For lots of people, the key draw to purchasing properties as an investment is to reel in profits. But, there are situations where you could end up purchasing an asset and not taking into consideration all the important characteristics and not doing the right calculations. When one does this, they might end up without the returns they wished for. They can even set themselves up for a loss!
To ensure you do not end up losing when selling a property and ending up with an illiquid investment, we will list 5 common missteps to avoid when dabbling into the property sector.
1. Being unaware of the credit score
If you put in an application for a loan on your asset investment, the lender will going to look into your credit score and background. AS Adhil Shetty, chief executive officer of BankBazaar.com stated, lots of things listed in the credit background could render an application rejected or approved, but with a high interest rate. The top loan offers are usually kept for those who have a 750 credit score or up. They score the best and get the lowest rates. Thus, prior to applying for a loan, check out where you stand with your credit history.
2. Not calculating the total cost of the property investment
When investing in properties, one must calculate the total investment cost. For example, on a basic price of Rs100, your bonus fees for owning a home, registering it, stamp duty, the broker, furnishing, fees for borrowing and others can with ease amount to Rs 130.
If we’re talking about an under-construction asset, one is going to cash out GST at 5% and five to seven percent for registering and for stamp duty. It all comes down to the state. Furnishing the property will add up an additional five percent. You could get to 15% on the base cost. If the price is Rs1 score, one will have to spend Rs15 lakh on the bonus costs.
If we say the base cost is Rs100 for reselling an asset in Delhi, then the bonus fees could be Rs7 for stamp duty and registration. This aside, you could pay a fee for costs of borrowing, which could be more than Rs 0.10, or brokerage of up to Rs1. Let us say the asset is not furnished – this may incur Rs 3-5 in the majority of cases for furnishing charges, but this comes down to how much money is in the game and aesthetic preferences. In other words, the cost can really vary a lot.
In addition, a bank would usually fund 75% of a high-value loan or a maximum of 90% in a low-value loan. The rest of it has to be supported by you. Thus, in the majority of situations, you’re going to require a minimum of 20-25% of the budget ready as cash.
3. Purchasing impulses
Santhosh Kumar, Vice Chairman, ANAROCK Property Consultants, said a purchaser will need to check out a minimum of ten assets prior to searching to be understandable to him. Impulse purchasing may occur if one cannot resist sales pitches and likes freebies that add nothing to the real estate asset. Frequently, a broker who is not ethical will be guided just by commission and will be crucial in one purchasing an unsuitable property.
4. Not performing the research and due diligence
Successful real estate transactions are often the outcome of sufficient personal research on a variety of various factors. Apart from the obvious cost and location, the purchaser needs to also consider how much land they may need down the road, whether the location’s infrastructure may change for the better, whether the property is in conflict or in some other way legally troublesome, and who the seller is.
Stick to developers with good reputation in order to mitigate risk. A purchaser needs to also check out the neighborhood infrastructure and see if it is suitable for family requirements, what were the pricing trends in the past five years and what facilities are close by.
5. Not contrasting it with other types of investments
As an investment, investing in financial assets like mutual funds, small savings or bonds is far simpler and a lot less costly. Costs and limits to financial expenditure are insignificant. Unlike properties, where you will have to cash out maintenance costs and asset taxes, there aren’t any costs of handling your investment, barring small charges like yearly demise charges, broker fees, mutual fund expenses… It is far simpler to get out of those financial investments, too. Financial investments may be partly liquidated if you require liquidity. You can not, however, partly liquidate an asset.