Author – Dev BT
Nobody wish to see this
signboard outside their DREAM HOME!!!
"A wise INVESTMENT STRATEGY can be the key to achieving financial freedom in Real Estate".
If you are interested in dipping your toes into the waters of Real Estate Investing, these tips are useful educational content and personal insight gained through years of experience that may help you avoid any potential pitfalls and maximize your investment performance in REAL ESTATE.
As an Investor you must cut out on “Unnecessary Wastefulness of liquid funds and instead, Invest funds in Money-Generating-Assets”.
Are you planning to buy a home in the future? If you’re planning to buy a home & avail bank loan, you will find there are lot of choices.
You can talk to a local bank, apply for loan online or use other channels. But, what option is best for you?
Read these tips to avoid costly mistakes while buying a House and applying for loan;
1. Not having Specific Investment Boundaries
1st things 1st – If you don’t have specific Investment boundaries and end-up buying property beyond your LIMIT, you should not Invest in Property, why? Repercussion of failure to pay on time;
- End-up Forfeiture of your Token payment.
- Paying Penalty for late payment.
- End-up Cancellation of Buy-Agreement and paying Interest-on-it.
- Even if you own it after paying late-fee, the actual cost of buying will be much higher.
2. Borrowing LVR over 80% of the Property Cost
KEEP IN MIND – BANKS AND LENDERS WILL DISCUSS EVERY BENEFIT about loan – Small or Large, EXCEPT THE PENALTY OR FORFEITURE TERMS OR WARNS ABOUT WORST SCENARIOS!! (it is mentioned in the contract agreement but in-very-small-legal-sentences and most buyers don’t go-into those buyers agreement details).
If you watch their FACIAL EXPRESSION closely, they are the best SMILING faces @Time of Lending and the same faces will trun to WORST or DIRTIEST (real-face) @Time of Recovery if you failed to pay-back or defaulted on EMI!!
It’s true that a 10 or 20% deposit is enough, in most cases, to make your move on Buying a property. However, home loans with over 80-90% loan to value ratio (LVR) are considered QUITE DANGEROUS.
Many buyers think in-terms of Interest rates, because the Interest rates are low, giving the average borrower or first home buyer the impression that repayments are affordable; more and more home buyers may be biting off more than they can chew!!
DAMN IT!! It’s not Loan interest rate you should be WORRIED ABOUT, it is your Paying Capacity regularly and your continuous source of Income that matters so that you can pay loan EMI’s as scheduled to prevent loss of your ASSET and avoid seeing other side of those SMILING faces.
Buyers need to be aware of long-term changes such as Interest rate increases and make informed decisions so they are financially prepared. In case you couldn’t pay installments on time or in worse scenarios you lose your job or other source of Income, failure to pay installment could cause you lot of heartache and financial loss like;
- Can lose your home if you default on the loan installment.
- No guarantee your investments will be appreciated in few years or worse the developer will deliver project on time if booked in new upcoming project OR Developer goes bankrupt.
- Can end up with no equity in your home due to default and penalty cost.
- Your home could end up being worth less than your loan amount if property values fall.
Our Suggestion – Take this RISK only, if both Partners are working professionals or you have back-up income stream in the form of Rental Income or other sources, otherwise AVOID THIS RISKY OPTION.
3. Inconsistent or Poor Cash-flow Management
The Result of Poor Cash flow Management;
- Increased interest and bank charges.
- Missed opportunities.
- Poor relationships with suppliers (Business).
- Poor relationships with customers (Business).
- Low Employee morale (Business).
- Stress & Anxiety.
- Solvency & out of Business (Business).
- Restricted Growth (personal & professional).
- Dented Credit Ratings.
4. Focussing all your Investment in One Location or One Project
“NEVER PUT ALL YOUR EGG IN ONE BASKET”.
– Warren Buffet – Billionaire Investor
- Best Part about Real Estate Investment..IT OFFERS MULTIPLE OPPORTUNITY – Never Invest in One location or One Project regardless of any reason. We have seen BEST & TOP DEVELOPERS DEFAULTING ON CONSTRUCTION & HAND-OVER TIMELINE within Capital in India, one of our friend had booked property in that project 6 years ago, and the Developer had not completed project till 2017 November which was supposed to be Handed-over in mid 2014.
- Diversity of Portfolio is the name of the Game – Mix your Investment like Retail – Commercial – Residential – Hospitality – Institutional – Healthcare, etc.
- Evaluate Multiple locations – Established and Upcoming New development zone.
Don't Buy the House; Buy the Neighborhood
An Astute Property Investor
5. Not Checking-out the Neighborhood
“A good NEIGHBORHOOD Increases the Value of your Property“
– An Astute Real Estate Investor
A Good Neighborhood
Getting everything in-one place is SIMPLY IMPOSSIBLE as an ideal neighborhood but there are components common to ALL great neighborhoods like;
- Lifestyle Match – does it matches your lifestyle.
- Pride in Ownership – You should feel proud being part of this neighborhood.
- Enough Security – Low crime rates.
- Good Education Centres nearby – Nursery, School, colleges, University, Management college in few distances.
- Areas for Outdoor activities – Parks, Playground, jogging tracks, tennis court, community centre/club, golf course nearby.
- Greeneries around the Streets – Ideal and A MUST for Healthy lifestyle.
- Access to Medical Centres – Private and Govt. hospitals nearby or not too far.
- Family Friendly – People living with their family and children.
- Well connected to Public Transportation – Availability of various mode of Transportation i.e. Road, Rail, Metro, Air in reasonable distances.
- Shopping, food, entertainment, nightlife – Local markets @Walking-Distance, nearby Retail markets and Malls with multiple eatery options, night clubs for young couple and Cinema/Multiplexes for movie-lovers.
- Enough Parking Space & Wider Roads – this is one of the key problems with most residential townships.
- Maintenance – Basic Infrastructure of Society/Residential Township, Managed by professional agency or Association.
6. Physical Inspection-Not Seeing What you are Paying For!
Physical Inspection of a Home is a must process while buying a house and MUST do it yourself. Otherwise, you wont be able to detect issues with the home like; a roof that needs replacing, a home in a high-risk flood zone, issues with sewer lines and other plumbing, restrictive local zoning rules for home improvements, an electrical system that needs updating.
As a buyer you should look past attractive finishes like high-end countertops and look for signs of possible big problems, things like cracks in the foundation or water stains on the ceilings or walls. The brief list of inspection are;
- Structural soundness and recognize a roof in need of repair, inspect it thoroughly.
- Don’t judge a room by its paint job – quality windows and countertops.
- Plumbing: what lies beneath – get underneath the sink and examine those pipes. Check for leaks, water damage, and mold.
- Check out the land beforehand – Don’t just look at the building — examine the area around it, examine if there’s any large Sewerage pipes passing from the back-yard or worse New Fly-Over/Bridge construction plan above is underway by local Govt. (in the long run Building, Interior and Fixture cost will be Peanuts compared to Land-Cost).
- Do check if you smell sewage, gas, or anything equally unpleasant?
- Get your hands on everything by touching and inspecting.
- Have a home inspection done by a Professional.
The cost of refurbishing can add Rs.10,000-25,000 or more or in worst scenarios, you have to demolish and re-build the entire house. That is why a property inspection is so important before purchasing as you can be made aware of likely costs to repair the property.”
Take Caution – Sample Apartment View – If you come across a sample Apartment or Villa while going for new house buying, DON’T GET IMPRESSED BY WHAT YOU SEE!! The real product @Time of handover will be much different than what is shown here. The Developer will Invest almost 4x more expensive and luxury material to show SAMPLE APARTMENTS/VILLA/HOUSE than what will be actually used to finish the product.
One of our Old Client (A very busy Entrepreneur) was shown a Beautifully designer home in posh south Delhi in 2002, he and his family liked the Interior design so much that they bought the house immediately, however, after registration and possession of the house, his family went for repair inspection, and faced their SHOCK-OF-LIFE!!! A mortuary on the back-yard, this was the result of Trusting an Expert and Family person too much.
7. Not working with Professional Agent
Why you should hire Professional Real Estate Expert?
- They are Experts – Knows the processes and everything real estate if you work with an Expert, they resolve if there’s any title issues.
- They will guide you on prevailing prices & market conditions.
- Have multiple listing options to choose from.
- They save you time and headache of handling volumes of paper-work.
- They knows the law of the state, neighborhood taking pressure off.
- Negotiation – They act as Middlemen and negotiate price, keeping both parties interest safe. Sometime Negotiation process turns Argumentative or Ugly, in such situation the middleman will play important role or sometime the buyer analysis says the price is much lower than what is quoted but he/she cannot quote the price upfront, in this scenario the middlemen expertise comes in handy which sometime result in BIG Cost saving.
- They can help you stick to deadline.
- Bank Loan – They can help or guide you avail bank loan.
- Network – Can Help you connect to Professional service providers.
8. Over Dependent on Expert Agent
“Take advice from an Expert but @the-end Trust Your GUT” Dev BT
Are the so-called experts worth it OR should you trust them Blindly?
It’s completely up to you to decide how much to Trust them or whether to Trust them or not.
However, our advice is, take an expert advice, do more research before signing on any dotted line and NEVER TRUST ANY EXPERT or worse CLOSE FAMILY MAN BLINDLY.
9. Don't Use Emotions over True Sense of Judgement
There are several emotional traps you may fall into when dealing with real estate transactions.
While emotions can be great for happiness, love and laughter, they have little benefit for PROPERTY INVESTMENT. While this is understandable, it should be avoided. Listening to your heart rather than your head often results in overpaying for a property, rather than being patient and negotiating the best deal possible.
As a buyer act on insights from head, not your heart, and if you want to make an informed investment, you should do the market research beforehand, keep your emotions at bay and carry an analysis sheet or notes along.
10. Lack of Research Analysis
LIVING OR INVESTMENT?
1st thing to do before start Researching, decide if it is for Living or Investment.
"When You're buying a property...
careful research is the key to successful Investment and Good Returns"
Research is crucial, there are so many elements of Research, the key one’s are like Financial limitation, size, location, category (apartment, land, commercial, residential, Industrial, etc.), Infrastructure, local building by-laws, Zoning restrictions, prevailing circle rates, average appreciation/depreciation rates in the past few years, underground sewerage pipe-line by municipal authority, any upcoming bridge/fly-over building plan by govt. and other due-diligence process.
ANOTHER VERY IMPORTANT KEY ELEMENTS WE WOULD LIKE TO ADD IS – LAW & ORDER OF THE CITY/STATE/PROVINCE, if Law & Order is poor scope of appreciation will be very low, rather chances of LAND-GRABBING by Bad-Elements exist there all the time. Apart from it, check the state-law if an outsider is allowed to Invest in the State, there are few states which still follow the Century old ARCHAIC law and still living in the past.
If you plan to buy for Living, than check the NEIGHBORHOOD carefully, whereas if you plan to buy for Investment than look for APPRECIATION potential and Infrastructure development plan by local or state authority.
Development of Good INFRASTRUCTURE will result Appreciation of Property since people will flock to that direction for Living or setting-up Business.
11. Builder's Credibility
How to check credibility of a Builder?
Selecting the RIGHT Builder is the Most important part of Home Buying process which lot of new buyers realize after paying more than 50% of installment and sometime loosing their Hard-Earned money. Following are the check-list to verify the Credibility of the Builder;
- Background Checks & Reference Check.
- Builders Reputation – Ask questions like;
- Check projects – Past, Current & Planned.
- Quality of materials used.
- Time period taken to deliver past project.
- Ask for Referral and check them.
- Past performance of a Builder speaks for itself (use Common-sense).
- New or 1st Project – Check if the builder is 1st time or new comer in the market, check his background and be very cautious in this case.
- Part-Time or Full-Time Builder – There are part-time builders and Full time one’s, when it comes to selection, always give Priority to FULL-TIME builders whose CORE BUSINESS is Real Estate Construction and who had delivered lot of projects ON-TIME (ideally within 36-40 months).
- Few of the Reputed Developers; DLF Ltd., Ansal Housing & Infrastructure, L&T, Prestige Group, Shobha Ltd., Lodha Group, Hiranandani group, Tata Housing, Godrej Group, etc. (Complete list will be published shoon in another article).
- Check if he is part of Reputed Builders Association.
- Check if he is registered under RERA or not?
- Bank Associated or bank loan approved project – in this case, if the bank loan is pre-approved on the project, there’s some kind of certainty that bank has done due-diligence of this project. However, DON’T RELY 100% ON THIS INFORMATION, everyone knows how most bank works!!
- Search Google, Internet, websites, Social media related to Builders for any sort of latest news or informations, gather as much informations as possible.
12. Freebies & Assured Return Guarantee
Nothing Comes for FREE and there's nothing called ASSURED RETURN...
until unless it is a REIT (A registered & income generating trust).
GREED is one of the Biggest Enemy of Real Estate Investment. During all these years, we have seen millions of Real Estate Investors loosing their money in the name of Assured Return from Part-Time and Corrupt Builders across the world including India. These builders will lure new house buyers with FREE gifts like; New automobile, Cruise Holiday plans, and lot of other Free-stuff. However, these tricks are meant to attract buyers and Commitment & delivery RATIO of such Projects are VERY POOR. (we have seen few of our close Investors stuck for last 12-13 years and still waiting for home possession lured by these FREEBIES and ASSURED RETURN GUARANTEES). So next time you see such advertisement rise a RED FLAG and do your Mathematical analysis and listen to your Gut-Feeling.
Reputed Builders – During our 21 years of Entrepreneurship in Retail & Commercial Real Estate, we have not seen any Reputed Builders offering these kind of Freebies or Assured Return Guarantee. Their price might be little higher but the Quality of finished product is much better and they Commits & Deliver on time …. and delivers what they promises.
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