rate of return on invested capital. For example, suppose you are buying a small office building for $10 million and the annual cash flow is $1 million. That’s a 10 percent return on a free and clear basis. Now instead of buying the property for all cash, assume you take out a mortgage of $8 million (80 percent of the purchase price) at an annual interest rate of 7 percent. The annual cost of the mortgage portion of the investment is $560,000. The annual return on your $2 million investment is $440,000 or 22 percent on your cash. That’s how fortunes are built.

EFFECT OF STOCK MARKET & INFLATION

There is usually a high demand for real estate when the stock market and the bond market show low returns. It is also true when the rate of exchange of the dollar for foreign currencies is low because foreign investors see bargains in the making. When the rate of inflation starts to rise dramatically buyers will often flock to real estate because increase in real estate prices and rents seem to rise in line with the rate of inflation. Effect of Inflation on Real Estate - Bullzbearz  

WHEN TO EXIT

If you have a piece of property in an area that is deteriorating as indicated by “for sale” or “for rent” signs or by increased boarded up or vacant stores or buildings and you have no solid information as to when this cycle will change—get out! Take a loss, if you have to, but get out! If interest rates are rising and you have a mortgage, which will be coming due shortly, sell, preferably to an investor that has lots of ready cash, but sell!

If you own a building which is going to be adversely affected by a change in traffic patterns or new interstates or highways, sell as soon as you have reason to believe that any of those items will become a reality.

If you have a building that you believe will be adversely affected by some new construction in the area, that’s also a time to sell. This is especially true if you have a property with retail stores and new, larger or serious competition is on the way.

You should consider selling real estate when you encounter obstacles to the project, such as denial of zoning or approvals and the projected critical path of your project is no longer feasible. You should also consider selling if key relationships or people you rely on drastically change or leave the picture.

Source: "Trump Strategies for Real Estate"  21 things to learn from Donald Trump Strategies - Bullzbearz 

How to avoid Campa Cola Fiasco? Documents you need to check before buying a house...

Only a fool learns from his own mistakes. The wise man learns from the mistakes of others. In the city of dreams, where space is a crunch, Campa-Cola fiasco should not be allowed to repeat. Just because you are getting to buy an apartment in the most coveted location at a cheaper price, let’s not fall prey to it. It doesn’t cost you much to be prudent and take a well-researched decision to save yourself from investing your lifetime savings to buy your dream home. Some important steps that you need to take to make a well informed decision are:

1. Title Deed: This is the first document that you need to check before buying any property. The title deed is the legal document which authenticates the ownership of the property. Ensure that the document is original one and not a photocopy because owner can take loan against the said property. To go one step beyond, you should also ask for the previous deeds of the land which the seller possesses. Title deed would also include the sale deed and Conveyance deed. To understand these terms in detail, refer to Important Real Estate Terms.
2. Encumbrance certificate: The land that your property is built on should be free from any legal suits. Encumbrance certificate can be obtained from the sub-registrar office where the title of the land has been registered. The certificate ensures that the title of the land is clear from any liabilities or charges on the property.
3. Tax receipts and Bills: You should duly check whether taxes on property have all been made to the government and municipal offices. The owner should have no trouble to show the receipts of recent taxes paid.
4. Intimation of Disapproval (IOD): IOD should be obtained from respective authorities before they can start construction or sell the property. Normally, IOD’s are valid for a certain period of time and if the construction has not started within a year’s time, the same has to be obtained again. Make sure that the builder has obtained IOD before making a purchase.
5. Sales Deed: Buyer should always get a sales certificate from the builder. If the builder has obtained loan against the property it should be duly mentioned in the certificate that payback of loan is sole responsibility of the builder. Sale deed also contains the detailed information of the flat you purchase.
6. Completion Certificate / Occupation Certificate: Builder obtains completion certificate from the local government body once the construction is complete and the building adheres to the set rules and regulations pertaining to the design plans. Occupation certificate is obtained once adequate provisions for water, sewage and electricity has been made.