Photo courtesy Michael on Pixabay.
Investing in real estate is one of the most important decisions in a person’s life since it involves a big amount of money. People may purchase real estate for personal use or it can be for investment purposes. Real estate for residential use provides a roof over the head where the family can survive peacefully and see their children grow. When done for investment purposes it provides capital appreciation and can be let out on rent. There are a number of factors a person must keep in mind before investing in real estate and some of them are-
1. Location-
Location is important in real estate investing as it decides the profitability of the investment. If the location is good many people will want to purchase the property; thereby creating demand, which in turn causes the price to rise. For residential property, the things to be kept in mind before purchase are the neighborhood, facilities and amenities, easy access to water, safety of the place, etc. There should be schools nearby for the children and if a mode of transportation like the metro is to come to the place, it is all the better. This will lead to an appreciation in prices as people will find it easier to commute to their place of work.
If a person wants to purchase a commercial property the things to be kept in mind are; proximity to highways, markets, warehouses, social infrastructure like restaurants, malls, and shopping centers, which people visit more often, etc.
2. Valuation of real estate-
The other important factor in addition to the location is the valuation of the property and the price at which you wish to purchase. Without being aware of the prevailing rate and real estate trend the buyer can land a bad deal. If a person wishes to take a home loan the bank will conduct a valuation and then approve the loan amount. The property insurance too depends on the valuation. It becomes necessary for the buyer to be aware of the price in the area if they wish to use the property as an income-generating instrument and let it out on rent, where they can anticipate monthly rent as 3%-4% of the property value.
Besides this, being aware of the property value prevents a buyer from falling into scam traps. They can assess the pros and cons of purchasing the property by knowing the price. If the property is purchased at the right price it can be disposed of off later without much difficulty.
3. Investment Purpose-
The purpose of investment should be clear. Do you wish to occupy the property for yourself and want value appreciation, or do you wish to put it out for rent to get regular income? Being a landlord you will have to look after the repairs and handle legal issues. If you wish to rent the property to professionals you need to purchase a house near the office or commercial spaces.
You can hold the property for the short term like purchasing a property under construction and selling it on completion or can keep it for the long term for value appreciation.
4. New construction or old property-
New construction, as well as the old property, has its advantages as well as disadvantages. You have to sit down and evaluate the risk and rewards of each of them.
In the new construction, you may get a discount from the builder if the possession date is far away and during the festival season there are other discounts and offers for electronics items. You can get the house customized according to your requirements. The building is newly constructed, well painted, and looks pleasing in appearance.
The flats in older buildings may be cheaper than the new construction due to their age and require maintenance frequently. There may be delays in the construction of a new building due to several unfavorable circumstances, but the older construction is ready and the buyer doesn’t have to worry about the delays. The other things to check in a new project are the reputation of the builder and the quality of their previous projects. Check for additional costs like the GST and other charges.
In the older construction, you can visit during the rainy season to see if there are any leaks in the ceiling or the walls. Take rounds of the kitchen, washroom, and other rooms to check if some repair is required and it is better to take your spouse as two persons can spot the deficiencies better. In the new construction, you have to deal with the builder for the paperwork, but in the older construction, you have to deal with the owner of the flat and it is advisable to take the help of a lawyer to check the paperwork so that you are not in trouble later as you are investing your hard-earned money.
5. Loans-
There are certain things to decide before taking a home loan. These are-
- Decide if you are comfortable taking a floating-rate home loan or a fixed-rate home loan. Floating-rate home loans change during the loan tenure as they depend on the current lending rate while the fixed-rate loan remains the same throughout the loan term, thereby the EMIs are constant.
- Instead of the loan amount that you are eligible to select the loan amount that you can pay comfortably without delays or default.
- The loan duration can be for 30 years which decreases the monthly outgo but the interest payout can be more. In the shorter-term loan, there is a burden of bigger EMIs. It is better to select the right loan tenure, so monthly installment payment is smoother and also saves on sizable interest outgo.
- Make a bigger down payment as it will help in reducing the loan amount.
- Compare the processing fee. Even a small variation can make a huge difference as the loan amount is often large.
- People often want to become debt free from the loan burden as soon as possible. Before taking the loan you should check the prepayment charges and choose the lender with zero to negligible prepayment charges.
6. Real Estate Laws-
A home buyer should be aware of the real estate laws and rules. In case of a dispute with the developer for an under-construction property, they have to approach RERA (Real Estate Regulatory Authority). Till the property is not registered the buyer doesn’t become the legal owner of the property. Besides, when a person rents their property they should be aware of the rules and laws.
Real estate prices fluctuate over a period of time and it is good to be aware of the trends. This will make you enter the market at a lower price and exit at the right time. The other advantage of investing in real estate is that it helps to diversify your investment portfolio, provides capital appreciation over a period of time, steady cash flow if you rent out the property, and also the tax advantage if you take a home loan. Real estate has been an important investment for individuals for hundreds of years and will remain so in the future too.