5 Basic Tips For Investing In Real Estate

There's so much to learn for a beginner looking to invest in real estate. Investing in real estate is more complicated than even stocks due to its financial, legal, and extensive need for due diligence. Hence, it’s a good idea to educate yourself about the industry before you park your money in a property, be it in Dubai or other parts of the UAE.

To help you set yourself on track to making your first investment, we’ve compiled five essential tips that will help you the most when it comes to investing in the real estate industry of UAE.

1. Location reigns supreme

Location is a factor that can add or subtract the price of a property significantly. Before making a deposit for a property, it is necessary to ensure that it's in a good location.

What makes a location good? 

A location can only be deemed as good when it performs well on all the necessary parameters, such as:

1. Low Crime Rate: UAE, according to Numbeo, has one of the lowest crime rates in the world. Wherein Dubai is the safest place for travellers. A safe neighbourhood ensures that you experience a life free from worries. Make sure that whichever property you invest in should have a statistically low crime rate and a good police response time. Downtown Dubai is touted as one of the safest areas in the emirates.
2. Good Social Infrastructure: The area should have great schools, parks, and leisure destinations and easy access to medical care. 
3. Connectivity: The residential property for sale in Dubai in which you plan to invest should have maximum connectivity to the rest of the city. Public transport like taxis, trains, and buses should be readily available, and having the airport close by will surely help.

Remember, the location sells first, then comes the real estate brand, and lastly, the condition and amenities offered with the property. Thus before investing, ensure that the area meets all the parameters mentioned above.

2. Buy Low

Investing in real estate is comparable to investing in a dividend-paying stock. With a stock, the motive is to buy as low as possible to have a significantly high return on investment. This logic applies to real estate as well. 

When it comes to real estate, the property is cheapest when it’s under development, and such properties, when marketed to potential buyers, are called ‘off-plan properties.’ The price point at which property developers in Dubai offer their off-plan projects to consumers will always be the lowest in the project's entire life cycle. So, in order to enjoy maximum ROI, invest in under-development properties from the top developers in Dubai. 

But trouble comes when people confuse low with cheap. Mind you; there’s no such thing as cheap when it comes to real estate; you’ll pay for what you get. If a project is cheaper than the competition, it probably has lesser offerings, poorer quality, and is not in any of the investor’s preferred locations. Hence, never confuse buying low with buying cheap.

3. Understand your costs upfront:

For newbies venturing into the foray of real estate, understanding finances might be the most complex challenge. When it comes to investing in UAE, the cost of the property is the first thing you should pay heed to.

Then comes Commissions, although this cost can be avoided if you do your due diligence and pick a pick from the renowned property developers in UAE. But people who will utilise a real estate agent's help will have to shell out 2% of the purchase price plus an additional 5% VAT.

Finally, the Government Fees, depending upon the emirate or city you are investing in, will change in Dubai; Dubai Land Department charges 4% of the purchase price + AED 580 admin fee for apartments and offices or AED 430 for land or AED 40 for off-plan.

Mind you, apart from the agent's commission, all the other costs are inevitable, so consider these costs before finalising a property.

4. Choose Best-in-Class, Not the “Best”

A common mistake new investors make is buying one of the premium lots on offer in an area, or they’d take an apartment in a working-class area and turn it into a luxury place to sell later. These approaches should be avoided as they are a sure-shot way of losing money. A luxury home in a working-class area will never fetch its actual price in the market; similarly, renovating a house near its saturating market value will be equivalent to burning that money.

Fix, and Flip is the best way to go. Ideally, you should invest in the worst house on the best street. This way, you have the opportunity to build equity over time. It’s a property in a great neighbourhood (“the best street”) that needs some work (“the worst house”). You can later invest money to fix it up and sell it to someone else who is looking for a ready-to-move-in house in an outstanding location. This process is called “fixing and flipping”.

5. The “1% Rule”

This is a rule that applies universally to all investors who are looking to generate a rental yield from their real estate investment. The “1% Rule” helps you calculate whether the property is worth what you pay for it or not.

The rule simply states that any income-producing property must produce 1% of the price paid for it every month. For example, if you bought a property worth AED 4 million, the resultant monthly rental income generated from it should be 4,000,000 x 1%= AED 40,000.

This is an old rule used by real estate investors, but it still holds true to the climate of the present-day market.

6. Bonus tip: Invest in renowned real estate property developers in Dubai like Shapoorji Pallonji Dubai.

Investing in a brand name saves you from paying agent commissions and worries about construction quality and location. We at Shapoorji Pallonji Dubai have crafted the perfect investment opportunity for investors in the form of Imperial Avenue Downtown Dubai. Our luxury off-plan project is located in the heart of Downtown Dubai overlooking the magnificent Burj Khalifa. From its location to its amenities, the project adds extravagance and luxury to the city's already alluring residential real estate landscape.

Conclusion

Real estate investing is synonymous with great returns. However, people go bankrupt due to a lack of judgement and knowledge. Be sure to follow these rules to ensure that your journey in real estate investment is smooth and fruitful.

FAQ

Q-1: What should I keep in mind when investing in real estate?

Answer: Invest in a valuable location, buy property for growth, learn about the tax laws beforehand, and understand the rules and regulations governing the real estate industry. If you follow these points you will end up making a good investment.

Q2: What type of real estate investing is most profitable?

Ans: Investing in an off-plan property is the most beneficial in the long term as the project reaches completion the cost of the apartments will rise exponentially. 

Q3: What are the advantages of real estate investing?

Ans: There are countless benefits of investing in real estate such as: Great return on investment, safer than stocks and dividend bonds, and can help with short-term income via rentals also.