Real estate can simply be defined as the purchase of any property to generate income such as house, office building, agricultural land, commercial plot, etc. The goal of real estate investment is to put money to work and allow it to increase and get good returns in the future.
Investing in real estate is a great investment option as it can generate passive income for yourself. Since it is a long term investment, the value increases over time. To start investing in real estate, you need to make sure that you are ready to go for real estate investment. For this, you need a good amount of money to start investing. The decision to start investment in real estate is a big one as it includes a considerable amount of money.
Real estate has very less liquidity unlike other investments. Hence, you need to go through extensive research before making any purchase to avoid any costly mistake. If you are a beginner to this investment world, note down some of the following points to avoid huge losses.
1. Consider your financial position
Every investor should look into his financial stability before making any investment. Investment is best when you are financially stable, putting your extra money to work, and have enough backup to recover losses. Start by considering the present and future cash flows to calculate all the expenses. If you don’t have enough funds for the purchase of property,you can take a loan. Make a list of all the repayments if there is any loan to be paid before taking other to buy property. It is better to close all the loans before entering into the real estate market. You should have a liquid fund ready with you to make down payment which is generally 10% of the property value. Choose the best loan structure that works best for you, check the suitable repayment period and realistic EMI payments before signing any loan documents.
2. Perform Research
Before making any investment, it is important to research about the client you are targeting. Make a proper research about the property you are going to invest in. Your property should be situated in a good and attractive location depending on the type of clients you are targeting so that you can get good returns out of it. Make sure that the property is not indulged in any type of court case. Do your homework on the current property rate before purchasing it.
3. Start with Small Investment
Beginners should always start with a small investment even if you are confident enough to do so. Make your first investment without any errors, consider all the important things and get experience. Start with a small investment and once you are aware of all the things, you can go for big.
4. Perform Cost-Benefit Analysis
While making property investment, a cost-benefit analysis comes in two forms. If you are living in a rented property and thinking of buying a residential property then start with a cost-benefit analysis of rent vs buy if you haven’t made your mind yet. Consider all the important factors like monthly cash flows, availability of tax benefits on home loans etc. And if you are purchasing a property to get extra incomes, cash benefit analysis should be done in terms of cash down payment vs loan. Some of the important factors that should be considered are tax benefits on loan, loan period and forecasted appreciation over a particular time period.
5. Check all the Documentation
If you are confident about the property you are investing in, verify all the related documents before purchasing it. Check all the above mentioned things and then verify khata certificate, encumbrance certificate, conversion certificate (if agricultural land converted), power of attorneys, etc. Make sure that all the documents should be checked by legal experts. Incase seller is developing the property, you need to check the development agreement also. Some of the other documents are the completion certificate for the certification of project completion and the occupancy certificate for confirming that the property has met all the conditions for occupancy. Make sure to get all the documents before making any deal as it can lead to several problems later on.
6. Check All the Approvals
According to the RERA (Real Estate Regulatory Authority) guidelines, it is the responsibility of all the developers to get their project registered with it. The buyer has to verify if RERA provisions have been compiled with. It is the buyer’s duty to obtain all the approvals from local authorities and make sure that all the tax dues are paid to the municipal organization without any defaults being made.
Keeping all the above described points in mind, you should always begin with caution and consider all the problems that might cost you later. Investment in real estate is very popular, especially land investment which can get you good rewards over time. Whether you are purchasing any property, renting a property, or building a house by taking a home loan for tax benefits, you should consider some of the important things to avoid losses. to Before starting, just make sure that you are not putting your hard earned money into any kind of debt. Just consider all the factors of great investment strategy and get started.