The decision to invest in real estate is a significant one for any investor, and it is also an investment that costs the investor a significant amount of money. Real estate, unlike most other investments, has far less liquidity. As a result, before making a purchase, the investor must conduct extensive research and checks to ensure that no costly mistakes are made. Read about the 5 Things to Keep in Mind While Investing in Real Estate.
Here is a list of things to keep in mind once you’ve started your search for the ideal property investment:
5 Things to Keep in Mind While Investing in Real Estate
Consider your financial situation.
This may appear obvious, but the truth is that not every investor considers his future earnings and financial stability before investing. This is bad for lending institutions and puts the investor in debt before he realises it. To begin, both current and future cash flows must be considered. Before taking out another loan on the property, a list of all loans that need to be repaid should be made. Before entering the real estate market, it is prudent to pay off other loans, such as student or medical loans. Read about investment property loans.
The investor should then determine whether he has liquid funds available to make the down payment, which is typically 10% of the property’s value. Finally, before signing the loan documents, the investor should select an appropriate loan structure, a suitable repayment period, and realistic EMI payments.
Examine the seller’s title deed and background.
If you are considering purchasing a specific property that you have seen, you should conduct a background check on the seller/developer. Individual sellers should have their identity and title documents verified, as well as succession certificates, partition deeds, wills, gift deeds, and so on.
When purchasing from a corporate developer, it is best to conduct a background check on their investors, financial statements, and whether the property itself meets all legal requirements.
Conduct a cost-benefit analysis.
When it comes to investing in real estate, a cost-benefit analysis can take two forms. One, if you live in a rented home and are considering purchasing a residential property but haven’t made up your mind, a good place to start would be to perform a cost-benefit analysis of rent vs buy. What are the monthly cash outflows in each scenario? What tax breaks are available? How long do you intend to stay in that location? Read about brrrr method for investing.
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If you are considering purchasing property as an investment, you should consider a cost-benefit analysis in terms of cash-down payment vs. loan, loan period, tax benefits on loan, forecasted appreciation over a specific time period, and so on. It would be counterproductive to invest if the costs outweighed the benefits.
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Examine all documentation
Once the buyer confirms that the seller’s title is clear, as previously stated, all other documents, such as the encumbrance certificate, khata certificate, power of attorneys, conversion certificate (in the case of agricultural land converted), and so on, must be verified. Legal experts should review these documents. If the seller is developing the property, the development agreement must be verified as well.
The completion certificate and the occupancy certificate are also important documents to look for. The completion certificate certifies that the building/project was completed in accordance with the city’s standards and did not violate any rules. The occupancy certificate confirms that the property can be occupied because it meets all of the approved occupancy conditions. Before making an investment, the buyer should have the completion certificate and the occupancy certificate (in the case of constructed property) in hand.
Examine all approvals
According to RERA (Real Estate Regulatory Authority) guidelines, all developers must register their project with RERA. It is the buyer’s responsibility to ensure that RERA provisions have been followed. The buyer should also confirm that the seller has obtained all other approvals required by the relevant local authorities, and that all tax obligations have been paid to the municipal body with no defaults.
Keeping the preceding points in mind, the buyer should proceed with caution in the case of real estate. And be on the lookout for any red flags that could cost him later. Real estate remains one of the best investment options in the country. Particularly land investment, which generally appreciates significantly over time. We hope this article on Things to Keep in Mind While Investing in Real Estate was helpful.