Several issues weigh heavily on the minds of first-time investors, with the first being how to overcome their own misgivings about buying a property. Then there are other serious concerns relating to property search; legal and financial nitty-gritty of buying a property; and the long-term implications of owning and maintaining a property. While these may seem like enough reasons for a newbie to bolt, with proper planning and research, the process of purchasing a property could become quite smooth and stress-free. To take some pressure off potential buyers, we have put together a handy guide of practical tips to help them make the right investment decision. Here are some important tips for first-time buyers:
Before buying a property, a potential investor needs to ask himself this question: “How much am I prepared to wait before this piece of land starts giving me some serious returns?” There should be no doubt about the fact that real estate is a long-term investment instrument and an investor will have to wait at least 5-10 years before it can yield significant returns. So, it is important to determine one’s financial goals and capacity to remain invested for a longer period before taking the decision to buy real estate. Investors also need to factor in the mortgage burden and other expenses they would have to shoulder, if they decide against letting out the property after its purchase.
But despite the many challenges of becoming a property owner, in the longer run, the returns far outweigh the cost of investment.
There is no alternative to good market research before zeroing in on a property for investment. Potential investors need to gain as much insight into issues such as the prevailing realty rates, market trends, and interest rate movement among others. Once they decide on buying a property in a certain area, they must do an extensive research on the area; visit it personally to see the location, infrastructure and transportation facilities; talk to investors who have bought properties there; and consult property agents to understand the pattern of realty rates in that area before taking a final decision. This kind of research would give investors a near-accurate estimate of the expected rental yields from a chosen property and future returns from its sale.
Prospective buyers must also know that there is a possibility of expenses -- interest, repairs and taxes, exceeding the rental income. They could, however consult their tax advisor to understand how to offset expenses against taxable income and optimize your investment returns
There are now a number of home loan options to suit your needs. Let us take you through some of them:
Standard home loans can cover the entire amount you require to buy a home and repaid over a 25 or 30-year term, on a fixed or variable rate of interest. You would, however need a substantial deposit and a good savings record.
Home equity loans allow you to use the capital equity you have accumulated in your home which can be used as security against the purchase of an investment property.
Reverse mortgage/Reverse home loans allow you to draw a cash advance against the equity you have built up in your home.
Debt consolidation loans allow you to combine two or more loans including personal loans and credit card debt into a single loan with the convenience of only one monthly repayment.
Shared equity mortgages are offered by mortgage lenders in partnership with an equity provider who would have a stake in the ownership of your house. This kind of mortgage can allow you to invest in expensive property which otherwise would have been out of reach.
Family pledge is a kind of instrument where the family serves as a guarantor for investors or home buyers, and helps you fund the purchase of your property.
Before you purchase any piece of property in India, make sure the title is clear and marketable. If it is not, no financial institution would agree to finance the property. You also need to determine that the property adheres to relevant municipal/planning authority norms, has no tax dues or pending bills, has no tenants and is not mortgaged.
Before buying any property under construction, seek an allotment letter and development agreement from the developer. The allotment letter contains details regarding the agreed price, payment and construction schedule, house plans, delivery date and builder's liability in case of late completion or problems after possession. The development agreement is forged between the builder and the landowner and contains details regarding the terms and conditions on which the landowner has permitted development of his property.
The stamp duty is levied by state governments, on every registered property sale. It is usually paid by the buyer, to get the property registered in his name in the land revenue records. The final sale deed should be stamped and registered at the appropriate local area office in the presence of both the buyer and seller.