Real Estate Investment Mistakes to Avoid for 12-15 Percent Return

The NITI Aayog has suggested that the estimated that the Indian estate sector will reach $650 billion by 2040 from the current levels of $120 billion. It is the safest bet and provides fabulous returns.

Investing in real estate does not require any special skills and even a first-timer can easily do it. Real estate remains the best bet as it not only provides a roof over the head of your loved ones and future generations, but it multiplies your money without any risk like stocks.

Due to the ever growing population in India and consequent increasing demand, the prices will continue to increase rapidly.

To make sure you get the best return on your property, however, you should avoid a few mistakes. Following is a list of a few mistakes:

Lack of Research

The real estate market is not transparent. There is a need for a lot of market research while buying, selling and developing property. Over the years, the role of market research has increased rapidly due to various aspects of property markets.

There is an extensive need for Market research consultants as they collect and analyze information related to various aspects of property markets. The property consultancy firms are likely to develop a good database that helps them to forecast trends more accurately.

It is also extremely important to check aspects like location benefits, land value, rental demand, road connectivity, nearby facilities, builder’s history, etc. The property that you are choosing to invest in must be close to amenities like hospitals, schools and banks.

Moreover, it should have proper access to water, air pollution and transport facilities. The property you chose must also be strategically located and must be well connected to the city.

A lot of firms do highest and best use study to understand the best use of property.

Evaluation of finances

A lot of people rush into real estate buying without evaluating their finances and more importantly, without understanding the fixed cost like cost of stamp duty, property tax, home insurance etc. There are other little costs like painting, maintaining, furniture that can add to be a mammoth amount when cumulatively added.

Factors like debt to income ratio, price to income ratio, price to rent ratio, down payment requirements, adequate cash flows are important factors to be considered before purchasing a house.

Lenders also consider your CRISIL scores and typically your debt to income ratio should be 36% but some will go up to 45% depending on other qualifying factors such as credit score and cash reserves.

It is also important to consider the rental income from the property as the rent payments usually cover the mortgage and you don’t need an extra income to qualify for home loan.

Similarly, consideration of down payment is also important because the lesser the down payment, the more would be the home loan and more interest would be accrued each month.

Not having a foolproof investment strategy

Having a good investment strategy is vital before investing. The investment strategy depends on a lot of factors like age, income level and experience.

Someone in their retirement would prefer a steady cash flow and would opt for a strategy that is less risky. On the other hand, a young person would choose an aggressive strategy.

Not seeking expert advice

It is extremely important to seek expert advices of realty consultants as they are well versed with the local realty market and provide competitive analysis which reduces the budget.

Other than providing market research, Consultants provide you the best location, location feasibility, location identification, investment management, entry exit strategies, loans and financing, inventory management, resale strategies etc.

Not opting a reputed developer

While investing, it is highly advisable to go for a reputed developer. Reputed developers provide global facilities and amenities with high-quality construction and good design.

Additionally, they also provide approvals and permits at the earliest, quickly provide home loans as they have a good credit score(cross-link)

Good developers also provide after service and because the construction quality is good, there are less maintenance costs.

Not choosing the right type of property

Purchasing a property gives you various benefits. After considering the objective of your investments, it is advisable to consider the capital growth of the properties in the nearby area, rental income in the nearby area, location should have proper amenities and lastly the aesthetics of the property i.e age of the property, the present condition and the configuration of rooms.

In Summary

There is an element of emotion involved in the process of buying a house or any piece of property. The best course of action is always to follow your instincts, but after doing proper market research and consulting with a professional you will be in a better position in the future.