There are many chances to be misled along the winding, often convoluted path that is property investment. Whether you’re looking to buy or sell, often the parties you are dealing with tell you anything to try and convince you one way or another. Here, I want to bust five common myths about property investment.
Before going down the real estate investment path, the most powerful tool you can wield is knowledge. Prepare yourself with a little due diligence and your story will have much better chance of ending in success.
1.) You need a lot of savings to buy a property
Although it certainly wouldn’t hurt, there are still options available to those without bulging bank accounts who wish to invest. A good first step would be to talk with a representative of your banks to see what is your eligibility. Usually they ask you to pay 15% to 20% while they finance the rest.
So if you feel you need to have 40% of the property value at hand before you can invest in a property, DONT. Because, you don’t need to wait till you accumulate that much.
Depending on your past credit history and current financial and employment situation, you may be surprised to see how many options are available to you. These options can be explored and are often flexible and able to be adapted to the customers’ needs.
Down payment and Balance payment
Payments towards a real estate property can be categorized into 5 chunks if you are looking at borrowing to invest.
- Down payment to book the property (about 8% to 10% of property value)
- Balance payment at the time of delivering the property (8% to 10%)
- Loan given by the bank to the seller/builder (80% to 85%)
- Additional cost on the property such as Clubhouse fees, Sinking funds which is to be paid towards the end of construction (applicable when buying a under construction apartment) (2% to 5%)
- Legal and registration fees. (2% to 4%)
Each of these categories have some room for negotiation, either to reduce the amount or to delay the payment to a later time.
Offer from Builders
If you are looking at buying an apartment, then you have a few more options to get the apartment without a heafty down payment. Most big builders offer discounts and deals that can be in your favour.
Builders give an EMI holiday, especially in the case of apartments that will take another year or two to complete construction. In the given period you need not pay any EMI, so just the down payment is sufficient.
Interest free EMI
In this offer type, you dont have to pay interest on the loan taken from bank. This is borne by the builder, so you just pay the principal. This can be a great option to bring down the loan amount quickly.
Pay on Delivery
In this type, for apartments under constructions, you will just have to pay the booking amount and need not pay EMIs till the time you receive the apartment.
All of these can help you bring down the entry barrier to buy or invest in a property. While the examples given are for apartments, you could work out a part payment scheme with individual sellers.
2.) There is too much risk involved
Nearly every investment out there is accompanied by some level of risk. However, investing in property can be fairly safe. It simply requires you to take the initiative and learn a little bit about the market climate where you intend to invest. A whole host of tools exist for finding property appreciation rates for specific areas, availability of good candidates for investment and what it will take to get the most out of your investment.
Risks around real estate are more towards cheating or encumbered property with legal hassles which can all be overcome with a good lawyer who can help verify and ensure you are getting the best.
3.) It’s best to buy where you live
This certainly could be true, but don’t think this is your only option. Don’t only think outside of your neighborhood, think outside of your city or even country.
You might feel a sense of security if you invest in a property close by, but there is a good chance that there are other places in your city or a nearby one that have amazing potential for investment opportunities.
Think logically. If you are searching for a prime area for investment, take a look at the factors that would influence market values. Has the area already reached its prime? Is there industry or other economic reasons that will be influencing the market? These are the questions you want to find the answers for.
4.) The newer the better
Sure, a brand new house might have all the latest and greatest in home building technology, but older houses have a character and style that it is hard to find. There are a whole host of upgrades whether it be electrical, plumbing, insulation or remodelling that can quickly revitalise an existing structure. Having a open-mind and some imagination can help you see past worn facades to the hidden charm.
Be it apartment or an individual house, a older property can help bring down your total investment and registration costs down. In cities where land costs a bomb, you could consider buying an old property just to get the land and build later. This can be a far better investment than buying an apartment.
5.) The bigger the better
It’s not only large families shopping for spacious houses. Smaller dwellings are not only becoming more popular, they are becoming trendy. Larger builders give as much attention to small spaces that have just a room, hall and kitchen (1RK) or even 1 bedroom (1BHK) and studio apartments.
Investing in smaller properties can be a great source of passive income in the form of rent.
If you have been entertaining the idea of breaking into the property investment market, make sure that the preconceived notions you have regarding this promising path don’t lead you astray. Understanding these risks can help you take the right decision and not miss out on an opportunity.