How To Find A Property in Pakistan With Financial Advantages

All investment property should operate to a budget that is run monthly and monitored quarterly. The quarterly monitoring process allows for adjustments to the budget when unusual items of income and expenditure are evident. There is no point continuing with the property budget which is increasingly out of balance to the actual property performance. Fund managers in complex properties would normally undertake budget adjustment on a quarterly basis. The same principle can and should apply to private investors.

When assessing commercial real estate, it is necessary to understand the financial factors that the property creates. This is before you value the Property in Pakistan or think about it appropriate for purchase. In doing this, it is not only the financial factors today that you need to look at, but also those that have formulated the history of the property over recent time. In this case, the definition of 'recent time' is the last three or five years. It is surprising how property owners try to manipulate the building income and expenditure at the time of sale; they cannot however easily change the property history and this is where you can uncover many property secrets. Once the history and current performance of the property are fully understood, then you can relate to the accuracy of the current operating costs budget.
So let's now look at the main issues of financial analysis on which you can focus on your property evaluation:

1. A tenancy schedule should be sourced for the property and checked totally. What you are looking for here is an accurate summary of the current lease occupancy and rentals paid. It is interesting to note that tenancy schedules are notoriously incorrect and not up to date in many instances. This is a standard business drawback stemming from the shortage of diligence on the part of the landowner or the property manager to take care of the residency schedule records. For this very reason, the accuracy of the tenancy schedule at the time of property sale needs to be carefully checked against the original documentation.

2. Property documentation reflecting on all types of occupancy should be sourced. This documentation is typically leases, occupancy licenses, and side agreements with the tenants. You should expect that some of this documentation will not be registered on the property title. Solicitors are quite familiar with the chasing down all property documentation and will know the correct questions to ask of the previous property owner. When in doubt, do an extensive due diligence process with your solicitor prior to any settlement being completed.

3. The rental guarantees and bonds of all lease documentation should be sourced and documented. These matters protect the landlord at the time of default on the part of the tenant. They should pass through to the new properties owner at the time of properties settlement. How this is achieved will be subject to the type of rental guarantee or bond and it may even mean that the guarantee needs to be reissued at the time of sale and settlement to a new property owner. Solicitors for the new property owner(s) will normally check this and offer methods of solution at the time of sale. Importantly, rental guarantee and bonds must be legally collectible by the new owner under the terms of any existing lease documentation.

4. Understanding the type of rental charged across the Property in Pakistan is essential to properties performance. In a single land with multiple tenants, it is common for a variety of rentals to be charged across the different leases. This means that net and gross leases can be evident in the same properties and have a different impact on the position of the outgoing for the landlord. The only way to fully appreciate and analyze the complete rental situation is to read all leases in detail.

5. Looking for outstanding charges over the Property in Pakistan should be the next part of your analysis. These charges would normally stem from the local council and their rating processes. It could be that special charges have been raised on the land as a Special Levy for the precinct.

6. Understanding the outgoings charges for the properties in the local area is critical to your own land analysis. What you should do here is compare the outgoings averages for similar properties locally to the subject Property in Pakistan which you are involved. There needs to be parity or similarity between the particular properties in the same category. If any Property in Pakistan has significantly higher outgoings for any reason, then that reason has to be identified before any sale process or a land adjustment is considered. Buyers do not want to purchase something that is a financial burden above the industry outgoings averages.

7. The depreciation schedule for the land should be maintained annually so that its advantage can be integrated into any land sale strategy when the time comes. The depreciation that is available for the properties allows the income to be reduced and hence less tax paid by the landlord. It is normal for the accountant for the properties owner to compile the depreciation schedule annually at tax time.

8. The rates and taxes paid on the properties need to be identified and understood. They are closely geared to the properties valuation undertaken by the local council. The timing of the council valuation is usually every two or three years and will have a significant impact on the rates and taxes that are paid in that valuation year. Owners should expect reasonable rating escalations in the years where properties valuation is to be undertaken. It pays to check when the next land valuation in the region is to be undertaken by the local council.

9. The survey assessment of the site and tenancy areas in the properties should be checked or undertaken. It is common for discrepancies to be found in this process. You should also be looking for surplus space in the building common area which can be reverted to tenancy space in any new tenancy initiative. This surplus area becomes a strategic advantage after you renovate or expand the property.

10. In analyzing the historic cash flow, you should look for any impact that arises from rental reduction incentives, and vacancies. It is quite common for rental reduction to occur at the beginning of the residency lease as a rental incentive. When you find this, the documentation that supports the incentive should be sourced and reviewed for accuracy and ongoing impact on the cash flow. You do not want to purchase a Property in Pakistan only to find your cash flow reduces annually due to an existing incentive agreement. If these incentive agreements exist, it is desirable to get the existing landowner to discharge or adjust the impact of the incentive at the time of land settlement. In other words, the existing owner should compensate with a new owner for the discomfort that the incentive creates in the future of the property.

11. The current rentals in the properties should be compared to the market rentals in the area. It is that the properties rent is out of balance to the market rentals within the region. If this can be the case it pays to know what impact this can produce in leasing any new vacant areas that arise, and additionally in negotiating new leases with existing tenants.

12. The threat of market rental falling at the time of rent review can be a real problem in this slower market. If the properties have upcoming market rent review provisions, then the leases need to be checked to identify if the rental can fall at that market review time. Sometimes the lease has special terms that can prevent the rent from going down even if the surrounding rent has done that. We call these clauses 'ratchet clauses', inferring that the 'ratchet' process stops lower market rents happening. Be careful here although in this some retail and different properties legislation will stop the utilization or implementation of the 'ratchet clause'. If in doubt see a good land solicitor.

So these are some of the critical financial elements to look at when assessing a commercial Investment. Take time to analyze both the income and expenditure of the Property in Pakistan before you make any final choices regards land price or acquisition.