A lot of people invest in real estate with the goal of making some profit. But in the process of being solely profit-oriented, they forget to consider the other important factors involved along with the cost. In worst case scenarios, you might not get a return, let alone profit. In fact, you might even lose your capital investment in the process.
In order to make sure that this situation can be avoided while selling any property or when investing in real estate, we have come up with a list of options of mistakes to look out for.
Your credit score
Whenever you apply for a loan for purchasing property, your bank or money lending institution checks your credit history. In case you have any issues with your credit history, your loan application might get rejected. Another possible outcome would be an approved loan but with a higher interest rate. Lenders reserve best loans for those borrowers who have a credit score of 750 and above. Such loans have lower interest rates. Hence before applying for any loan to invest in property, make sure to check your credit score.
Not calculating the entire cost of real estate investment
Whether you are consulting a financial advisor or property developers in Chennai about investing in real estate, you must calculate the additional charges of owning any property. Let’s take an example of a house for sale in Ayanambakkam– apart from the base charge of Rs 1 crore, you are required to pay GST at 5 per cent, registration fees (5-7 per cent approx.), and stamp duty which varies from state to state. Along with these expenses, you will also spend money on furnishing the house- all of these quickly add up to another Rs 15 lakh after your base price.
For those homebuyers purchasing through brokers, you would need to pay additional money as brokerage. While it is true that these additional costs vary wildly from one property to another, you still need to calculate an estimate before applying for the loan.
If you are borrowing from a bank, you can expect to have most of the cost covered. Depending on whether the loan is of high value to a low value, coverage ranges from 75 per cent to 90 per cent respectively. You must be ready to pay the rest of it. Therefore, homeowners should have 20 to 25 per cent of their budget amount ready, in cash when buying a house even with home loans.
This is especially for those prospective homebuyers who make hasty decisions- impulse buying and investing in real estate is one of the worst decisions you can ever take. Experts and property developers in Chennai agree on checking out at least 10 properties before narrowing down on a couple of them. It is fairly common for buyers to fall into the trap of sales pitches and freebies that actually have nothing to do with the value of the property. At times unethical brokers lure buyers into making a hasty and impulsive decision of investing in real estate just to pocket some extra commission.
Lack of sound research and diligence
You can never find good investment opportunities in real estate or any kind of investment without conducting adequate research on your own. Some basic factors such as price and location always come into consideration. But apart from that, buyers also need to predict how much space he or they will require in the future, improvements and development opportunities in the area, infrastructure of the property, litigation (if any), the legal seller. If you are planning to look for flats in Mogappair, consider speaking to local people as a part of your research to get a clear idea of the neighbourhood. When looking for property developers in Chennai, it is best you stick to the reputed names.
Other significant factors that need to be checked are price trends in the last 5 years and availability of basic necessities such as clean water, and electricity, connectivity with the rest of the city, etc.
Thorough comparison with other forms of investment
If you are solely interested in real estate as an investment, you might want to consider other financial instruments to invest such as mutual funds, small savings or even equity. There are almost no barriers and costs to these financial investments other than minor annual maintenance charges for your Demat account, brokerage, and expense ratio. Real estate on the other hand requires maintenance which will cost you a chunk of money followed by property tax. Any financial investment can be liquidated as per your need. Property on the other hand cannot be part-liquidated.
You must consider these aspects carefully before investing in real estate to understand whether it is the best form of investment for you.
Doing everything on your own
While most of us are capable of understanding the basics, real estate investors must make use of resources such as a savvy real estate agent, a home inspector, and a good lawyer. With your team having to deal with various departments of investing in real estate, you can make much better and sound decisions.
Investing in real estate is tricky and involves risks, just like any other investment. Talk to a financial investor before jumping the gun. However, this list of the most common yet lethal mistakes people commit when investing in property will have you prepared. With a sound plan in hand and a team of experts to handle various aspects of investment, we truly believe that you will nail your next deal like a pro!