The real estate market is blooming. Everyone wants to invest in it and thereby diversify their investment portfolio, right?
However, one should not forget that every industry – e-commerce, cryptocurrency, FMCG, real estate, etc., has its own set of terminologies. These industry-based terms are essential for an investor to know and understand before investing in a particular market.
This article will help you know and understand various terminologies that you must know before investing in a real estate market.
Most Common Real Estate Investment Terms are as follows:
RERA Carpet Area
According to RERA (Real Estate Regulatory Authority), a carpet area is an apartment’s net useable floor, excluding the area covered by the external walls, personal balcony or open terrace area.
Turnkey property refers to an apartment that is almost ready for the homebuyers to move in. Such property captures the eye of investors as they can buy and quickly start renting it out without waiting for a longer period of time.
As the title suggests, it refers to unrestricted property and gives the owner full right to transfer it further or inherit it. These properties are better than leasehold properties as they can fetch long-term gains. Freehold properties are usually purchased through an auction, so the process of selling them is hassle-free as it does not require state authorisation.
Floor Area Ratio (FAR)
Floor Area Ratio (FAR) or Floor Space Ratio (FSR) is a ratio between a property’s gross floor area and land area. The height of the building and the number of floors are decided according to the FAR value. A higher FAR will lead to a larger built-up area.
Gross Rental Yield
Gross rental yield refers to the total profit generated by a property, divided by purchase cost and associated closing costs. It is mathematically expressed as Monthly rent x 12 / purchase price and associated closing costs = Gross yield. It is helpful for investors to find the annual return on their investment.
Market Value (MV)
Market value (MV) or the Basic Sale Price (BSV) is the paramount price per sq ft at which the seller has listed the property for sale. This price excludes other additional charges such as GST (Goods and Services Tax), amenity charges, maintenance charges, etc. These charges can come up to 20% of the market value.
Capitalisation rate or cap rate measures the expected rate of return on the invested property. This rate indicates potential ROI (Return on Investment) in the market.
Capital Expenditure or CapEx is the usually one-time, high expenses incurred to renovate the property purposely to extend its life. For example, the cost incurred to install a new furnace.
HOA or Homeowner’s Association is an organization of homeowners who makes and enforce specific rules for a subdivision, condominium building or planned community. If you invest in a property within a homeowner’s jurisdiction, you have to pay HOA fees.
With these investment-related terms of the real estate market, there are many real estate advisors who will guide you in the right direction to ease your investment journey and enhance your investment portfolio. Stead Realty is one of the leading real estate consultants based in Mumbai. We conduct extensive market research, evaluate properties, and then guide our clients with a holistic approach and expertise.