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Whether you are an individual building a portfolio, or an organisation investing in new premises, buying a property represents a significant investment. Property can tie up valuable capital, or drive the need for large-scale borrowing. Either way, there will be a lot of money at stake and any decision to spend it cannot be taken lightly.
Do your research
The first step to making the right decision is having the right information. That’s why Mario Volpi, Managing Director of Ocean View Real Estate, recommends research and analysis of the market as an essential step.
“The first thing any property investor should do is to analyse the market,” he says. “They must use the internet to research what type of property they require and drill down to the real reasons they want to buy a property: is it for capital appreciation or rental returns?
“Property markets fluctuate, so there are no fail-safe rules to protect your investments from the ups and downs of a normal market. Timing, of course, is everything and getting this right is the key to success.
“Be fearful of what everyone else is doing, but when you research the market, you will quickly realise when is a good time to buy or when the time to sell has come. Doing the research on your own will mean that you will be ready to take the leap of faith.”
Seek good advice
Once the initial research has been completed and investors have taken a hard look at what they want to achieve, the next step is getting the right advice.
“After completing fact-finding measures, investors need to align themselves with qualified agents,” says Volpi. “Once an agent has been selected engage them to find your property. Use only one company; if they do not have the correct inventory, they will source the market and share their fee with other agents.
“The investor will be given a good selection this way too, but remaining loyal to one company will ensure correct advice is given.”
Getting the legal team or other professionals related to property on board around this time can help investors be certain that they are getting all the answers they need about any particular property. This is especially important in the case of commercial properties, where facilities management professionals may be able to offer insight into the ongoing operational costs of one property over another.
Optimise your returns
Optimising returns is the end result all investors are searching for, explains Volpi. “Making sure the right property is bought is one sure way of maximising potential,” he says.
“While the [residential] investor is not going to live in the property, imagining this to be his home would ensure that it would remain sought-after in the eyes of a tenant, or a future investor, so pick wisely.”
The same principles can be applied to commercial properties, where capital gain can provide a key boost to a business’s books, if it has been selective in its portfolio development.
Choose your location
In either commercial or residential property investments, location plays a critical role in determining success. While this is a well-worn adage, location remains very important and selecting the right area will determine the right levels of return. There’s more to this than meets the eye in rapidly changing and developing cities where it pays to keep abreast of plans for future developments, as well as any potential sources of delay or access issues.
“Pick an area that is not only popular now, for all the right reasons such as amenities, facilities and transport links but one that will remain popular in the future, due to infrastructure improvements,” explains Volpi.
Once the perfect spot has been identified it needs to be secured for a sharp price and this means negotiating hard. “This will safeguard the investment and cushion the profit right from the start,” says Volpi.
Pushing the sellers to achieve a lower price for your purchase could also shave a considerable slice off any finance required to complete the transaction and reduce subsequent interest payments.
Improve your investment
With your money now committed, ownership brings with it responsibilities. If you have tenants coming in, the best way to make sure you keep them is to make your property better than other options at the same level. For residential properties Volpi suggests a list of areas where improvements can be made.
“Look to invest in internal improvements, such as wooden floors, or renew kitchens and bathrooms,” he says. “Make your investment stand out, as this is a sure-fire way of getting a higher rent, so the return on investment will improve, and there will be tenants queuing up.”
For commercial properties the process may be more involved and an ongoing part of managing a portfolio. Professional property managers advocate active asset management to ensure that it is being intentionally and proactively worked to generate investment returns above the average market rate.
“[Active asset management] means owners or managers of real estate assets critically analyse the income and expenditure of a property or portfolio to better understand how improved investment performance can be achieved and then executing a plan to deliver those enhanced returns,” says Graham Howat, Head of Property and Asset Management, Mena at JLL.
Doing this could create a significant advantage in the UAE market, where, Howat believes, many owners typically adopt a more passive approach to managing their assets, simply leasing the property, collecting the income and paying operating expenditure.
“[Active asset management] may also involve the selective expenditure of capital to improve the value of the asset,” Howat explains. “Not simply spending money to improve the look of the asset, but to generate enhanced income directly or indirectly. Quite often capital is spent on buildings with no financial benefit.”
Protect your assets
Along with looking after strategic considerations, owners must protect the day-to-day operation of their asset. For most this means some kind of facilities management (FM) contract.
The FM industry has grown significantly in the UAE over the past decade, bringing with it a larger array of service availability for properties of all scales. That property maintenance has become a big business is demonstrated by the rise in the number of providers offering contract services. For landlords or owners of multiple or larger properties, annual maintenance contracts offer a fixed-costs option.
“It’s about peace of mind that everything is maintained and looked after,” explains Rob Milthorpe, Senior Operations Manager for facilities management company Macro’s MEP arm, Macro Technical Services.
“You need to look at the lifecycle of a building and the residual value. Owners and their tenants should ensure that all the equipment is maintained regularly. This is also important in the interests of the occupants’ well-being and safety.”
In other property markets, benchmarks such as the Investment Property Database, allow investors and managers to compare their properties’ financial performance against a pool of similar assets.
“All the assets have to be independently valued to enable this to happen,” explains Graham Howat. “There is more transparency to enable investors to compare performance.”
For the UAE, Howat believes improved net operating income (NOI) over a period offers a more basic measure of performance. “In a number of cases, NOI can be improved by paying closer attention to controllable operating expenditure,” he says.
Investors who go through the trouble of getting independent valuations completed, along with accurate building surveys, make their assets, whether commercial or residential, more attractive to other investors.
The right insurance cover
Building value implies the investment is worth something, so it’s important to make sure that it is protected against the unforeseen. Not only do you need to ensure you have cover but enough cover of the right kind. Check exactly what is covered by your policy — some insurers offer special landlord insurance that includes issues with the tenancy.
A thorough understanding of what you need to insure and how is essential and comes hand in hand with the need for other expert advice.
Have a current will
A will is relevant to the individual who is building a property portfolio. Most people invest for their families, not just themselves. But in doing so one of the most commonly overlooked elements is an up-to-date and accurate will.
This is especially important in the UAE, where individual investors may need a will or wills that cover several jurisdictions to ensure that their carefully managed investments go to the right people. Again, specialist advice is the order of the day.
Source: Stuart Matthews, Special to Property Weekly