Real estate investment is one of the most popular investment avenues all over the world. Real estate investment – whether for a residential home, or simply as an investment option – continues to retain its charm despite periodic setbacks to the property market. As with all other investment options, investing in real estate also requires dollops of discipline and care.
Investment in real estate can be done for a number of reasons, and the reasons may differ from person to person. For one person, it can be the culmination of a lifetime of dreams and savings, while for the other it may simply be a business for making profits by buying cheap and selling high. Some persons invest in real estate to earn rental income by renting out the properties, while some use property investments as a method of parking excess funds.
The property investment market has witnessed tremendous upheavals over the years, yet real estate investment retains its charms for a large number of investors. A lot of investors consider property investments as the safest bet – perhaps next only to investments in gold, as far as capital conservation is concerned. And to state the truth – the potential for property investments can be understood from a single fact – the population is increasing everyday, while the supply of land is limited. The law of demand and supply ensures the rest.
Real Estate Investment Tips
As stated earlier, investing in real estate is similar to other avenues of investments in a lot of respects, and therefore, you have to keep the basics of investing in mind, and avoid the common investment mistakes. However, investment in property has its own peculiarities due to the nature of the underlying asset and the dynamics of the property market. Therefore, an intelligent investor needs to consider the following additional points for investing in real estate -
1. Location –
A popular adage in real estate investment says that three things matter most in property investment – location, location and location. This common wisdom states the most basic point in real estate investments – that location is an important determinant of its value. Therefore, pay close attention to where you are purchasing the property.
2. Know Your Market Thoroughly –
It is well worth to invest some time to research the dynamics of the real estate market in the particular location of the property. Is a highway coming up near the property in near future (good for commercial property) ?
3. Reputation of Builder –
Do some basic research about the builder, in case you are investing in flats or commercial property. Look at the track record of the builder, about market reputation, quality of construction and customer feedback.
4. Do the Due Diligence -
A basic research about the property which interests you. Is there any encumbrance involved? Is the property a subject matter a subject of a lawsuit, or is the property title disputed in any manner? It is better to stay clear of such properties.
5. Payment Terms and Delivery –
How much will be paid at the different stages of construction? How much will be paid in cash and how much through cheque (a reality in Indian property market!)? When will you get the possession?
6. Bargain/Negotiate –
Use all your negotiating skills to get a lower price – maybe you can save enough to pay the property broker. Negotiation would not mean being pushy – be nice but firm.
7. Availability of Finance –
Unless you have saved enough to buy the property in cash (not a very bright idea anyway), you will have to arrange for a loan or financing.
8. Keep a Track of Transaction Costs –
Keep a sharp eye on the transaction costs, as they add up to a decent sum by the time you end up taking the possession of the property. These transaction costs may include fees, brokerage, any local taxes, stamp duties etc.
9. Keep a Track of Legal Issues –
All the legal formalities associated with the transfer of property should be fully completed. Check whether the sale deed has been properly executed, the stamp duty is properly paid and property papers are in order. Remember, a stitch in time saves nine – so it is better to be fully alert at this stage than to rue later.
10. Understand Implications of Real Estate Investment –
Though an investment in real estate is very attractive on a number of parameters, it is certainly very weak in one crucial respect – liquidity. So if you are investing in real estate today so that you will get enough money in future for your daughter’s marriage, be aware – sometimes a property deal may take months, even more than a year to come through.
While its is true that real estate investment is an attractive option, yet, it requires a greater degree of care and diligence on the part of investor, as compared to investment in other avenues. This is because for most of the common investors, investment in property is a once-in-a-lifetime achievement. It is very often the culmination of a lifetime of careful savings. Therefore, it makes good sense to pay attention to the above ten points, and invest safely and carefully.