What to keep in mind while investing in real estate
“Buy land, you can’t make it anymore,” said author Mark Twain. Most people invest in land or real estate in order to make a profit in the near or distant future. As with any other investment, investing in a property requires the careful consideration of many factors or an assessment of the total amount that would be spent. This can hinder returns from the purchase or sale or unforeseen losses. A property or land is not a liquid asset, making it impossible to convert to cash when needed. When investing in real estate, keep the following in mind:
Check your credit score
Banks and non-bank financial firms (NBFCs) first check the creditworthiness of people applying for real estate loans. This is a factor that most people still do not know and ignore in order to check their creditworthiness online before applying for credit. A lower credit rating can result in the loan application being rejected. The ideal credit score is 750 or more, which means that high credit borrowers can benefit from low interest rates on their loan applications. However, lenders can also charge high interest rates from loan applicants with a credit score less than 750.
Real investment costs
The face value of the property is only part of the cost. There are more costs associated with real estate investments, including taxes on goods and services, registration, stamp duty, brokerage fees, set-up costs, credit-related fees, etc. Adhil Shetty, CEO of BankBazaar, an online marketplace for financial products and credit checks The review stated: ” The GST for housing under construction that does not belong to the affordable housing segment is 5% with no input tax credit (ITC). For affordable homes, the GST is 1% excluding ITC. Selling completed properties (if a certificate of completion has been issued) or reselling old properties does not attract GST. In this case, you will have to pay stamp duty, not GST. “
Shetty reiterated the details of the stamp duty, adding, “Stamp duty for real estate registration is set by the state government, and different states have different stamp duties and registration fees. Even within a state, property stamp duty differs depending on the jurisdiction under which the property falls – local corporate boundaries, local council, or the gram of panchayat. The age of the property can be taken into account as well as the age and gender of the buyer when calculating stamp duty. For example, many states offer discounts to women and discounts on stamp duty rates. States can also get special time-based discounts on stamp duty to help boost the sector. For example, the government of Maharashtra state announced a 2% cut in stamp duty between January 1, 2021 and March 31, 2021, reducing the stamp duty on land registrations to 3% from three months for that period. “
Setup can cost extra. Also, banks only fund up to 75% of the loan applied for, which means you have to be willing to pay 20-25% of the cost of the property.
Take a look at the area
Extensive research must be carried out before buying any property. Aside from the amount that one needs to pay or get a real estate loan, you need to check the infrastructural details of the area. Whether the price for the property or the property would rise or stagnate in the future depends on the environment and the infrastructure. Also, check to see if the land you are planning to buy falls under the controversial real estate category. CS Sudheer, Founder and CEO of IndianMoney.com, an online financial products advisor, said, “Check for any papers of ownership. Property should have a clear title. Take a debit certificate and check it out. Check that the approved plan is available from the local city and town planning authority. Ask a reputable bank for a home loan approval. Having banks check the background can help you know if the property you are trying to buy is free of litigation. Get help from a forensic document reviewer and work to improve clarity. “
Explore other investments
Parking all the money on a major property or real estate transaction is pointless. There are equally good investments out there that produce equally good returns with no loans or the additional tax burden of owning real estate. This includes a healthy mix of mutual funds that contain equity and debt. Investment and maintenance costs, including annual fees on Demat accounts, expense ratio, brokerage fees, etc. are negligible compared to the costs of maintaining your property. Also, you can sell all or part of these financial instruments if you need money. However, selling real estate for cash isn’t that easy, which means you are likely to feel stuck during a sudden financial crisis.
Personal Finance is a weekly feature that aims to provide relevant and helpful financial information to our readers.