Property, or real estate, is usually bought for the purpose of living in it (residential houses / flats), or using it to generate an income (agricultural or commercial plots and premises). However, of late there has been a strong trend towards buying property from an investment perspective. In such a case, the intent is to sell the property after a certain period of time for a profit, as well as to earn money during the interim period by offering the property on rent. However, bear in mind that while property investment is usually not loss-making, it is not necessarily a road to guaranteed riches either.
In case you are looking to do this, please consider the following 10 tips before you lay down your down payment.
1. Right property at right price:
Be careful about overpaying for a property. If the price seems incongruous for the size of the property, or the area has seen intense speculative price hikes in recent times, there’s every chance you are investing in a bubble. Find out what was the final price paid for comparable properties in the same and neighbouring areas.
2. Analyse the cash-flow
You need to ensure that the EMI’s you will have to pay are not beyond your capacity. If you have a child’s marriage coming up, or need to send one abroad for education, consider whether it might not be better to wait until you know for sure how much that will cost you.
3. Pay down debt first
If you already have an outstanding debt, it is always a good idea to pay that off first. Do not make a downpayment for a new property by using funds that could have been used to pay off existing debt. A property will make a dent in your ongoing expenses over a period of time, you do not want that to keep adding to your existing debt burden.
4. Factor in ongoing costs
Generally in assessing the viability of an investment, we look at the ongoing expenses. For property, investors often make the mistake of looking only at EMIs. Of course, those are important, but also consider property taxes, society maintanence charges and the money you will have to pay to keep the property in good condition, from plastering to electrical maintenance to a hundred other things you may not imagine until you actually become a landlord.
5. Deal with a good agent
The ‘real estate agent’ business in India is unfortunately quite unorganised and unregulated. As far as possible, deal only with an agent who you are sure is reliable. Prefer agents who have incorporated companies and have a track record in the area. Word-of-mouth would possibly be helpful. Of course, if you are a high-value investor, consider hiring one of the big real-estate advisory firms like CBRE, KF or Colliers.
6. Understand local market dynamics
The place you are buying the property makes all the different to its valuation. Proximity to markets, to good schools, to commuter stations and workplaces is all important. Proximity to slums or restrictions on who can rent are also factors. Simply put, if the society you are looking to buy a flat in, prohibits ‘single persons’ or ‘non-vegetarians’ or ‘non-Brahmins’ from renting, you are better off looking elsewhere.
7. Use sale proceeds of other properties if possible
From a tax perspective, if you have recently sold another property, you can save tax by using the proceeds to buy another one. In fact, depending on how the numbers fall out, you could save the entirety of the Capital gains tax, so do that and reduce the amount of EMI you have to pay.
8. Shop for the best home loan
When you do ultimately go for a home loan, don’t opt directly for the one the builder tries to push on you. Shop around and find the best offer. In the present low-interest regime, you can even find a home loan below 10% if you look hard enough.
9. Make the property attractive to renters
To make a profit from real estate, one has to hold it for a fairly long period. Obviously it is better to rent the property out than keep it idle. (This also saves Wealth Tax). So try to make the property attractive to renters. Keep it fresh-painted in neutral colours and ensure the connections (water, electricity, gas) are kept running. If offering it with furnishing, keep the furnishing neutral and minimal.
10. Take the long term view
Last but not least, know that property investment is a long-term game. Don’t expect the market to tick upward overnight. More likely it will take a long waiting period. Be prepared to remain in the real estate game for the long haul and you have a good chance of coming out ahead.
