Most people who buy real estate as an investment do so primarily in order to make money. But occasionally you might buy a house without thoroughly evaluating every aspect and calculating the whole cost. Additionally, doing this could result in you not getting the outcomes you want or, worse yet, financial loss.
Here are five hazards to stay away from when investing in real estate to prevent losing money when you sell the property or having an unsellable investment.
1. You are Unaware of Your Credit Score
Your credit history will be reviewed by your lender when you apply for a loan to buy a property. Any problems with your credit history could cause a loan application to be rejected or approved but with a high interest rate, according to Adhil Shetty, CEO of BankBazaar.com. Credit scores of 750 or above are frequently required for the best lending offers. They have a right to the best deals. Before submitting a loan application, spend a few minutes online checking your credit score.
2. Neglecting to take into account the whole cost of a real estate investment
The total cost of ownership must be taken into account when making a real estate investment. For instance, with a base price of 100, additional housing costs like GST, registration, stamp duty, brokerage, furnishing, borrowing costs, and so forth might easily raise the final cost to 120 or 130. According to Shetty, “Depending on your state’s laws, you’ll have to pay 5-7% in registration and stamp duty as well as 5% GST on an under-construction property. The cost of equipping the home can increase by an additional 5%. It’s possible that you’ll pay 15% of your base pricing. These extra expenses will cost 15 lakh if the whole cost is 1 crore.
Assuming a starting price of Rs 100 for selling real estate in Delhi, Shetty claims that the additional fees for stamp duty and registration may be Rs 7. In addition, you can be required to pay a brokerage fee of up to Rs 1 or a fee for borrowing costs (processing fees and MOD charges), which might be as high as Rs 0.10. In most cases, add Rs. 3-5 for furnishing costs if the house is unfurnished; however, as this is a matter of taste and budget, charges may differ substantially from case to case.
Additionally, a bank will typically fund up to 90% of a low-value loan and 75% of a high-value credit. The remainder is up to you. As a result, according to Shetty, you should always have at least 20–25 percent of your budget in cash on hand.
3. Reckless purchases
Santhosh Kumar, vice-chairman of ANAROCK Property Consultants, said: “A buyer should have viewed at least ten homes before his or her search can even begin to be finished. When a person is unable to resist sales tactics or is seduced by freebies that have nothing to do with the value of the item, they may make an impulse purchase. Often, an unscrupulous broker who is only interested in the commission would influence a customer to buy a bad home.
4. Not finishing one’s studies and exercising diligence
A thorough personal study into a number of aspects is always the result of a successful property acquisition. In addition to the obvious factors of price and location, the buyer should think about how much space they will need in the future, whether the infrastructure of the neighbourhood will improve, whether the property is currently the subject of a lawsuit or is otherwise problematic legally, and who the seller is. “A fantastic way to lower the risk when choosing developers is to stick with well-known brands. Similar to this, a buyer should look at the local infrastructure to see if it meets their family’s demands, as well as the pricing trends over the previous five years and the availability of vital amenities, according to Kumar.
5. Other investment types cannot be compared.
As a pure investment, investing in financial products like mutual funds, small savings, or stocks is far simpler and much less expensive. Financial investing has extremely few entry-level fees and barriers. With the exception of small fees like Demat annual fees, brokerage, and the expense ratio in the case of mutual funds, there are no costs connected with managing your investments, unlike actual properties where maintenance costs and property taxes must be paid. Additionally, it is much easier to get out of financial obligations. You can partially liquidate your financial investments when you need liquidity. A property cannot, however, be partially liquidated.