Scared to invest in commercial real estate?

In my previous blog I had discussed how Aki & Nikki were able to build their dream home by smartly investing a flat in Moshi, Pune. Now they intend to build their real estate portfolio & are considering various options about where & why to invest and vice versa. So what is commercial real estate? It is any non-residential property used for commercial profit-making purposes. Commercial real estate includes shops, stores, malls, office buildings, factory, warehouse, open plots, restaurants etc.

Nikki is of the opinion that they should buy another residential apartment in an upmarket area while Aki is thinking of investing in an office space. The basic need of Aki & Nikki of owning a house in Pune has been fulfilled. Now they are considering further investment. So let’s understand through a conversation between Aki & Nikki the pros & cons of buying an office or a home as an investment.

Let’s see who wins.

Aki:     Nikki, we have managed our home loan EMI’s well & now we both have also got our increments. So I am thinking of buying another property.

Nikki:  How about a flat next my Aunt’s place. That’s a very posh society & my dream home too.

Aki:     Sweetheart we already own a flat & we should now invest in office as to develop a better portfolio. We will surely buy that property in future.

Nikki:  No Aki, We should enjoy better lifestyle by living in an upmarket area.

Aki:     Better area shall increase our expenses & reduce our savings.

Nikki:  Point to be thought of but improved living standards shall enable us to have better social circle which shall be good for our coming generation.

Aki:     Office space shall fetch us rent which shall partly pay our EMI.

Nikki:  So if we buy a new house even our old home shall fetch us rent & can pay part of our EMI

Aki:     An office space costing Rs.40 lakhs shall fetch us at least Rs.18000 of rent.

Nikki:  Agreed.

Aki:     Finally you agreed to something…

Nikki:  Ok.Ok. Go on. I yet not totally convinced. It’s a long way ahead.

Aki:     A new house shall not cost us less than 70 lakhs and you can very well calculate the EMI. The old house shall not fetch us more than Rs. 8000 of rent. So the total EMI’s shall be unbearable for us.

Nikki:  Well I didn’t think of that, but we can still buy another house in our locality & put it on rent. We shall get one in Rs.30 lakhs & it shall fetch us at least Rs.8000.

Aki:     Well that option is always open. Looks like you want to get the “Gavwala” tag in future. But you need to understand that we won’t be able to avail neither the PMAY benefits nor the full home loan tax benefits as this would be our second home.

Nikki:  Hmmm. You mean to say a) No tax benefits  b) No PMAY benefits c) Less rental income

&  of course it would be more difficult to find & handle residential tenants as compared to the commercial ones.

Aki:     Yes, Nikki you are right, office tenants are more professional to deal with.

Nikki:  I guess dear you have won this one. You have finally convinced me.

Aki:     Oh really! Then you owe me a treat as I have won.

Nikki:  Anytime dear….

So, Aki has finally managed to convince Nikki on buying an office space. Aki now intends to carry out a market survey. Let’s see which deal does he find & how he cracks the deal in the next article.

#Note:

1. Commercial real estate investment is subject to market risk. Please consult a professional before investing.
2. You may read my next blog for further understanding the process.
3. In case you are still eager to invest, just remember to check the RERA registration of the project before investing.

Please give your comments if you like my blog.

Also, do like and share them.

Happy Investing friends.