Investing in real estate is an enormous task. A prospective buyer, first time or otherwise must consider a number of factors before committing to a piece of property. However, there are some basic mistakes that a prospective buyer can avoid. This list will attempt to provide some clarity in the messy business of investing in real estate.
1. Research: This is the golden rule. The importance of research cannot be stressed upon enough. A fair amount of research can make all the difference between a good investment and a bad one. Attention should be placed to details such as
- Type of locality
- Connectivity to hospitals, schools, airport, etc.
- Reputation of the builder and developer
- Property rates as well as the rates of neighbouring properties
- Is the house located in a problematic area like a flood-zone?
- Is the home insured? Will the property require additional maintenance expenditure?
- Judging the market value of the house and find out if you are paying above the market value.
- Ask yourself questions. Assess if the house will be mainly for living purposes. If not, then can the house be rented out? Or, can it be put on the market again? If so, what will be the value of the house then? All in all, be clear about the purposes you have in mind for the house and proceed accordingly.
2. Discuss: Discuss your plans with others. Consult with family, friends, other buyers as well as sellers. Inform yourself of policies such as the RERA that protect consumer rights. If necessary, seek professional advice from consultants who know their ways around the real estate business. Discuss loan strategies and more importantly, set investment boundaries.
3. Set Investment Boundaries: It is also very important to figure out what one requires from the property they are looking at. An easy and foolproof way to tackle this would be to make a list of requirements. A list of requirements also assists in the setting of investment boundaries. If one does not set an investment boundary, chances are that they will end up paying a lot over the stipulated budget and incur heavy losses. The buyer should also evaluate other properties instead of setting their sight on one. It is often the case that sellers confuse buyers to get them to buy their property. In these cases, to avoid this confusion it is best to consider other prospective properties too.
4. Tax Benefits: Remember your tax benefits. This is a very important step as overlooking this step will guarantee heavy loss and no monetary returns. Keep track of tax benefits on existing property and any new property you might be investing in. It usually helps to have a consultation team as they will keep you informed at all times.
5. Bad Financial Decisions: This is one of the trickier areas in real estate investment. Bad financing has severe and unalterable consequences. Experts say that bad financing is one of the ways in which investors lose most of the money. First off, the buyer needs to be aware of their credit score at the bank. If they haven’t paid off earlier loans it is likely that the bank will not offer any financial assistance to make the purchase. It is advised that the buyer clears any loans they have in the bank before setting out to invest. However, this can’t provide any guarantee, because in 2008, during the credit crisis, refinancing became very difficult. Bad financial decisions can be a combination of factors such as
- High-interest rates
- High monthly payment
- High rates of borrowing
- Balloon payment
All of the above are connected to each other. Mortgages only allow borrowing of 80% of property cost. It is advisable to not borrow more than the stipulated 80% as that could endanger future assets one is borrowing against. High-interest rates combined with high monthly payment can very easily lead to a balloon payment in a short period. This is again, not advisable as selling and refinancing to combat the balloon payment is a difficult and time-consuming process.
6. Debt: This is another important aspect of real estate development. Research on how debt works and chart out the best plan for payment. Experts advise buyers to choose for debt with lower interest rates and a larger down payment. This ensures that the debt incurred is paid off at a steady pace.
Of course, it must be remembered that there is no foolproof way to success in real estate investment. However, with diligence and attention to detail, certain problems can be anticipated. This list attempts to inform prospective buyers of basic problem areas.
Disclaimer: Article has been posted by Oswal Group