The most important part of real estate investing happens before you even get started. Real estate investing requires knowledge and reflection on your actions and any deal you make. It’s all about the pre-investment phase and knowing when is the right time to play the master stroke.
Obviously, you need to have sound knowledge of the steps and procedures to get started. To help you go about the process, we have written this blog which includes all the steps.
Having said that, let’s dive in:
Phases/Steps in Real Estate Investment
These are the following three phases in real estate investments. Let’s start with the files first.
Whenever a developer intends to start a real estate project, they announce files for a specific piece of land. The file represents that the holder is eligible for a piece of land which is to be granted by the developer. The file always represents a piece of non-balloted land which can be on the ground and off ground.
Files are limited to the pieces of land available for sale. Most files are distributed on an installment basis. Even if fully paid in cash, you have to wait a couple of years until a piece of land is entitled to your name. Yes! Nobody knows which part of the land will be allocated when the files are allotted. It’s purely based on luck.
Files are limited and always high in demand. The rates of files fluctuate on a regular basis depending upon the market conditions. Since it’s the first stage of real estate investing, the price is relatively lower.
After the distribution of files is completed, there is a significant wait period before the next phase could start. The developer randomly selects an unmarked piece of land and assigns it to the file holder. Balloting generally means assigning unmarked pieces of land to the allotted.
As soon as the plots are assigned to the allottee, many investors demand to see their balloted plots to know their physical condition. By the time a piece of land is allotted, the majority is land that is yet to be developed. After balloting plots, the developer actively starts development in society. Just like the files are distributed randomly, the development also takes place with the same process. Usually, the development begins from the parts that are closer to the main roads.
Once the developers do the balloting, the price substantially increases. This is where the majority of the investors play as short term investors.
In majority of cases, possession is only given when the block or sector is fully developed and all the related approvals and certifications are acquired by the government. In many cases, irrespective of whether the payment is made in cash or installments, allotted plot holders have to wait for years to claim the ownership of the land. Regardless of what the developers of housing societies say, anyone having possession has a right to start construction immediately.
Once the possession is given, the original price of the land is multiplied. It’s a long-term investment that gives you around 3-4 times or more in return, if you wait patiently.
What’s the Difference Between a File and a Plot?
Before starting with the difference between a file and plot, it’s essential to learn the basic definitions.
Many people assume and consider a file as a plot. The truth is files are not plots. Files are actually proof that if everything goes fine, you will receive a plot in the society against that file one day. However, a file doesn’t even tell you where your plot is.
The reason why most developers issue files in the first place is money and time. The cash flow generated by selling files is then used to develop further infrastructure. In simple words, a file is a token for a plot to be allocated against it.
The plot is only allocated after the second step of real estate investment, which is balloting. And even after the allocation, you have to wait a couple more years to get the possession. Only after the possession, the plot owner can begin construction. Beware of a real estate developer who claims to offer possession but doesn’t allow you to construct! It’s a red flag.
We hope the above discussion cleared your understanding of real estate investments. We will keep pushing more informative blogs like this one, so keep following.