There is no doubt in saying that real estate is one of the most recommended and safest sectors to invest in the modern era. People across the world invest in Real Estate Investment for many different reasons. Some want to have security in the form of a house, some do it to impress their peers, and some of them invest for the sole purpose of making profit. Given the growth of real estate industry in the recent times, purchasing even a small apartment or a flat can lead to huge returns in the future.
However, if you are a newbie in this business, there can be instances when you might buy a property without considering all the factors involved and without calculating the risk. And when you do this, it is obvious that you will not get the returns as per your expectations or worse, make a loss. But what choices one should make and what not?
In order to make sure that you won’t fall into any trap while buying or selling any property or even end up being saddled with an illiquid investment, read on this blog.
Here are eight common mistakes that should be avoided while investing in a real estate:
1. Underestimating the cost
Real estate is highly capital-intensive and it is crucial to evaluate your financial capabilities before entering a new investment deal. It is important for you to know that apart from the major expenses, including the cost of the property, taxes and registration charges, there are many other hidden costs involved in the property investment.
For an instance, if you wish to buy a house in a posh area, you have to consider its maintenance costs, expenses on furnishing and interiors, cost of repairs if any, utility charges, etc. Therefore, always prepare a detailed document of all the expenditure involving property you are interested in and check whether you can afford it or not.
2. Overlooking minor details
Investing in real estate is a very long and tedious task as it involves a lot of paperwork. So, it often happens that people skip some of the small details in a bid to speed up the investment process. Although it is not a good thing to do especially, when you are investing in the real estate sector for the first time.
Overlooking minor details in the contract papers can lead you to terrible consequences. To avoid long drawn legal hassles, it is best to have an expert look at all the documents before signing the deal.
3. Ignoring other investment options
In terms of investment, it is much easier to invest your money in financial instruments like mutual funds, small savings or equity than buying a highly-expensive property. Unlike real estate where you will have to pay maintenance charges, taxes, and other kinds of fees, there are no costs of maintaining your investments, in case of mutual funds, barring the Demat annual fee, brokerage, expense ratio etc.
4.Not choosing more liquid investments
As compared to other types of investments, it is no easy to liquidate real estate in case you have a cash flow requirement.
5. Not considering unpredictability of returns
Even if your property is rented, the tenant may choose to leave in which case your regular cash flow income from the property may get stopped. On the contrary, other investments do have more predictable returns in terms of regular cash flows.
6. Debt Obligations
Generally, property investment requires you to take a loan so it is possible that you may get stuck with an interest burden and principal repayment. Therefore, you must ensure that you have enough cash flow to cover these obligations.
7. Rushing in to signing the deal
It is the most common mistake people often make when it comes to investing in real estate. Though sometimes, investors are in a hurry to close the deal, rushing it can have its own consequences. Remember, it is very important to take your time before signing the dotted line as it will not only help you to uncover a better deal but you will also find more relevant details regarding the property. So, always evaluate all the options and then make your decision.
8. Not doing proper research
This is one of the most overlooked aspects during the process of investment. Research is the key to every good deal. Real Estate Investment can be an exquisite investment for you, if you carefully analyze the market conditions. Without a proper knowledge and understanding of the market, there are more chances that you may get deceived by brokers or fraud agents. Once you decide to invest in any property or even shortlist some of them, it is better to check these details – location benefits, market value, road connectivity, rental demand, builder’s history, and other facilities. If any of these factors goes unnoticed, it might adversely affect you as an investor.