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Real Estate – A Serious Business for Income Generation

Last weekend, one of my friend invited me for Dinner and during course of informal chat, he informed me that he has aspiration to start his own business….Its not only this gentlemen but there are whole lot of executives who would like to quit their job becoz of uncertain economic environment & are seriously considering to try their luck in entrepreneurial skills. These people are looking for some great project for investment. Though its easy to say but to start own business is also very difficult task & involves very high risk.

I gave a thought for a while and suggested my friend, why don’t you consider much safer option of investing in real estate market becoz currently valuations are also fairly reasonable and from day 1 he can start making money from Purchased home. Secondly he need not to leave his job & Real Estate is productive asset which will only appreciate over a period of time….Though this thought came to me during informal chat but Let me tell u that its a great way to pursue a new line of business and earn some additional income.

Some inputs from my end, if u r not a seasoned player of this field and you are just getting started, there are some important things to keep in mind.

First of all, if you are pursuing this as a business opportunity, it might be a good idea to bring in a partner. This will spread out your financial risk (flip side, it will also reduce your financial reward, but that can always be made up with expansion). Another advantage of business partner is that you can discuss issues with him, he can help you market the property and can also help you to manage the property.

Next, it is very important to take a look at your finances. What exactly are you trying to do with this investment? Are you looking for a place to park some money and hoping to get some return? Or do you want to make a large investment in property, possibly with significant renovations and upgrades & would like to go for a huge return on your investment. This will help you to determine what type of property you should buy or purchase. Normally high end properties yield lower returns compared to mid-segment.

After finalizing your requirement, When you start looking out for potential properties, you may adopt various approaches i.e. either you can contact a realtor and let them know exactly what you are looking for or you can also take help of biggest invention till date i.e. Internet. There are lots of websites available where you can search for property classifieds like Sahipasand and Olx. Going online will throw many options to chose from and you can also compare various properties as per your requirement.

Location is the key element, so always do your research before starting search process. Some key considerations are neighborhood of property, What type of people live in that area area? Will you be able to rent or lease to a tenant that fits into this neighborhood? Always look out for upcoming areas with booming, healthy real estate market. For example urban areas are usually more profitable for investment than semi urban or rural areas with bad infrastructure. Most critical part is to do a proper research on prevailing  rentals in the area & accordingly what is the fair market price for property. If you are not going to make any return on your investment then it might be wise to look elsewhere.

Also evaluate the condition of property and it should not be too old. Secondly, is it plug in play set up i.e. someone can directly move or it repair some repair work. Please take into account all these costs before investing. Buying a cheap neglected property and then fixing it can also be a wise move, but make sure how much money you’ll have to invest extra in order to repair it & convert it into livable set up. It’s also better to take help of any professional in this regard and he can help you to evaluate the cost of the necessary repairs.

While it might seem like a big investment, with the right preparation and research anyone can easily purchase a home and turn it into an income producing property, especially since nowadays with internet on our finger tips, it is possible to find houses for sale online for very reasonable prices & at click of mouse.

Copyright © 2011-2012 Nitin Bhatia. All Rights Reserved.

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11 years ago

Could u pls elaborate how to use the property to earn money? I guess u r pointing towards offering for rent. How to select whom to rent — like individual, corporate, commercial etc… hope u will write a blog on this… thanks

Nitin Bhatia
Nitin Bhatia
11 years ago
Reply to  Biswa

Yes, i am referring to rental income but at the same appreciation in property price ensure long term benefit.

Thanks for input, i will definitely write a blog on topic suggested by u.

10 years ago

Dear Nitin,

Your Blog is one of easiest and simplest blogs to understand on matters of money, that I have come across.

My query is as follows:

I am looking to purchase a flat in Yelankha, Bangalore. The builder has given me the following calculations on statutory expenses:

1. Registration charges – registration charges
will be on government guideline value i.e. 1800/sft , (this is present value
this may increase at the time of registration).

2. Vat – Vat will be on the construction cost +
carpark = total value, 70% consideration on total value X 14.5%= vat amount.

3. S.T – 40% consideration on the total Value X
12.36% = S.T amount.

Needed you to confirm if this is the right charges.

Thanking you


Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  Rejoy

Point 1. There are 2 components for property registration (a) Stamp Duty & (b) Registration Charges. Stamp duty is 6.72% of Guidance Value (in your case it will be 1800 X Super built up area of your flat). Registration charge are 1% of guidance value. You can negotiate stamp duty & registration charges with builder…If he does not agree then calculate stamp duty and registration charges to be borne by you

Point 2 & Point 3: VAT & ST is only paid for under construction property. If it is ready to move in then legally you are not liable to pay any VAT or ST.

There are 3 costs of a property Land Cost (approx 35%), Material Cost (approx 40%) and Labour + Service (approx 25%). Cost break up may change from project to project. Land cost is exempted from both VAT and ST.

VAT is applicable only on Material cost @ 14% and ST is applicable only on Labour cost & services @ 12.36%.

9 years ago

Dear Nitin,

Good Day!
I am selling a flat at Kolkata @25 Lac. In 2000, I bought the property @ 6 Lac. Now as per CII, the price is around 15 Lac. So I have to pay the Capital gain tax on remaining 10 Lac. Am I right?

The Buyer is is going to take loan from SBI, so we can’t sell the flat on Govt Value.
Can you tell me the best ways to save the Capital gain tax (I have already another flat on my name)
Please reply.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Priya

I am assuming you bought property on or after 1st April, 2000. Your indexed cost is 1513300 therefore long term capital gain is 986700 and tax is 197340.

Now to save capital gain, you have not included following
1. Cost of improvement which will add to total indexed cost. It should not be normal repairs but any construction activity like raising walls or construction of top floor etc
2. Expense related to acquisition like Brokerage, registration charges, legal expenses etc at the time of purchase
3. Expense related to transfer of proeprty like Brokerage, registration charges, legal expenses etc at the time of sale

After including all such cost we will arrive at net capital gain and then will decide how to save it.

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