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A new Idea - Renting Company

Last updated: July 9 2011
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  • A new Idea - Renting Company

    All those who have visited US know that there is a concept of a Real Estate Management Company, which builds and constructs apartments, only for renting and not for owning.

    This is a tremendously profitable business in the US and also provides employment for thousands of people. The daily maintenance of the apartment buildings are done by the company.

    I think the time has come, now that the rents are struggling and RE prices are high, to start a company like that.

    People like realacres, who are passionately interested in the general real estate market not only for the purposes of buying, but also in terms of tracking the market regularly, have been in politics in the past, but are also aware of the voes of the end consumer are the right people to start such a company.

    I also think that the end users will be willing able to pay a little premium to the general rent, to completely get rid of the hassles of the landlord and their occasional tantrums.

    If thought about nicely and executed well, this can work in a market like Pune and also give the builders a run for their money.
  • #2

    #2

    Re : A new Idea - Renting Company

    Originally posted by harshalx View Post
    All those who have visited US know that there is a concept of a Real Estate Management Company, which builds and constructs apartments, only for renting and not for owning.

    This is a tremendously profitable business in the US and also provides employment for thousands of people. The daily maintenance of the apartment buildings are done by the company.

    I think the time has come, now that the rents are struggling and RE prices are high, to start a company like that.

    People like realacres, who are passionately interested in the general real estate market not only for the purposes of buying, but also in terms of tracking the market regularly, have been in politics in the past, but are also aware of the voes of the end consumer are the right people to start such a company.

    I also think that the end users will be willing able to pay a little premium to the general rent, to completely get rid of the hassles of the landlord and their occasional tantrums.

    If thought about nicely and executed well, this can work in a market like Pune and also give the builders a run for their money.
    honest people cannot buy land in and around Pune which can build big apartments like these... smaller land deals do not make the investment worth...

    basically the land price to rent (after all the management overheads) is so less that it would take 10-15 years just to break even.. and after these days, you might have to construct the buildings again considering the current quality...

    its not a profitable business in and around Pune...

    Edit: Govt can still do it for low income groups by constructing some house and controlling the rent... but the question will be, which govt will do it when they all would have an 'Adarsh' alternative in front of them..

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    • #3

      #3

      Re : A new Idea - Renting Company

      Charity or business?

      Originally posted by harshalx View Post
      I think the time has come, now that the rents are struggling and RE prices are high, to start a company like that.

      I do not understand this! Are you talking about charitable organization? Because with such poor rental yield, renting out apartments is no less than charity.

      Did I miss anything?

      Comment

      • #4

        #4

        Re : A new Idea - Renting Company

        harshalx: The idea is good, but as RajeshP mentioned above, you are probably timing it wrong. In Mumbai, this would work good, as the yields are still normal. But in Pune, where the land and flat costs are absurd as compared to rent, building a 'for rent only' system will give much less yield.

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        • #5

          #5

          Re : A new Idea - Renting Company

          Instead you can build service apartments (i have seen some in Koregaon Park) and earn much more than rentals..

          Comment

          • #6

            #6

            Re : A new Idea - Renting Company

            Originally posted by ani_meher View Post
            harshalx: The idea is good, but as RajeshP mentioned above, you are probably timing it wrong. In Mumbai, this would work good, as the yields are still normal. But in Pune, where the land and flat costs are absurd as compared to rent, building a 'for rent only' system will give much less yield.
            I think a little shift in the mentality is needed here. Peoples opinions only change over a longer duration. Dismissing it outright won't do. Even when today we rent, we don't get much value for money.

            The landlord is renting only because -
            1. He has bought that flat as investment and doesn't intend to stay there.
            2. He is living outside India and is not planning to return back for some years.
            3. Is gone out of Pune for a new job.
            4. There maybe other conditions, but the first 3 are arguably the largest category of landlords.

            We all know how renting under a landlord is so dependent on his temperament and personality. I won't list all the problems with today's renting coz' that has been discussed a lot here in other threads.

            A House rental company will not just give you 4 walls, but will do much more than that.

            - Provide you a basic quality fridge and microwave.
            - Give you options either to move into a furnished home (that can be further graded into what quality of furniture are you expecting) or a unfurnished home.
            - Ensure water supply (Either by PMC or tanker). What matters here is quality of service.
            - Provide a central Aquaguard kind of system that filters drinking water for the entire building.
            - Ensure all constructional and ongoing maintenence.
            - Ensure that all lifts work all the time. Electricity backup.

            The point I am trying to make is VALUE ADDITION.

            The landlord just gives you 4 walls and you deal with all the rest.

            A House rental company would give you quite some value over a simple landlord.

            Students who come to Pune to study have to go through an ordeal since almost all the residential societies ban renting for bachelors.

            Such issues will be done with a Rental Company.

            The rental company will operate on a 6/12 month lease which can be renewed. They will make sure that as long as a renter is paying rent, they will never ask him to leave. Unlike landlords who could ask you to leave anytime.

            At least I know that if I have such options I could easily pay 5-7k more of a rent than today's rental prices.

            This was an analysis in terms of a consumer.

            In my next post I will drill down into technicals to see whether such a rental co will be able to make a profit.

            Comment

            • #7

              #7

              Re : A new Idea - Renting Company

              This is sounding real interesting .

              Potential end users need to be identified .

              This really cannot be feasible in every city . Locations within a city or cities need to be identified .

              Would this system go well with our rental laws ? Where exactly would it fit in ?

              & most important , the economics & the scale of such ventures need to analyzed in detail .

              Originally posted by harshalx View Post
              I think a little shift in the mentality is needed here. Peoples opinions only change over a longer duration. Dismissing it outright won't do. Even when today we rent, we don't get much value for money.

              The landlord is renting only because -
              1. He has bought that flat as investment and doesn't intend to stay there.
              2. He is living outside India and is not planning to return back for some years.
              3. Is gone out of Pune for a new job.
              4. There maybe other conditions, but the first 3 are arguably the largest category of landlords.

              We all know how renting under a landlord is so dependent on his temperament and personality. I won't list all the problems with today's renting coz' that has been discussed a lot here in other threads.

              A House rental company will not just give you 4 walls, but will do much more than that.

              - Provide you a basic quality fridge and microwave.
              - Give you options either to move into a furnished home (that can be further graded into what quality of furniture are you expecting) or a unfurnished home.
              - Ensure water supply (Either by PMC or tanker). What matters here is quality of service.
              - Provide a central Aquaguard kind of system that filters drinking water for the entire building.
              - Ensure all constructional and ongoing maintenence.
              - Ensure that all lifts work all the time. Electricity backup.

              The point I am trying to make is VALUE ADDITION.

              The landlord just gives you 4 walls and you deal with all the rest.

              A House rental company would give you quite some value over a simple landlord.

              Students who come to Pune to study have to go through an ordeal since almost all the residential societies ban renting for bachelors.

              Such issues will be done with a Rental Company.

              The rental company will operate on a 6/12 month lease which can be renewed. They will make sure that as long as a renter is paying rent, they will never ask him to leave. Unlike landlords who could ask you to leave anytime.

              At least I know that if I have such options I could easily pay 5-7k more of a rent than today's rental prices.

              This was an analysis in terms of a consumer.

              In my next post I will drill down into technicals to see whether such a rental co will be able to make a profit.
              Please read IREF rules | FAQ's

              Comment

              • #8

                #8

                Re : A new Idea - Renting Company

                Originally posted by harshalx View Post
                I think a little shift in the mentality is needed here. Peoples opinions only change over a longer duration. Dismissing it outright won't do. Even when today we rent, we don't get much value for money.
                .....
                At least I know that if I have such options I could easily pay 5-7k more of a rent than today's rental prices.

                This was an analysis in terms of a consumer.

                In my next post I will drill down into technicals to see whether such a rental co will be able to make a profit.

                Not to discourage you, harshalx, but I am not convinced yet, why would any one pay 5-7K more over the existing 10K average. % wise its 50-70% more than existing rent. who would like to pay that amount?

                One more point is most landlords, afford to keep rentals low, since they do not pay tax on that rental income. I am sure almost 90% do not pay tax on rental income they get., but once you have a rental company, you cannot escape the tax, further reducing the margins of such a company.

                However I am curious to see further technical details from you on this.

                good luck.

                Comment

                • #9

                  #9

                  Re : A new Idea - Renting Company

                  Guys, before we move into technical analysis I'd like to know a few detailed parameters.

                  - To build a building with 40 flats, how much area of land will need to be bought? It will have 4 flats on each floor with 1000 sq ft each.

                  My guesstimate is around 6000 sq ft.

                  - What is the cost of good quality construction? This includes construction material, material transport and labor cost. I am not talking about Marvel Builders type but of the type which satisfies all parameters of good construction, not luxury construction.

                  My guess is Rs. 1200 psft.

                  Can somebody help me with these numbers please?

                  Comment

                  • #10

                    #10

                    Re : A new Idea - Renting Company

                    Earlier it was allowed to build only 50% of the piece of land but I suppose it has changed to 75% and parking space underneath the building is also mandetory. That is what I had heard, It needs to be verified though.

                    Comment

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