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How to invest in Commercial Properties: expected return, REITS and other details. - YouTube

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and here is me giving you a very quick

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tour of one of my commercial properties

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hi everyone welcome to today's video so

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today's video is super special for me

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because my dad is very excited about my

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this video he keeps on asking me when is

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your real estate video coming up i would

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love to watch it so here it is today i'm

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going to talk about the real estate

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sector i was also planning on having him

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on this particular video but he needs a

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little bit more motivation from all of

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you to join me on a chat so do comment

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below if you want my dad to be a part of

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some of my video i will definitely

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invite him also comment what type of

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topics or questions you would like me to

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have a chat with him on

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all right so back to today's topic so

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today's topic is super exciting i'm

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going to talk about three things one i'm

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going to give you a tour of one of my

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commercial properties and i will explain

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you what price did i buy that at what

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returns am i making from it second we

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will talk about whether commercial

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property buying does it make sense in a

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country like india whether you should do

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it or not and third and finally we will

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talk about that if you are looking to

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buy a commercial property how should you

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do it because commercial properties are

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very difficult to procure very difficult

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to scout usually the investment amount

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is also high so can you do fractional

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investing via reads and other options

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that exist also a very quick shout out

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to our sponsors for this video strata

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they are a commercial real estate buying

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firm and what you can do is that you can

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take fractional ownership in commercial

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real estates by buying small amounts via

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strata so that's a great concept i will

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cover that in detail subsequently in the

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video so do watch the video till the

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very end and here is me giving you a

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very quick tour of one of my commercial

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properties so basically there are like

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two shops which are next to each other

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and one we are sitting

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spot i ordered food yesterday also it's

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very good i've ordered a banana smoothie

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also it's coming up so this is one shop

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and they have like another

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protein supplement and gym supplement

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type of a shop next to it so that is

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also something that i own

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and both these shops work in conjunction

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so that's the good one

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so yeah so if you are in one year and if

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you are in city center area this is

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where these two shops are located all

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right so let me just briefly explain

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some of the finer points around this

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commercial property when did i buy it

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what price did i buy how much rent am i

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making why did i buy it so let me have

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that conversation first so the property

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that you just saw it's one of the

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commercial properties there is another

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commercial property that had purchased

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right next to it so there are two exact

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same type of units that i have purchased

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in the same block these are new units i

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purchased it right before covid right so

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could not have been a worse time to buy

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properties now i did not know that

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covert would happen so everything shut

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and initially i had a hard time renting

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it out now i had purchased these units

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both these units at approximately 1.35

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crores and right now i am making

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approximately 65 000 inr from both these

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properties combined so 1.35 crores total

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investment amount and i am making 65 000

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inr on per month basis now is this roi

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good is this roi bad so let me quickly

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comment on that as well so let's

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juxtapose this with an example for

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example if i would have purchased a

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house in a city like delhi then the

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usual ratio in a city like delhi is that

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if you go and invest one crore property

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you get 25 000 as rental income for

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example if you have purchased a house

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which is two crores worth in delhi then

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you could expect a rental income of 25

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000 times 2 because 2 crores here 25 000

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times 2 50 000 inr as monthly rental

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income now how do i know it because i

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have scouted a lot of properties both in

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delhi bunch of different different

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places now please don't highlight

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exceptional cases in the comment section

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that hey i purchased a property last

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year at 50 lakhs now i'm making like one

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lakh per month from it it might very

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well happen but that's not the standard

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rate i am talking about standard rates

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here now the commercial properties that

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i have shown you i have purchased them

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in tier 2 cities and therefore even

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previously on some of my other videos

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also i have said that the rental yield

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for commercial properties in tier 2 tier

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3 cities is much better compared to tier

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1 cities if you are outright buying it

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so from this roi perspective these two

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commercial real estate properties that i

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have they are giving me good rental heat

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now second reason you might ask that

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akshat you're a stocks guy you're a

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crypto guy why are you purchasing

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commercial real estate what's the

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rationale behind it so honestly i as an

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investor needs to be diversified so it

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is a diversification strategy for me i

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do not own a house i just own commercial

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properties so if i have to diversify my

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investments outside crypto asset class

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or outside stock market asset class i

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purchase commercial real estate in prime

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locations so just to wrap this section

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up very very quick points some key

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things about this commercial real estate

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property is number one these are new

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rental units number two these are not of

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insanely high amount because i have

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purchased them in tier two tier three

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city in india right now number three

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these are in prime locations in those

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cities now why prime location because it

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gets super easy for me to rent these out

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now this gets me to the second part of

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the video because now you would say

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akshat okay fine i somewhat see the

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argument that it's probably better to

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buy a commercial real estate visa is

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owning a house but can you help me

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understand that a little bit more let me

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take you to my whiteboard and help you

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explain that point in a very brief

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manner there is another complete video i

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have done as to why am i not buying a

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house you can watch it here you can gain

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more understanding but i'll quickly

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condense this concept as well now there

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are a few key things that you need to

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understand about real estate investments

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so when you are purchasing real estate

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you have two options right a house which

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is like residential

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or commercial now what happens is that

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you need to first and foremost

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understand the definition of an asset

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a simple definition of an asset is that

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something that puts money into your

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pocket is an asset and something that

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takes money out of your pocket is not an

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asset it's a liability

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now when i am going and purchasing my

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commercial real estate i do not do it on

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emi basis and all that stuff i am

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literally just going and purchasing a

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property outright and it becomes a cash

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flow for me so everyone i am getting

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money in my pocket so that's an asset

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for me

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on the flip side if you are going and

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purchasing a house

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most of us consider it to be an

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investment or an asset but unfortunately

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it is not because a when you purchase a

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house there is negative cash flow

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because every month you have to pay an

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emi which flows out of your pocket and

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when you are purchasing a house most

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likely you are going to live in it right

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so its not as if that you can rent it

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out to someone else and bunch of

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different different factors associated

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with it so you cannot generate a

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positive cash flow from it so therefore

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a house which you have purchased for

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living in it that's not necessarily an

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asset so please understand this critical

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point this is very very important there

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is no harm in buying a house if you are

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buying it for emotional reasons that hey

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my kids are going to grow up in it i

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love this place it fits with my

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lifestyle all great points you should go

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and buy a house from that perspective

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and don't even bother about the roi part

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of it because that is not necessarily an

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asset it is not putting money into your

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pocket now this brings me to the next

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important point that you are looking to

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invest certain amount of money either in

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a house from an investment perspective

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not living perspective vis-a-vis a

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commercial property which one you should

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do and why now there are a couple of

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important charts that i would want to

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show you so this is the first chart this

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shows the ratio of housing price as per

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gdp per capita and you can see that in

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india the housing price as a percentage

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of gdp it's

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627.55 what this ratio simply indicates

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is that how expensive it is to own a

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house in india the house price in india

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is very very high right compared to any

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other part of the world adjusted to gdp

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this is a very important matrix and i

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will also put the links in the

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description box you can check all these

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facts out i had tweeted about it if you

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don't follow me on twitter do go check

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it out i post interesting content there

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also you will learn a lot right so the

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second is about the rental yield right

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as i was speaking earlier if you take a

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look at the rental yield the rental

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yield for house is 2.32 it is the lowest

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in the world so what does this indicate

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if you aggregate both these shorts that

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you are buying a property which is very

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very expensive and you are getting the

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least yield on it therefore in a country

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like india right now where the property

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prices have exploded you must be very

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sensible in terms of what you are buying

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please just don't go and simply buy

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because people tell you that you know

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what property prices will always go up

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this that true but the point is that the

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roi is just not there the property

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prices have been inflated so much

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especially the housing property prices

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that it is just not worth it commercial

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properties on the other hand give you

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better returns there is a very specific

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reason for it because these commercial

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properties are sometimes owned by banks

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sometimes owned by businesses so there

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is no massive artificial inflation of

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prices in commercial real estate reserve

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is houses now you might ask me okay why

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is that that in normal houses when we go

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and buy like a housing property

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vis-a-vis when we go and buy a

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commercial properties why is the

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inflation

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in the housing very much but in

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commercial properties it is not that

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high okay because in commercial

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properties who rents the commercial

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property here the renters are businesses

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right in my case for example the

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commercial property that i showed you

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the business that currently rents it

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it's a food joint business so

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till what point they are going to rent

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it till the point their business income

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pays for the rent it's not as if the

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tenant who has rented my property if he

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or she is not making money from their

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business they will continue to rent it

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it doesn't make sense so the moment the

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business that is renting the property is

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not able to service the rent they move

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out to some other property so therefore

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the property prices do not get inflated

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because there is a constant roi return

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on investment analysis that is done by

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the business you yourself tell me the

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person who currently runs business in

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the property that i have rented out to

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them they every month create a balance

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sheet cash flow statement bunch of

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different different things do a cost

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analysis and keep on running it only

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till the time it makes sense for them

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but when we are renting a house we don't

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do that cost analysis because that is

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not a part of our everyday job we are

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busy doing some other work we don't even

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go around in our locality trying to

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estimate at what price the houses are

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being rented out so therefore this

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inflation of housing happens very very

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quickly in a country like india it has

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already happened massively and this

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inflation does not generally happen in

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commercial real estate therefore right

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now it makes a lot more sense to own a

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commercial real estate if you are

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looking to invest in a real estate

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sector vis-a-vis owning a house because

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houses are super inflated from an roi

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perspective now the next part is that

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you would say okay great awesome i

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understand the rationale as to why

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commercial real estates make a lot more

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sense so what are the key challenges

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that i'll face and how i can mitigate

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them right so you'll face three specific

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challenges in terms of procuring a

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commercial property number one scouting

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a good commercial real estate property

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is challenging because a good commercial

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real estate property is hawked by a lot

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of people right there is a lot of

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competition for that good commercial

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real estate property most of the time

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you will be beaten to that property by a

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big builder and bunch of other different

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stuff but yes if you can get a good

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opportunistic buy in commercial real

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estate go and buy it it's definitely

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worth it from that angle but not very

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easy to scout this is the first

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challenge second buying commercial

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property is very cumbersome because

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these commercial properties you directly

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have to go and purchase from the

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builders you don't have the option of

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usually purchasing it in the secondary

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market where you go and buy it it can

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happen i'm not saying that that would

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not happen but it's slightly less

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compared to housing units third and

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finally is the lump sum amount issue

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that when you go and try to buy a

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commercial property you have to invest a

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lot of money out right so that can

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become a challenge when i am looking to

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buy a commercial property i buy it fully

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so that is called as outright ownership

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of the commercial property now here you

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have to overcome all these three

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challenges you have to go and meet with

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a lot of realtors and bunch of different

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different things and undertake all that

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hassle that is outright buying second

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and more favorable option these days is

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fractional investing so you as an

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investor if you don't have a huge

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portfolio you just want to buy real

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estate commercial properties from

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diversification perspective then you can

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go and purchase something called as

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reads that is your option one or you can

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go and invest via firms like strata so

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now let me help you very quickly

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understand the difference between the

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two so reits essentially mean real

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estate investment trust now these are

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listed on the stock exchanges currently

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there are three reits in india which you

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can literally buy as a stock for example

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you go on your zeruda account you just

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go and type out the name of the reit

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that you want to invest in for example

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embassy is there so you can go and type

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out the word embassy on your zeroth

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trading portal and you can go and buy

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certain stocks of that rate so let me

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very quickly help you understand the

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mechanics of reach so essentially what

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happens is that reits so what happens

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here is that you are purchasing let's

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say any read right you go on the stock

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market portal you invest thousand rupees

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in a reit now there are other people who

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are doing the same right they are

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investing like 500 rupees they are

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investing like 10 000 rupees so on and

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so forth right so what happens is that

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all the cash flow that is happening for

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this they collect all this money right

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and then they go

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and invest 80 percent of that amount in

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commercial real estate property is

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minimum right whatever rental income is

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coming

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they go back and distribute that rental

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income to you almost 90 percent of it

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right so this is the mechanics that it

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literally becomes like a unit so for

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example if i am running a reit all of

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you give me your money i take that money

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i scout properties at the back end

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invest in those and whatever cash flow

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is coming to me then i redistribute 90

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of it this is the simple mechanics now

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strata also works very similarly there

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is not a major difference between reits

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and strata first and foremost you might

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think that okay strata is it safe or not

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it is

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it is not as if that it is not regulated

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it is regulated when you are investing

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in strata all the money that you are

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giving them that gets invested in

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pre-leased and revenue generating assets

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right away right so that's the first key

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advantage all the money that strata gets

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in terms of rents they pick it up and

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then they give it to their investor the

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entire amount this is the primary

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difference between reits and strata that

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in reits they have to first go and scout

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identify properties these might not

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necessarily be income generating

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properties right away so there will be a

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little bit of time lag from that

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perspective but with strata you're

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already investing your money on

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properties that have been rented out

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already right second key difference that

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with reads 90 of the income that reit is

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making they give it back not the 100

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amount but with strata the investors get

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100 of the amount back whatever money

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strata is making from rental income they

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would be working as commissions similar

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to how reits also work on commissions so

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this is my viewpoint please go and do

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your own due diligence on it since i

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have not personally invested either in a

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reits or strata you have to do your

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further due diligence i'm just talking

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about all the options in my case i just

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go and outright buy it that method is

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sensible to you you can do that also for

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both reads and strata again i'll put the

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links in the description box you can

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