Our client, Mr. Sudhir Kumar, bought a 1600sqft land in Rs 10L in an upcoming neighbourhood in Patna, Bihar, and had us construct a 3 storey building with one 2bhk unit and two 3bhk units. The construction cost him Rs 50L. With a downright investment of Rs 60L in real estate, he has one unit to live in with his family and 2 units to rent out.
Say he decides to sell off his entire property then, he will sell the 2bhk unit at Rs 30L and the two 3bhk units at Rs 50L each. Right about then, he makes a profit of Rs 70L- nearly 116% profit.
If he decides to live in one 3bhk and sell off the other two units at the aforementioned market prices, he makes a profit of Rs 20L- which is 33.33%.
Now suppose he retains his property and decides to rent out the 2bhk at Rs 15,000/- per month and 3bhk at 20,000/- per month as per market rates. He is yielding a profit of Rs 4.2L per annum, with it compounding with a 10% increase every year since the property valuation will increase at a similar rate. So, the minute he secures his first tenants, he is already making a profit off his investment. With his rental yield, he'll be able to break even his initial investment in about 10 years.
In 10 years, the property valuation has increased. Now, if he decides to sell off his property, he will sell the one 2bhk unit for Rs 60L and the two 3bhk units at Rs 1Cr each.
That gets him a swooping profit of Rs 2.6Cr because he has the rental yield has already compensated for his initial investment. And that's about 450% profit in 10 years. Smart? Indeed.
This margin is even more significant for real estate developers who buy the land and get infrastructure constructed at much lower prices. Imagine doing this at scale! Genius!
With the pandemic setting in, many working people have moved from huge urban centres to smaller ones, and suburban areas- even rural areas- favoured by the work-from-home opportunity. This creates an opportunity for real estate and infrastructure development to decentralise from big cities. As evidence from pandemic suggests, the infrastructure in cities overwhelms and fails in the face of adversities. We're already facing the next adversity- climate change. "De-urbanisation" is gaining ground as cities seemingly fail to cope with the needs of their population.
It also creates an opportunity for middle-class people who own a piece of land and want to generate some passive income from it. Or real estate developers who want to do something profitable with their land.
If you own a piece of land or property, hit us with an email at firstname.lastname@example.org to understand how diversely you can use it to profit off with great margins. Or simply go to contact page to say Hi and we'll get back to you shortly.
Please note that the numbers and forecast are according to this particular project and place and they depend on many external parameters. But this case study provides a great insight into the real estate business.