Greetings! For nine months of 2017, investments in Russian real estate increased by 40% and reached $1.74 billion. On the other hand, over the past four years, the popularity of investments in the residential segment has fallen three times (according to CIAN analysts).
What conclusion can be drawn? In Russia, the demand for investment in residential real estate is clearly decreasing and the demand for commercial real estate is growing.
Therefore, today we will talk about investing in commercial real estate: options, pros/cons, risks and pitfalls.
Commercial real estate is any non-residential property that generates income for the owner (warehouse, office, hairdresser, hotel, gym, business center, supermarket).
Let me tell you about the most common options in more detail.
Trading platforms
In Russia, this is one of the most profitable types of real estate. Shops and shopping centers in areas with high pedestrian traffic generate profits of thousands of rubles per square meter for the owner.
How it works? You find a plot of land, build a shopping center there and rent out the sites. You don’t even have to “bother” with landscaping the property. Bare walls with connected communications are for rent. Repairs, furniture and appliances are the problem of the tenant, not the owner.
Experts consider street retail to be the most interesting area of commercial real estate in Moscow. Previously, apartments on the first floors were converted for such objects. Today, the average rental yield for street retail is 11–12%. A good store closer to the Moscow Ring Road pays for itself in 9–10 years.
By the way, according to the results of the first half of 2017, $690 million was invested in retail space - the maximum figure over the past five years.
Office sites
They are inferior to retail real estate in terms of profitability, but also bring considerable profit to the owners. Much greater than the profit from renting residential property in the same area.
Once upon a time, office real estate was considered the most profitable investment. And today the average profitability in the office segment is 0.5–1% lower than in the retail segment. Demand is growing only for small office space (100-200 m²) and new formats (for example, coworking).
Over the past five years, the introduction of new business properties to the market has been minimal. Which gives hope for an increase in rental rates in the next year or two. So there are prospects in the office real estate segment, but the risks are still high.
Industrial facilities
First of all, this group includes warehouses, as well as industrial facilities. In Russia, industrial real estate is not in great demand among investors. Competition in the market is high, there is no shortage of available properties yet, and long-term rental agreements are rarely concluded.
The exception is warehouses. They are readily rented by online stores and large retail chains. The most in demand today are large warehouse complexes with an area of 100,000 m² or more.
Commercial real estate investment options
Investments in construction
From the moment construction begins (the first stage of all stages of construction) until the facility is put into operation, the price of real estate increases by 40-70%. But such investments are accompanied by high risks.
- Firstly, the developer may turn out to be a banal fraudster or an honest bankrupt.
- Secondly, construction sometimes extends indefinitely. For example, due to a sharp rise in prices for building materials.
- Thirdly, it is not so easy to find on finished object buyers or tenants. Until the sale (or during periods of inactivity), the premises will generate losses.
And of course, investment in construction requires serious capital. Moreover, investments in commercial real estate.
Participation in a crowdfunding project
Crowdinvesting is joint or “people’s” financing. Collective investments provide an opportunity to participate in large-scale projects. Including the purchase of real estate. Online crowdinvesting platforms select promising projects, make their initial assessment and attract everyone to finance them.
There are several large platforms in Russia: StartTrack, VentureClub.co, City of Money, Potok and, of course, AKTIVO. The AKTIVO project offers new opportunities for passive income from renting out real estate through an online service.
How it works? The Aktivo team searches for and audits properties for sale. The project is focused on real estate with a yield of 13% (this is about 2% of all commercial offers on the market). Aktivo most often selects street retail for investment.
Invest money in " square meters“Any adult Russian with a passport can. Minimum size investment on Aktivo is 100,000 rubles.
For investments, mono-funds are created in the form of a closed mutual fund. The premises for which funds are collected are added to the balance sheet of the monofund. In other words, the fund's shares are secured in advance by the asset!
Every month the platform offers investors new object, divided into shares of 1000 rubles (face value). The client clicks the “invest” button and after three days his shares are credited to his personal account. All Aktivo objects are insured by Sberbank Insurance.
As soon as all shares are purchased, shareholders begin to receive income from renting out the property.
In 2016, more than 200 people became investors in the Aktivo platform. Over the course of a year, they invested 500 million rubles in commercial real estate. Two objects were exhibited on the site:
- Supermarket "Victoria" in Dolgoprudny (yield 12.1% per annum).
- Supermarket "Pyaterochka" in Lyubertsy (yield 11.2% per annum).
Share in a real estate mutual fund
In Russia, investments in real estate through shares are available only in closed mutual funds(closed mutual fund). In essence, this is an ordinary mutual fund, but the shareholders’ money is invested in real estate.
Why is the fund “closed”? Because you can enter it only at the beginning, and exit (present shares to the management company for redemption) - after completion. Classic buy and hold investments. By the way, it was at the expense of closed mutual fund funds that the Atrium shopping center was built.
Due to the fact that closed-end mutual funds are created for specific projects (something like private club“for our own”), they are characterized by low liquidity.
Let's look at the structure of closed-end mutual fund using the example of the Commercial Real Estate Fund from Sberbank Asset Management.
The fund is aimed at long-term investors (the recommended investment period is five years). The purpose of the fund: the purchase of real estate and rights to it in order to receive profit in the future from rental or resale at a higher price.
The fund invests in share building for residential projects, commercial real estate and land in Moscow and Moscow Region, Kazan and Novosibirsk. Every six months investment income distributed among shareholders.
Unfortunately, the Commercial Real Estate Fund does not show any growth. So far, the fund's shareholders are only suffering financial losses. Since the beginning of the year, the share price has fallen by 10.61%, and over three years - by 30.56%. Today, one share of Sberovsk closed-end mutual fund is valued at almost 180 rubles.
Apart-hotel room
Apart-hotels allow you to make money by renting out apartments.
For the owner of such a number, there are two ways to earn money:
- Active investments: renting out the property (daily or monthly);
- Passive investments: enter into an agreement with management company and receive a percentage of the profits.
Advantages of investing in apart-hotels:
- Lower purchase price compared to other residential properties (10-20%).
- The property can be purchased at a good discount at the construction stage (up to 30% of the property price).
- A room in an apart-hotel brings regular income without significant investment of time and effort.
The management company guarantees the investor an income that does not depend on the density of the client flow or the season. The return on investment is usually comparable to interest on a bank deposit. But unlike a deposit, you have a physical asset in your hands.
In Russia, the trend of apart-hotels is just emerging. So far, several facilities have been built in Moscow and St. Petersburg. But the segment is promising and growing at a good pace.
Investments in foreign real estate
Over the 10 months of 2017, the number of requests for the purchase of foreign real estate for investment purposes has doubled (compared to the same period last year). However, this is still 45% below pre-crisis levels.
In 2016, the TOP 10 countries popular with Russian-speaking investors looked like this: Bulgaria, Italy, Spain, Germany, USA, Greece, Montenegro, Turkey, Czech Republic and France. Approximately 40% of applications concerned commercial real estate.
However, the list of countries with high property yields looks completely different: New Zealand(15.1%), Latvia (11.5%), Canada (11%), Israel (9.3%), Hungary and Austria (8.5%), Sweden (7.9%), Turkey (7 .3%), Great Britain (7%) and Bulgaria (6.7%).
How to choose a foreign object for investment?
Step 1. Decide on the purpose of the investment:
- To preserve capital for long term Stable markets where prices practically do not change are suitable (Berlin, Paris, Vienna, London, Oslo, Copenhagen, Stockholm, Budapest). The profitability of such investments is 4–6% per annum.
- To increase your savings, you need to choose markets with good growth potential and affordable prices.
To select objects, it is worth studying independent analytical reviews (for example, Colliers International or Knight Frank). The main thing is not to run into another “bubble”.
The return on such investments can reach 9% per annum.
Step 2. Assess the attractiveness of the investment.
Today is the most profitable investment in European “square meters” is the purchase of a property at the construction stage. It's better to buy either new property, or the object is not older than 10 years. In this case, it is usually at the disposal of the developers, not the agents.
Before the transaction, the investor will have to study both the volume of tourist flow in the country and Current state infrastructure, and the demand for the object, and the price in rubles per 1 m².
Step 3. Don't forget about additional expenses.
When buying overseas property, be prepared for additional expenses: one-time and regular (services of a lawyer, notary and realtor, financial intermediation, stamp duty, facility repairs, taxes, insurance, management company costs).
Average one-time costs are approximately 7% of the cost of the property, regular costs: 1–1.5% without a mortgage.
A few words about residential real estate
Apartment in a new building
In 2008, you could buy an apartment in a new building and resell it after a couple of months with a yield of 40%. Today it is extremely difficult to make money on resale of “primary” goods.
Buying an apartment is not a problem - it is much more difficult to find a buyer who is ready to buy it “with a markup”. Several years may pass between the time of purchase and sale. And all this time, the owner of the object bears the costs of maintaining the object. In rare cases, the profitability of transactions reaches 20%.
It is very unlikely that housing prices in Russia will rise in the foreseeable future. This also applies to Moscow, given the grandiose plans of the Moscow mayor’s office to introduce a gigantic volume of new housing onto the market as part of renovation.
Apartment for rent
In 2017, experts do not recommend buying residential real estate for rent. Serious purchase and maintenance costs residential apartments“drop” rental yield below interest on deposits. The level of income from long-term rental in Russia is approaching the European level: 4-6% per annum. And in terms of time costs, renting out premises is more reminiscent of your own business than passive investment.
Therefore, to the question “take out a loan or save,” I usually answer: “only without a mortgage.” The time when earnings on housing covered mortgage rates is already behind us.
Risks and pitfalls
Investments in commercial real estate in Russia are affected by three groups of risks:
- Political;
- Economic;
- Legal.
IN last years Russian geopolitics is, to put it mildly, inconsistent. We are sharply and unexpectedly changing both development priorities and allies. Such “throwing” makes Russia dangerous from the point of view of international security. Not to mention the notorious sanctions and counter-sanctions.
Businesses related to tourism, trade and public events primarily suffer from the “everything is complicated” status. Including hotel ones.
The economic situation in Russia is also, unfortunately, not cloudless. And it is unlikely that anything will change radically in the coming years. After all, the crisis of 2014 (unlike 2008) was caused not by external, but by internal factors. The model, focused on the export of raw materials, turned out to be dangerously vulnerable.
Well and legal risks in Russia have always been high. Every year the government seeks new sources of budget funding. And this, as a rule, hits private business hard. For example, from January 1, 2017, the cadastral valuation of real estate came completely under the control of the state. Which enriched officials and created a lot of problems for businessmen who owned real estate.
Pros of investing in real estate
- Compared to investments in residential real estate, the payback period is lower and the profitability is higher.
- At the stage of economic recovery in the country, the demand for commercial real estate is always growing.
- Can really bring passive income for many years if the object is placed under management.
- If you invest in timely repairs and maintenance of the building, the value of the property will only increase over the years.
- Banks are willing to provide loans on adequate terms and conditions using commercial real estate as collateral.
- In case of collapse stock market, prices for commercial real estate will not fall immediately, but “with a delay.”
Cons of investing in real estate
- Large start-up capital is required. Much larger than residential real estate.
- Low liquidity of investments. You won't be able to sell a warehouse or store quickly.
- It is difficult to predict how prices for objects and size will change rent.
- Commercial real estate reacts more strongly to negative phenomena in the economy (falling consumer demand, devaluation of the national currency, local crises).
Conclusion
At all times, real estate great option for investment. Over the years, only trends and directions change, and new formats for investors appear. In 2017, retail real estate, apart-hotels are in demand in countries such as New Zealand, Latvia and Canada.
Investments in construction and mutual funds are low-yielding today. But participation in crowdinvesting projects is more popular than ever.
Why is investing in commercial real estate so popular? The thing is that such premises are intended for conducting business, trade or various entertainment in a big city, therefore the investor can regularly receive a profit from renting out the area in which he has invested his money.
Such deposits bring profit not only very quickly, but also regularly. That's why investors with free financial resources often target the construction of entertainment complexes or shopping centers.
How to invest in commercial real estate?
So where should you start? First you need to choose an object with a good location. If you are looking at a residential premises, make sure that it is in a place with developed infrastructure, if an office - with a large parking lot and a metro station nearby, production facility– with railway track.
Compare prices for similar properties. Modern market real estate provides a large number of various buildings, both at a price that exceeds the real cost several times, and at a fairly low price due to the current crisis circumstances. Before investing your money, monitor and study market offers.
Also do a demand analysis: in most cases, small-sized premises, rooms on the first floors of multi-storey residential buildings, small studios, boutiques and offices are chosen for rent.
- Review multiple options to reduce risk;
- payback, for this it is necessary to agree with potential tenants, and also calculate all the terms, adding up to 30% of total amount investments for all kinds of expenses;
- checking what repairs will need to be done and how much they will cost you;
- compliance with all rules legal registration documentation. Check the availability of documents from local government authorities, as well as the correctness of filling out all forms and forms.
The commercial real estate market requires a lot of understanding, because if you are wondering what the contribution amount should be, there is no clear answer. From any transaction you can earn up to 40% of the amount you invested, but how much do you need to invest?
In general, to invest you do not need to have entity. The demand for objects of this kind is quite high, and according to experts, the amount is as follows: on average, the minimum financial investments equal to $150,000, since the cost non-residential premises equal to $3,000-4,000 per 1 m?. Then the profitability for the first year can increase to 15%.
If you have an amount of $100,000, you can invest in commercial real estate under a partnership scheme, which we are just beginning to adopt from Western analogues.
In the territory Russian Federation investments can be very different, depending on the city and the purpose of the object. For example, the minimum deposit amount that can be invested is $5,000.
Yes, for such a low amount you will not be able to purchase an object, so all funds are in in this case are combined into a pool. The entire amount is invested, and then the income from the operation of the premises is divided into parts, depending on how much you personally invested.
Moscow. In terms of the size of investments in commercial real estate, Moscow remains the undisputed leader. Today the capital attracts about 80% of all investments in the construction market. Since the beginning of the year, this amount has already reached 4.33 billion dollars.
In the city, the minimum amount will depend on the type and purpose of the property in which you are going to invest money. Minimum price for 1m? is about $5,000. But this is the minimum mark. Moreover, finding such an offer is very difficult. To do this you will need a lot of effort, time and connections.
If you can afford to invest about $1,000,000 – $1,500,000, invest in office real estate. This is enough for the construction of premises in well-known business centers. In the capital market, there are known cases of purchasing small blocks for only $1,000,000.
Saint Petersburg. The former capital today ranks second in terms of the volume of investments in commercial real estate. During the previous quarter of this year, about $50,000,000 was invested in construction.
The most popular objects are retail premises on the first lines, i.e. streets characterized by heavy vehicle and pedestrian traffic.
The investment amount can reach from 300,000 to 400,000 rubles per 1 m2, if the object is well located. These are the so-called more liquid objects, but the less liquid ones (those on the second line) are characterized by lower prices. Today they range from 120,000 to 100,000 rubles per 1 m².
Nizhny Novgorod. Small investments in the market Nizhny Novgorod reach 3-7 million rubles. For such a large amount, you can invest from 20 to 70 m2 in retail space, depending on its location. Such premises are rented out and bring excellent income every year.
The average market indicator is from 12 to 20 million rubles. And today these are office premises and large-sized stores (from 70 to 250 m?). If you invest in an object that is located on the first line, then this amount can only be spent on a small room of 50-80 m2.
Ekaterinburg. Today, it is this city that businessmen look at as a location with very favorable investment climate. Minimum investment amount per 1 m2? here they reach 67,000 - 84,000 rubles.
How much can you earn?
If you are wondering when the entire project will pay off, then you need to know that the correct calculation of the entire period directly depends on the size of the investment, as well as on many other factors.
For example, if the rent amount is per 1 m2? per year is about $400, and you predict that everything will pay off in 3 years, then you should take into account even the most unfavorable options.
For example, during this time you can change several tenants. On average, you will spend up to two months searching for them, calculate the amount of advertising costs, etc. Therefore, for everything to pay off in three years, the rental amount must reach the exorbitant $1,200 per 1 m2.
If we assume that you will start receiving income in the same year when you invested your money, then in the Moscow region the picture will look something like this: income from 1 m? premises will be 24,000 rubles per year. This means that the return on investment will be 20% per year without taking into account the cost of the premises.
Should you be concerned about the risks?
Yes, it is worth it, because any investment project is closely related to various risk factors. In the construction market, the main ones are:
- Financial losses resulting from ineffective project management;
- financial losses resulting from unprofessional project design;
- financial losses during the purchase and sale process due to fraudulent schemes;
- acquisition of an illiquid object;
- acquisition of a low-liquidity asset;
- deterioration in the liquidity of an object due to the emergence of competing objects, physical destruction or obsolescence;
- loss of property rights due to incorrect execution of all documentation;
- the presence of defects in the object (in most cases the defects are hidden);
- capital intensity investment project;
- decrease in demand in the construction market;
- reduction in offer price;
- rental rate reduction;
- increase in supply;
- long payback period of the project;
- destruction/damage to an object due to earthquakes, hurricanes, fires, floods and other natural disasters.
There is one unspoken rule in the real estate market today: the higher the risk, the higher the profit. Or vice versa.
It is for this reason that so-called passive investments are rightfully considered the least profitable. These include the purchase of objects for subsequent rental. At this time, the most risky were and remain the so-called real estate development projects.
If you are a potential investor, be prepared for the fact that along with the direction of your business, in any case, you will receive a set of risks in addition.
Is it profitable to invest in business real estate in 2016? What are the features of investing in real estate abroad? How to invest in real estate with low capital?
Hello to everyone who visited the website of the HeatherBober business magazine! Denis Kuderin, investment specialist, is with you.
We continue the many-sided topic of profitable financial investments. An issue that will be examined from all sides in the new publication is investing in real estate.
The material will be useful to both novice investors and those who already have experience in long-term investing.
So, let's begin!
1. Is it worth investing in real estate - pros and cons
Questions profitable investments are of interest to every reasonable person. How can we prevent inflation from eating up our savings? How to make capital work and bring constant dividends?
The answer is simple - you need to invest finances in long-term and promising investment instruments. One of these instruments is real estate.
Everyone needs a roof over their head. As long as human civilization exists, its representatives will need housing. Therefore, apartments and houses will always be a reliable option for investment.
Investments in real estate are a full-fledged type of business. To invest in housing, it is not even necessary to have large capital, since you can invest at the construction stage or, say, purchase a share in a housing cooperative.
The advantages of investing in real estate include:
- high liquidity of objects;
- profitability in the long term (by renting out housing, you can earn money on this for years and decades);
- relative availability of deposits;
- a large selection of investment areas (residential and commercial real estate, buildings at the foundation pit and “ground floor” stage, country cottages, luxury housing).
Like any others financial operations, the type of investment we are considering is subject to certain risks.
Disadvantages of investing in housing:
- dependence of demand for objects on the general economic situation in the country and in a particular region;
- high cost of real estate;
- low demand for housing in small towns;
- related expenses - taxes, payment utilities, finishing and repair.
There are other nuances: prices for specific apartments often change due to unpredictable factors.
Example
You bought a home in a relatively prestigious area for the purpose of subsequent resale, and a few years later a factory (meat processing plant, plant) was built near the house or a busy highway was laid. The value of such an object inevitably decreases, and investors lose part of their savings.
When choosing options for investing in real estate, you should do some preliminary work and find out all the related factors and circumstances.
2. Where is it profitable to invest - TOP 5 popular options
Experts believe that investing in real estate carries much less risk than working with shares on the stock exchange, startups or business investments. Residential and commercial properties rarely fall in price, unless, of course, they are in disrepair.
Investments of this type are especially profitable in major cities. There is a direct relationship here - the larger the city, the more profitable it is to purchase housing in it. The liquidity of properties in Moscow is an order of magnitude higher than, say, in Barabinsk.
However, every locality has its own options. In order for your financial transactions to bring you profit, you need to choose the most profitable direction for investment.
3. How to invest in real estate - 5 main steps
Investing in real estate needs to be done consistently and carefully, this reduces risks and increases profits. Investing “according to science” is like driving on a smooth highway – minimum danger, maximum comfort.
Stage 1. Determining your financial capabilities
First, you need to decide what assets you have. The type of subsequent investment depends on this. I think there is no need to remind you that you can only invest “free” assets that are not intended to pay for your own housing and other vital things.
With small capital, only such options as purchasing land or buying housing at the construction stage are available. But don’t forget that there is always the opportunity to increase your assets with the help of loans or attracting co-investors.
Stage 2. We study offers on the real estate market
Analysis of market offers is the most important stage of investing, on which the size of your dividends depends.
The more time you spend studying the current situation, the more profitable your purchase will be. The winners are investors who understand all the trends and nuances of the market in detail.
Stage 3. Selecting a property
Some investors prefer to work with luxury housing and all kinds of exclusive properties (penthouses, apartments with terraces). The cost of such living space is traditionally higher, but the liquidity is corresponding, especially in large cities.
Among the objects at the construction stage, it is worth choosing those that are being built in one stage. The cost of housing in a house under construction increases as new floors appear. Therefore, it makes more sense to invest in such projects as early as possible.
The secondary market is less interesting in terms of profitability, but such apartments can be purchased with minimal assets.
Stage 4. We purchase real estate
When buying a home, the main thing is to complete the necessary documents correctly and at minimal cost.
If you have zero experience in purchasing real estate, you should hire a lawyer to help you complete the transaction. Don't forget about tax nuances: These are also worth studying in advance.
Stage 5. We resell or rent out real estate
The purpose of the acquisition matters. The payback period for resale of new buildings is 2-3 years. But remember that you have to pay income tax, if you want to sell the property within 3 years after purchase.
Renting means “long” money: on average, housing pays off in 7-10 years, but the level of reliability is higher. At the same time, an apartment rented out for temporary use will still remain yours even after 10 years.
If everything goes well, you can save 40% of the cost of the apartment, which will then come back to you in the form of profit from the subsequent sale of the property.
The purchase at the construction stage has already been mentioned. Purchasing an “unfinished” property is profitable and cost-effective, but risky. Construction is not always completed as planned. It even happens that it never downloads at all.
In every big city, from time to time, committees of “defrauded investors” appear - people who invested in real estate and were left with nothing. Suing a development company is not the most enviable prospect.
Another way to save money is to buy an apartment without renovation, do it at your own expense and sell the property at a price that covers your costs. Depending on the quality of consumables and level of finishing, the difference in cost can be 10-20%.
Advanced investors know even more radical ways to save. For example, they buy confiscated property, which is sold at free auction.
Real estate that is put up for auction during the bankruptcy of individuals and companies is often sold at a reduced price, since the appraisal of such properties is not always carried out by professionals.
Banks periodically put up for sale collateralized real estate that they have seized from mortgage defaulters or creditors who took out a loan for their apartments and did not return it. You can also find profitable options here.
There are special websites where fresh lots with mortgaged and confiscated apartments are published for sale. Information is also available in the Unified Register of the Russian Federation on bankruptcy of legal entities.
5. How to invest in real estate with low capital?
A small amount of initial capital is not a hindrance for a thinking and enterprising person. There are ways to get by with minimal investments or raise additional funds for your project.
1) Apply for a loan or borrow from friends
The most obvious option is to take targeted loan for the purchase of housing. Some financial companies willingly subsidize novice investors.
True, any loan requires payment of interest, so any operations related to attracting third-party funds require careful calculation. The income from the enterprise must cover the debts; In addition, the terms of the loan should be taken into account.
It's better to contact large bank with an impeccable reputation - , .
You can borrow money from rich friends and relatives, if you have any, without interest.
2) Become a co-investor
A good way for investors with small savings is to search for and attract co-investors. If your project is truly promising and thoughtful, finding partners will not be difficult.
3) Choose a competent investment strategy
A competent plan is the key to success. If you feel an acute lack of your own knowledge in matters of effective investing, contact professionals.
I recommend the project "Territory of Investment". The organization is an Investors Club that conducts courses and training seminars for those interested in private investments. Special attention focused on real estate investing.
The lessons are taught by professional investors and businessmen. Thematic areas - investment strategies, quick start with minimal investment, investments in residential and commercial real estate, hostels, rent and sublease.
6. How to increase your profit when investing in real estate - practical tips and tricks
Some tips to increase profits.
Redevelopment is the most affordable way improve the functional performance of housing without increasing its area. Competent redevelopment will help sell an apartment or house for 10-25% more than the original cost.
Advice - do not forget to obtain permission for alterations from the relevant authorities (architectural department of the district administration and the BTI). Some types of redevelopment are clearly prohibited by law - for example, demolition of load-bearing walls or enlarging the kitchen at the expense of the living space by more than 25%.
Tip 2. We are adding additional premises
The addition of additional premises is possible only in private houses and cottages. It is also allowed to add floors, convert an attic into an attic, install balconies and other architectural excesses.
Tip 3. We do high-quality repairs
A good renovation increases the price of an apartment by 10 or even 20%. The difference will be even more noticeable if you do the repairs yourself.
You shouldn’t skimp too much on the quality of consumables - buyers are not fools either and can easily distinguish cheap Chinese wallpaper from high-quality European products.
Tip 4. We transform residential premises into non-residential premises and vice versa
Depending on which properties in a particular area or city are in high demand, the premises can be converted from residential to commercial and vice versa.
Construction of offices and retail premises from residential apartments – profitable business in large cities. Particularly promising in this regard residential buildings located on crowded streets and business districts.
7. We invest in real estate together with professionals
Professional support costs money, but in the end it can increase your profits by an order of magnitude. If you want to reduce risks and increase profitability, work with experts in the field of real estate investments.
Activo– access to the most liquid real estate. A secure and autonomous form of collective ownership. Investments with a guaranteed profit ratio of 11.6% for investments from 2 million rubles.
Investments in commercial real estate are far ahead in terms of profitability traditional ways investments of private savings, such as bank deposits and even more so - buying an investment apartment. If you choose the right object, its profitability will be 10–17% per annum. However, buying a building or premises that will generate income rather than losses is not an easy task. Dmitry Mikhailov, development director of the crowdfunding platform for real estate investment Aktivo, talks about what a buyer of commercial real estate should pay attention to.
1. Location of the object
Anyone involved in commercial real estate knows the “three L” rule, which states that the main thing when choosing a property is location, location and location again. Moreover, each commercial facility, in terms of location, must have unique characteristics that depend on the type of business it is engaged in. So, for public catering it is desirable to have an office center or educational institution, for a grocery store - an array of residential buildings, good street traffic, visibility from different points, ease of access and parking, as well as the presence of effective demand from local population. There are also contraindications: for example, premises for selling alcohol should under no circumstances be located next to schools or kindergartens.
At the same time, the opinion that a profitable commercial real estate property must be located, or, at worst, in St. Petersburg, is largely outdated. You can now find a quality building or premises in almost any Russian region. Rental rates will be lower, but so will the price of the property. Average term The payback period for commercial real estate in Russia is now approximately 10 years.
However, there is one interesting pattern: if a region or city is considered economically backward, the purchase and sale transaction quite often turns into a real theater. For many owners of commercial real estate here, the objects themselves are literally the meaning of life. Transactions can take a very long time with constant meetings and discussions, the seller can suddenly change the terms of the contract and react emotionally to any objections.
Photo: zuiko12
2. Tenants of the property
As I already said, the location of the object should be selected taking into account who exactly will rent the object. When inspecting a particular building that is offered, you need to have a clear idea of who exactly will be able to rent it. Essentially, choosing a prospective tenant is task number one. For example, we prefer to work with the largest federal food retailers. Their business, in our opinion, is the most stable. Even in times of economic turbulence, when people refuse to buy a new pair of jeans or a smartphone, they never forget about food.
It all depends on your budget. If it is seriously limited, then you will have to be content with small premises in which something like a small retail market will be located (there are many tenants, they change often, their incomes are unstable, etc.).
3. Transaction amount
5. Document verification
When purchasing commercial real estate, support is always necessary. There are scammers in this market too. When it comes to selling real estate, owners often behave in the same way as when selling a business. They rarely offer anything good that actually generates income. Quite often, they plan to sell off the business or profitable premises with which there are problems. For example, the tenant had an alcohol license, but it could be taken away due to the premises not meeting licensing standards. On the Moscow market there are also premises in respect of which legal proceedings are ongoing. The lawyer must check the status of permits, title documents, and the presence of encumbrances on the property. There are many problematic buildings and premises on the market. This especially applies to inexpensive objects.
Since the beginning of 2014 There has been a significant increase in private investment in real estate. Political and economic situation in Russia forced citizens who wanted to at least save their savings to transfer them from bank deposits to apartments on the primary housing market and retail premises (street retail). Everything returns to normal.
Photo: Depositphotos/Deklofenak
It seems that the old rule of the Russian non-professional investor has worked: “In any unclear situation, invest money in real estate.” As Alexander Engel, head of the new buildings department of the MIC Group of Companies, says: “For most of our citizens, investing money in square meters is more understandable and less risky compared to the market valuable papers, bank deposits and the market precious metals"And the guideline, as noted by Vladimir Bogdanyuk, head of the analytical and consulting center Est-a-Tet, is previous crises: real estate prices then quickly recovered, and their growth continued at least within the limits of inflation. Therefore, the share of investment apartments in housing construction projects is primary market has grown. According to the head think tank company "OPIN" Denis Bobkov, the share of investment purchases in the spring amounted to a record 30% against the traditional 10%.
But to be a successful investor, you need to know the rules of the market game. In addition, when sitting down at a card table, it’s a good idea to have more chips. The higher the cost of admission to the private investor club (investment volume), the more options available. And the effectiveness of investments depends on this.
Private Investors Club
Detailed socio-demographic characteristics of private investors are not that important. In short, these are citizens investing in real estate from 2 million to 50 million rubles. “These are wealthy people who have housing and available funds and who invest money in real estate with the expectation of making money on resale or receiving a stable rental income. Most often, they have the entire amount necessary for the purchase, and less often they get the missing funds through a mortgage,” - Denis Bobkov paints a portrait of a private investor. And there are 80% of such investors among investors operating in the real estate market.
The most understandable and accessible for them is the mass housing market. “The cost per square meter here is not as high as, for example, in the segment of commercial real estate or luxury and business-class residential properties. At the same time, there is always a demand for such goods,” says Alexander Engel.
If we talk about commercial real estate, the street retail segment has been the leader in private investment for several years now. They are also investing in small office blocks. Since commercial real estate prices have been rising at the rate of inflation in recent years, investors are presumably counting on rental income rather than speculative sales. According to estimates by Denis Sokolov, head of research at Cushman & Wakefield, in the first half of the year the purchase of small offices or blocks in office buildings 10-15% of all investments from private investors went to Moscow, the rest went to street retail.
Investment leader
After the crisis of 2008 and high-profile stories with defrauded shareholders, players in the real estate market were wary of buying an apartment during the construction stage. But now most investors are grazing on the market of new buildings. “Serious work has been done at the legislative level,” explains Alexander Engel. “Today, most developers work within the framework of Federal Law-214, which maximally protects the interests of shareholders.” The main increase in the value of real estate in the primary market is due to an increase in the stage of construction readiness of the facility; overall market growth, as a rule, does not exceed the inflation rate.
There is the highest demand for new economy and comfort class buildings in the old borders of Moscow, and the fastest turnover of money is also here. According to general director Maria Litinetskaya's Metrium Group, an investor purchasing such apartments, can count on the standard profitability for new buildings in the capital: over the entire construction period (about 1.5-2 years), the cost per square meter increases by an average of 30%.
"Most profitable proposition presented at the initial stage of construction, when the project sets minimum prices. High risks purchases at the initial stage of construction are repaid with maximum profitability, which in some cases can reach 50%,” notes Vladimir Bogdanyuk.
According to him, most investors in the primary market sell their properties before receiving ownership rights, when the price has exhausted all opportunities for growth and the project will soon be handed over to the state commission in order to avoid additional costs for paying taxes.
Experts note interest in a new, but already proven successful format of apartments in Moscow. On average, prices per square meters in apartments are 15-20% lower than in apartments, so prices rise significantly as construction progresses.
It must be said that renting out an apartment is an unprofitable business model for a private investor. According to the Miel company, the average profitability of an apartment in a new building of economy and comfort class under the rental scheme today is 4-7% per annum with an average payback period of 18-22 years. The profitability of apartments is higher: 9-12% with a payback period of 11-13 years. But this formula does not take into account possible downtime of housing and utility bills. The profitability of housing can be increased if you register an individual business and switch to a simplified taxation system (income tax for individuals when renting out an apartment is 13%, and for individual entrepreneurs - 6%).
And others
In 2013 A new niche has formed in the market: private investors with amounts ranging from 1 million to 10 million dollars began to purchase Moscow offices in blocks. Before this, the traditional area of investment in commercial real estate for private individuals was retail outlets. This has nothing to do with the current political turbulence, just a way of putting eggs in different baskets.
According to the general director of the company "Miel - Commercial Real Estate" Alexander Bolotov, the most attractive prospects for investing in commercial real estate open up starting from the amount of 800 thousand dollars. But the threshold for entering this market is lower: 250-350 thousand dollars. For this money it is possible to purchase either a small office block in a business center, or a retail space.
“Street retail on the ground floor of a building brings a stable income of 11-12% per annum, but this applies only to the most liquid objects located on the main shopping streets of the center or in walkable places in residential areas,” says Bolotov. “The profitability of the office segment is lower - 8-9% per annum. But the choice of small premises in high-quality business centers today, in contrast to the situation two or three years ago, is much wider. Within $380 thousand you can purchase an office space measuring 100 sq. m in a business center with good location. In the retail segment, for the same amount you can only buy a room with an area of 50 sq. m."
Comparison of investment instruments
The Russian economy has come a long way since leaving the global financial crisis 2008-2009 Renaissance Capital looked at how the main investment instruments available to the average resident of our country behaved in the post-crisis period.
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Comparative returns of investment instruments for 2010-2013.
How did they think? Real estate in rubles, including rent and personal income tax- in the calculation, data from the website irn.ru about the Housing Cost Index were used: the calculation was made taking into account the dynamics of the US dollar exchange rate, income from renting out real estate at a rate of 5% per year and for minus personal income tax. To calculate profitability for four years, personal income tax was taken into account only for rental payments. Weighted average rates on ruble deposits- average values for January of each analyzed year; taken from the “Bulletin of Banking Statistics” of the Bank of Russia for deposits in rubles for a period of more than one year. Ruble yield on dollar deposits taking into account conversion- weighted average rates of dollar deposits for a period of more than one year are taken from the “Bulletin of Banking Statistics” of the Bank of Russia. They are then adjusted taking into account the dynamics of the US dollar/ruble exchange rate and the conversion cost, taken as 4%. To calculate the four-year return, conversion costs were taken into account once rather than every year. Mutual funds- in the calculation, data from the site investfunds.ru were used: for each analyzed year, five open mutual funds were taken, which were leaders in terms of the volume of funds raised based on the results of the year preceding the analyzed one. These funds focus on either stocks or bonds or both. For the selected mutual funds, the weighted average income for the year was calculated, taking into account personal income tax. Gold- the calculation was made according to data from the Bank of Russia, website cbr.ru, taking into account personal income tax and conversion costs, for which the Sberbank compulsory health insurance benchmark was used: the price spread between sales and purchases as of the date of this study was 5.8%. To calculate the four-year return, conversion costs were taken into account once rather than every year. Inflation- according to Rosstat. MICEX Index- according to the Moscow Exchange. US dollar to ruble- calculated according to the Bank of Russia as the ratio of the average exchange rate for January to the average exchange rate for the same month of the previous year. |
I wish I knew the purchase
The most important and painful risk of purchasing primary housing for any purpose, as follows from a survey of experts conducted by the editors of RBC-Real Estate, is long-term construction that turns into unfinished construction. There is also a risk of not recouping your investment due to the lack of price growth for the project, difficulties in finding buyers and the associated need to provide a discount for the project.
But all these risks can be minimized or completely eliminated. Firstly, you need to carefully check all title documentation for the project, financial condition developer company and the portfolio of projects it has implemented. Alena Deryabina from Don-Stroy Invest also advises paying attention to the behavior of the developer: “The developer’s readiness to organize hasty “sales” at the first signs of a decline in consumer activity most likely means that he does not have own funds or serious financial partners and a sharp increase in incoming is required cash flow to continue construction. In such a situation, there is a really high risk that, having bought an apartment at the start, you will have to wait for it to be ready indefinitely.”
Secondly, when choosing a project for investment, be guided not only by the most affordable price, but also take into account the entire set of qualitative characteristics of the project, as well as the competitive environment, in order to correctly assess its liquidity and prospects for further resale. The new building should be located in areas of Moscow or cities in the near Moscow region that are in demand among buyers, and good quality is desirable transport accessibility object. For investment purposes, it is best to purchase one-room apartments and studio apartments, which are always in demand.
According to Anton Gololobov, marketing director of Villagio Estate, purchasing real estate in a low-rise complex outside the Moscow Ring Road can also bring good returns (up to 10-12% per annum). “A couple of years ago, one investor purchased several townhouses in our premium village at the start of the project. Now that the houses have been put into operation, their value has increased by 25%. The investor plans to invest in finishing the townhouses, which will add another 15-20% to their price.” .
The investment window is closing
Now quantity investment sales decreased compared to the first quarter of the year. But people making money from the rising cost of a square meter did not leave the market. To active investment free funds They are being pushed into real estate by the crisis state of the economy. According to the head of the analytical center of the Domus Finance company, Alexandra Biryukova, investment transactions should now be aimed at preserving savings, and not at significantly increasing them. Still, it won’t be possible to increase it much. The expert calls an effective private investment the acquisition of the “right object” with a subsequent significant increase in its prices over the selected period and the successful sale of the object. Of course, if the investor’s goal is to sell the property as quickly as possible, then a temporary drop in demand, which may occur in the wake of the crisis, will make it difficult to achieve this goal, but is unlikely to affect the price of the property.
It is still difficult to predict how much and when the market will decline - there is too much uncertainty in it. But everyone is confident that demand and prices for housing and commercial real estate will begin to fall. According to experts, the investment “window” is closing and the pre-crisis rescue of private capital through real estate may soon end. However, one of the lessons of the 2008 crisis. is that the crisis also opens up new opportunities. Then, amid a rapid economic recovery, many succeeded by purchasing real estate and other assets in a growing market. Now it would be good to understand where his “bottom” is. As investors say: “Cash is king!”
Sergey Velesevich