Real estate has always been an avenue of attraction for investors, but it takes a good deal of observation and insight to make money out of it. You can invest in a property in many ways such as buying a place and reselling it or renting it out. However, you must keep in mind a few things before you zero in on a property for investment.
Let’s look at five such important things.
Legal aspects of the property
You must run your little investigation before you lay your hands on a property. Check the title of the property and if all papers are in place. If you take a home loan, the bank or lending institution may make its own verification of the property. However, you should always make your own independent investigation into the property’s legality. Verify the encumbrances (if any) on the property by looking at the encumbrance certificate. Property tax, phone bills, electricity bills and society charges are some of the papers you must check if there any leftover dues. Also, find out if the property has a registered society or not.
The down payment required for a property usually ranges between 10% and 20% of the total value of the property. However, you are at a liberty to pay more if you are comfortable. You must arrange for the down payment beforehand. You can always seek support from your employer, friends or relatives etc. to arrange for the deficit amount. You should also look at the expected time for getting possession of the property and negotiate payment terms accordingly. Some developers offer schemes wherein you don’t need to pay interest till you get the possession of the house. The amount is adjusted in future.
Buying property is a big investment and one often needs to take a home loan to fulfil it. Before you finalize a deal or even approach a builder, you must evaluate your eligibility for a loan. Talk to the banks and financial institutions and find out your loan raising capacity. If your credit score is around 750 and you comply with the income eligibility as required by the lender, your chances of getting a loan at competitive interest rates is good. Understanding your repayment capacity is also equally important.
Awareness about RERA
With the Real Estate (Regulation and Development) Act (RERA) coming into play from May 1, 2017, real estate developers and builders would have to be more transparent with their customers. RERA’s objective is to protect the interest of home buyers by quick dispute redressal. For example, developers are now not allowed to take more than 10% of the property cost as an advance/application fee in the absence of a registered agreement for sale. One must be aware of the norms under RERA before buying a property to ensure a fair deal.
Additional costs associated
While estimating the overall cost of the property, don’t forget to add up additional costs such as registration and stamp duty charges, payment of loan processing fees, brokerage fee, etc. They together can easily bump up your purchase price by 10%. For example, the property price is Rs. 50 lakh, so its stamp duty would cost you around 5% to 7%, which could go up to Rs 3.5 lakh, and the property registration could cost you 2% of the price, which would be Rs. 1 lakh.
Do not forget to assess the rental return potential of the geography you are looking at. After all, it makes up for a substantial part of your return on investment.
(The writer is CEO, BankBazaar.com)