The special tax regime “Tax on professional income” (introduced by Federal Law 422-FZ of November 27, 2018 “On conducting an experiment to establish a special tax regime...”) in 2019 operated in only four pilot regions (Moscow, Kaluga and Moscow regions, Republic Tatarstan). Since the beginning of 2020, the regime has been extended to 23 regions, including St. Petersburg and the Leningrad region, and by the beginning of September, 79 regions have become a kind of offshore zones for those who are energetic, hardworking, but not ready to work “for their uncle” - that’s almost all Russia.
In accordance with Federal Law 422, a self-employed person is an individual who receives income from activities in which they do not have an employer and do not engage employees under employment contracts.
About commercial real estate
With the right investment strategy, commercial real estate will be much more profitable than residential real estate. Investment returns can reach 9-13% per annum versus 4-6%, respectively.
Investments in commercial real estate have only begun to gain popularity in the last 5-10 years. Why is it so late, you ask? Firstly, the size of investments can be measured in billions (large office centers, hotels, warehouses).
Secondly, investing in housing is more understandable to private entrepreneurs - simply due to accumulated experience and a well-studied market.
In commercial real estate there is no “elite” as such, here we are talking about large investments in high-quality office blocks and warehouses (assets with high returns and associated risks), street retail (more moderate returns and risks) and hotel rooms (long-term payback and stable profitability).
From my point of view, the most in demand are offices in popular locations and retail space in street retail. There are several ways to invest in commercial properties:
- Purchase an object for the purpose of its further sale/rent;
- Purchase a ready-made rental business (GAB);
- Buy units/shares in mutual funds.
Each option has its own specifics; the investor chooses the one that corresponds to the possibilities.
Real estate business
What should people do now who were planning to open their own real estate business when there is no certainty?
Firstly, it is worth noting that real estate is an extremely complex area in our time. There is just huge competition from other market players. Moreover, from three sides - large players who have been here for a long time continue to operate in the market, an incredible number of private realtors and Internet resources that have previously captured the market for private real estate and rental of houses and apartments. Therefore, it will not be possible to simply enter this segment without any lack of stability.
Secondly, although there is no stability, demand has not dropped to zero. Moreover, after the lifting of strict restrictions, it began to grow again. And faster than anyone expected. And even if there is a second or third wave of the pandemic, and even if everything is closed again, which in itself is unlikely, after the cancellation everything will return to normal. And quite quickly.
In this regard, those who were considering the idea of organizing their own business in this area have two options.
The first is a business from scratch. But in order to achieve success here, you need to try very, very hard. And it is better to have direct experience with real estate. Be it commercial or private.
The second is to buy a franchise. And at present, this is the most attractive option for beginning entrepreneurs. Why? Let's explain now.
Purchasing a property for sale/rent
Office real estate
In the last year, the situation on the office market in Moscow has been especially favorable for investors: few new properties are being introduced, supply is gradually being washed out, vacancies are falling - all this leads to a shortage of high-quality office space, especially in the central regions of Moscow.
Meanwhile, demand continues to grow, which means that investments in the segment will pay off generously. Even with limited capital, you can invest in small office blocks with an area of 80 sq. m. m – small and medium-sized premises are sold today already at the construction stage of the business center.
The average profitability of such properties in Moscow for private investors is usually 12-14%. Occupancy and, accordingly, cash flow will largely depend on a combination of factors: high class business center, favorable location (proximity to business centers), convenient transport accessibility, developed infrastructure of the area and the facility itself (availability of parking, catering establishments, landscaped territory).
You also need to determine the target audience, its needs and demand, analyze the volume of competitive offers, etc.
Risks. The investor must make financial calculations in advance (rates, indexation, operating costs and utility space in square meters, “quality” of tenants) and risk analysis (terms of the contract).
Street retail
For retail premises, the decisive factor influencing the rate is traffic, and therefore location. For the location, the following are important: the first line of houses, high traffic (in the center of residential areas, in places with high passenger traffic - not far from the metro, train stations, transport hubs), the possibility of installing shop windows/signs, transport accessibility, the presence of transport interchanges and hubs.
Risks. The future facility must meet the requirements of a potential tenant: food retailers need loading/unloading areas (or the ability to organize them), a suitable layout for the sales area; for catering – hood and high electrical power.
Remember that it is not always possible to change the technical characteristics: for example, the status of a cultural heritage site imposes strict restrictions on the building, the owner will have to coordinate all repair work with the authorities, etc.
There may be other surprises. Thus, the implementation of the “My Street” program led to the fact that many top locations in the city center lost their advantages due to a reduction in parking spaces.
Conducting an advertising campaign
Marketing and promotion should be approached carefully. The main goal of a real estate agency is to create a client base that will bring regular profits.
Developing a list of service users begins with the need to inform people about the appearance of the company. It's worth starting with existing personal contacts. Firstly, a chance to find people among your friends who are interested in buying or renting real estate. Secondly, if you ask for recommendations, the field of contacts will expand even more.
Let's consider PR methods:
- use of classic media - television, radio, advertising in the subway;
- social media;
- distribution of leaflets and flyers.
When creating content, attention is paid to color scheme, font and presentation methods. It is recommended to use different channels at the same time. The tool is the publication of reviews from satisfied customers. Information should be presented in simple language, truthfully and completely. Studying rental advertisements will give you an idea of what is available on the market. Amidst great competition between individuals, people continue to give preference to companies. If a person wants to sell an apartment, he would rather contact an agency than work directly with private owners. This is associated with the risk of running into scammers.
Given a choice, people choose companies that inspire trust. Business ideas with real estate are advertised, but people consider the field to be complex and the niche occupied.
We recommend you study! Follow the link:
Business plan for a recruitment agency
In reality, anyone can start a business, but it is preferable if a person has experience in the industry.
It is not recommended to combine business promotion on social networks with the development of a personal page. It is worth creating a separate profile for the company, regularly updating it with content and promoting it among the target audience.
Purchase of a ready-made rental business (GAB)
GAB (ready rental business) is the purchase of liquid premises with lease agreements and stable cash flows.
This is a convenient and highly profitable form of investment. Thus, the market average capitalization rate for office real estate today reaches 10% (in some cases it may be lower than 10%). For comparison, the weighted average deposit rate for the second ten days of December is 6.17%. In addition to the office segment, the purchase of GABs is common in the retail real estate segment: in street retail, the share of such transactions is 90-95%.
Office real estate
Today on the market, many large developers are engaged in the sale of GABs, for example, Stone Hedge, Sminex, Coldy, etc. They form a finished product: they invest in office space, fill it with reliable tenants, enter into long-term lease agreements (3-7 years), and sell the properties to investors.
Sometimes this happens during the construction phase of a business center; A striking example is the DM Tower business center (developed by KR Properties) next to the territory of the Danilovskaya Manufactory, where office space is sold by floors and compact blocks from 70 to 1,050 sq. m. m.
At the moment, about 40% of the space in DM Tower has already been sold, although monolithic work has not yet been completed.
Risks. The stated payback period for the sale of a ready-made rental business is 8-9 years. At the same time, the rental agreement specifies the rental rate for the entire period of the agreement, including indexation.
However, investors need to evaluate the net operating income for this period: in practice, the rate is not always indexed.
The market is a moving phenomenon: supply and demand change, the landlord’s market can turn into a tenant’s market, and then the owner will have to make concessions, optimizing rental conditions.
Therefore, actual payback periods vary around 10-10.5 (sometimes up to 12) years. You also need to understand that the more “formed” the product you purchase and the fewer risks you take on, the lower the profitability will be.
Street retail
It is extremely rare to buy an empty building “for yourself” in street retail. As a rule, premises are sold with long-term lease agreements in force, which allows the investor to predict the return on investment.
Many companies on the market are engaged in the sale of GABs in retail real estate. The profitability of such objects varies from 5% to 15%. In top central locations, profitability is lower (due to high costs), but the risk of being left without tenants is much lower.
Risks. Having a tenant can sometimes become a burden. Other pitfalls: the complexity of managing a large facility, the difficult structuring of an acquisition transaction and the risks when purchasing premises. For example, over the past two years, many owners have been faced with the fact that the purchased building fell under Resolution 8 No. 819-PP, according to which it was regarded as an unauthorized building and was subject to demolition.
Real estate market in 2020. Pandemic
Whatever the forecasts for the real estate market in 2020, 2020 has shuffled everyone’s cards. Analysts urgently began to make new forecasts, and quarantine measures forced everyone to just wait. An unpleasant atmosphere reigned throughout the world.
Real estate in China
China, as the epicenter of the initial spread of the virus, has become of interest to real estate market analysts as a litmus test, although, of course, it has its own laws and peculiarities.
In 30 major cities of the Middle Kingdom, during the introduction of quarantine, real estate sales fell to zero, and the market froze. And if we take a period of several months, then the overall figures fell by 35% compared to last year.
But by May, when almost all restrictions were lifted, the situation had stabilized and even returned to pre-crisis levels. Moreover, by June the number of transactions had already exceeded the level of the end of 2019 by 1.5 times.
The main reason was said to be “help” from the state, which fixed prices for new buildings. After all, people still need to buy and sell apartments; the suspension was temporary.
Property in Hong Kong
The real estate situation in Hong Kong changed smoothly, because, having learned from the experience of 2003, when there was an epidemic of SARS, the authorities did not introduce strict quarantine measures this time. And just like China, Hong Kong saw growth by mid-2020 compared to a year earlier.
Real estate during various epidemics
Since the market was directly affected by the effects of the pandemic in 2020, it will be interesting to know what changes there were in other cases. After all, the coronavirus is neither the first nor the last pandemic. The analytical agency Zillow Research conducts just such statistics.
As practice shows, both during the 1918 influenza and during the anti-pneumonia of 2003, economic activity fell sharply, but after the spread of the disease ended, it recovered at an accelerated pace.
Thus, in the US market in 2020, before the outbreak of the epidemic, the real estate market was doing great. There was an increase compared to 2019. However, by March the pace had slowed. But not as much as in other countries. Prices continued to rise, although home sales fell 9%. This is the biggest drawdown since 2012. Demand, meanwhile, fell by 34%. In some parts of the country, transactions stopped altogether for a time.
Interestingly, the recovery began even before the restrictions were completely lifted. Experts stated that in both Russia and the United States one can observe a rapid exit of the real estate market from the crisis situation as it weakens
Real estate market in Russia
In Russia everything is not so simple. By March, an increase in interest from buyers could be observed in the Moscow real estate market. But then there was no talk about quarantine measures. When it became clear that quarantine could not be avoided, there was an even greater surge in demand. But when non-working days were introduced, buyers became quiet. Demand plummeted by 80%.
However, as experts stated, a slow recovery began by the end of April. The market was quiet, but quickly began to pick up.
And this state of affairs distinguishes the market from the crisis times of 2008 and 2014. New trends have also become active. Thus, most transactions began to be carried out by minimizing the personal presence of participants. Services that were just appearing on our market before 2020 received a powerful impetus for development. These include online viewings of apartments, advance payments, and electronic registration.
Analysts at this time stated that there was no need to fear a protracted fall. The real estate market will recover quickly due to, firstly, a wave of pent-up demand, and secondly, due to government support, because the Central Bank has begun to lower the rate.
It was also noted that by the end of 2020, real estate prices will return to their original behavior and will begin to decline again.
Investments in closed-end mutual funds (UIFs)
This is the least risky instrument for investing in commercial real estate: stable profitability, a minimum entry threshold and the opportunity to invest in almost any (including large) objects - shopping centers, offices, mixed-use complexes, etc. Investors buy units - conditional shares of the mutual fund's property, and portfolio managers select an asset for investment, assess risks, invest funds and manage the object.
For the investor, this scheme saves time, effort and money (payment of taxes and operating costs). Most investors can afford to buy shares in a mutual fund: the investment amount in most funds starts from 1-2 million rubles. The profitability of such projects can reach 10-13% per annum.
Risks. There are no guarantees of profit in mutual funds: a shareholder may not only not make money, but also lose money. It all depends on the experience of those who manage capital, their knowledge of the market and economic situation, seasonality, macroeconomic factors (crises, exchange rates, oil prices, etc.).
So, let's invest...?
Many people want to invest in real estate today, but not everyone can. The cost of entry is high, and with it the cost of error is high. The more profitable the object, the greater the risks. The decision in which direction to shift the risk/return balance remains with the investor.
When investing in luxury real estate, we are usually talking about millions, so you not only need to have solid capital, but also have a good knowledge of the market and the competitive environment. Luxury housing is a controversial asset. Expensive apartments, as a rule, have low liquidity - you can look for a buyer for them for years. But a relatively new format of apart-hotels, which bring maximum profit when rented out on a daily basis, is proving promising.
The commercial real estate market, which until recently was not very popular among investors, is, on the contrary, quickly beginning to gain momentum. There is a wide selection of properties, often more highly profitable than residential ones.
How to reach your maximum
- We decide on the amount of investment. For highly profitable properties, you can use leverage.
- We indicate the final goal of the investment: whether you are buying premises for subsequent sale/renting or a ready-made rental business - depending on this, you will build a financial model.
- We assess the degree of risk acceptable to the investor, investment terms, and payback expectations.
- We look for an object - ourselves (if we know the market deeply) or turn to consultants. To make a choice, we evaluate the location, infrastructure, and condition of the object.
- We carry out due diligence.
- We structure the deal.
- We manage the property: ourselves or we hire a professional management company.
- We receive income. We follow market trends, make renovations and change the concept if necessary.
To avoid disappointment, be patient. Even the most liquid real estate properties usually take a long time to pay off, but with a competent investment strategy, the results will certainly please you.
Photo on the cover and in the material: Unsplash
Documents for opening a real estate agency
Basic document giving the right to operate, company registration certificate. For individual entrepreneurs this is OGRNIP, and for limited liability companies - a range of securities. The second is preferable for a real estate agency.
Let's take a closer look at the procedure for registering a company:
- Application for opening an LLC - state standard number 11001. It indicates the direction of activity and puts a notarized signature of the entrepreneur.
- The company's charter, which is drawn up by the founder.
- If there are several founders, then a memorandum of association is attached.
- Paid state duty, presented in the form of a receipt.
After receiving the registration documents, a current account is opened. Anyone who has never encountered the field before has the right to start a real estate business from scratch, but it is more difficult for a person without experience to understand the processes and features of concluding transactions.
Documentation should be kept in strict order. In addition, the taxation system is also determined. Reporting is submitted in accordance with legal regulations.
