10 things to consider before investing in real estate
Our take on the safest and one of the most alluring investment options – Real Estate. Know more
Real estate investment is something that each of us ultimately plan for in the long run. Considering the steep rise in property rates, the fight to secure a place of your own is getting highly competitive. But with some intelligent planning and research, a decent investment in real estate is quite within reach.
Taking a leaf out of the books of some revered investment Gurus, here are the top 10 points a first time investor should question himself with.
Let’s face it. Why do you want to buy a house? For personal use or wealth creation? Earning is one thing while creating wealth is a different ball game altogether. Real estate investment is the strongest avenue of creating wealth if done clinically and with discipline. When you put your money in the market to procure a house, you cannot procure the entire investment back in cash. Yes. That’s a fact. You will never see, the entire purchase amount with the earned profits sitting ducks in your bank account waiting for the Tax department to come and wean you off it. You will have to reinvest it elsewhere and this vicious chain will always continue. So why do people invest huge chunks of money in property? Simple, because, property and gold are the only assets where the value is incremental and not depreciating. Real estate is the high payer amongst the two and carries lower risk.
2. Clean credit history
Since you most likely will need to get a mortgage to buy a house or any other real estate, you must make sure your credit history is as clean as possible. Get a CIBIL score check score done. A few months before you start house hunting, get copies of your credit report. Make sure the facts are correct, and fix any problems you discover.
3. Are you EMI ready?
With basic 2BHK prices in a developed locality with basic amenities costing around Rs.35-40 lakhs, the monthly EMIs at the current rate of around 12% for 10 years will amount to Rs. 62k per month ( check your home loan EMI ). Are you ready to channel that large a chunk of your monthly earnings towards EMIs? Get a reality check done.
4. Down payment backup
While you look at buying a house, 80% of the cost of property will be taken care off by the house loan. And the remaining 20% will have to go from your pocket. Do you have that much of financial backup? If not, it’s time you start planning for it.
Think through the location where you want to buy the house. Is it well connected to the local transport stations? Are schools, hospitals, markets and your work place within reach? How safe is the locality for you and your family members to live? No matter what your purpose of real estate investment is, these are the fundamental things that are essential from both residing as well as selling point of view.
6. Speed and scope for development
Does the locality where you are buying, look promising? Check with the residents in that area. Talk to real estate agents. Look out for development plans and projects about to finish in the near future.
7. Pre-approved loans
Getting pre-approved will you save yourself the grief of looking at houses you can’t afford and put you in a better position to make a serious offer when you do find the right house. Not to be confused with pre-qualification, which is based on a cursory review of your finances, pre-approval from a lender is based on your actual income, debt and credit history. For Eg: Bajaj Finserv offers pre-approved home loans within 5 minutes of your application online. (Source: CNN Money )
8. Interest Rate
“Lock in” the interest rate.
What does “locking in” your interest rate mean? It essentially means that the lender is agreeing to provide you with your mortgage at that particular rate, and that it won’t go up (or down) between the time you lock it and the time that you close on your home. If your mortgage is fixed-rate, your interest rate will remain the same throughout the life of the loan. Mortgage interest rates fluctuate constantly, and you don’t want to start shopping for a house operating under a certain interest rate assumption, only to be unpleasantly surprised that interest rates have risen during your house hunt. (Source: CNN Money )
9. Balance transfer
Check for banks/financers that extend the balance transfer facility. This allows the borrower to transfer the outstanding home loan amount from one bank to another in case of fluctuation interest rates or dissatisfaction towards the bank services. But, the flipside to this facility is heavy documentation which is as good as applying for a new home loan. For Eg: Bajaj Finserv offers this facility of balance transfer
10. Loan Insurance
In case of sudden death of the borrower, the loan amount automatically gets transferred to his/her immediate next of kin. It is always a good practice to insure your loan amount so that your family and dependants do not have to bear the brunt of heavy EMIs