Mistakes one should avoid while investing in Real Estate

Land has always been important in the Indian way of life. Considered to be the only sure shot investment that could bring you returns in the longer run, be it farmland, residential property or commercial property, real estate investments are a very important part of an investment portfolio.

Today, the booming population has put additional burden on available resources, especially land, and people are converting every inch of available land into sustainable dwellings. Big cities have witnessed an economic boom, leading to wealth but shortage of real estate, making investments in them a very smart move. With the price of real estate skyrocketing, purchasing even a small flat or apartment can lead to huge returns in the future. Not only do real estate investments offer high growth opportunities, they also provide immediate financial assistance, either in the form of rent or lease.

Land and real estate is perhaps the only investment which is guaranteed to appreciate over time, with it being very rare for land prices to depreciate. This makes real estate even more attractive and alluring, attracting people from all backgrounds to invest in it.

Under these circumstances, it is very important to look at some of the mistakes one could make while investing in real estate and try to avoid the same.

  1. Rushing The Deal – One very popular error when it comes to real estate is jumping the gun. While it is understandable that investors are in a hurry to sign the dotted line, rushing it can have its own consequences. Staying calm and patient and looking at all the various pitfalls of a particular investment while executing a deal is of utmost importance as this added time can help you uncover a better deal or find more relevant information regarding a property.
  2. Ignoring Paperwork – We often come across multiple cases wherein people are cheated off their property by giving them fake documents. Especially so in the Indian scenario. Documentation is perhaps The Most Important factor to consider while buying a property. There is a possibility for people to ignore documents, failing to read the contract in its entirety, checking the legal ownership and antecedents, could result in losing both money and the property. Scrutinizing the documents to check if they are legitimate and up to date must be made a habit before buying a property.
  3. Failing To Research – Research is key to every good deal and a lot of us buy a property without sufficient research. Failure to do this can dilute your investment, for you could discover aspects which can bring down the value of the property, or even worse, lead to it being a dead investment. Research on every aspect of the property, including previous ownership, building type, history of builder/developer, etc. are crucial for a good investment.
  4. Underestimating Costs – The main purpose of investing in real estate is to make profits, but there are instances where people put their money without calculating the costs. Underestimating the costs related to developing, converting or constructing real estate can land you in trouble. Taxes, government fees and registration charges associated with a property should also be kept in mind before you buy that property.
  5. High Expectations – We all wish to make the most money out of our investments, but harbouring dreams which are too far-fetched can lead to disappointment. Investors should have realistic expectations when they buy real estate, for having unexpectedly high expectations can see you ignoring other investment options, relying solely on real estate, which could be a mistake for the future of your investment.
  6. Overlook Small Details – Buying real estate can be a long and tedious affair, involving a lot of paperwork. It is possible to skip certain details in a bid to fast-track the investment process. Overlooking small details in the contract/agreement and the homework can have disastrous consequences, with builders often having certain clauses, which could lead to long drawn legal hassles in the future. It is best to have an expert look at the contract before signing it.
  7. Not Factoring Risks – Real estate investments are typically viewed as safe, but there are certain risk factors associated with it. Experts and people in the business can often smell these risks and give you the right advise. Ignoring the risk involved and purchasing a property isn’t the best investment move, and one should always factor in risks before they sign the dotted line.
  8. Blindly Trusting Others – A number of people who purchase property are first timers, who often rely on the word of others when they invest. Blindly trusting a third party without evaluating the background and the capability of the third party, while investing can be extremely stupid, for people are bound to do things in their best interest. Blind faith can lead to you spending more than what is necessary or purchasing real estate which doesn’t suit your requirements. One should consult experts in order to get a clear picture and rely on the word of those who have a proven record of offering good deals.
  9. Mis-timing The Deal – Timing is key to everything in life and a real estate deal is no different. Most builders and developers offer sales on their products and waiting for them could see you get a better deal on your investment. The demand and supply situation in a particular location also has an impact on prices and it is crucial that one times the deal perfectly to make the most of it.
  10. Failing to Make a Plan – The last thing you want to do is buy a house and then decide afterward what you want to do with it. When there’s a hot market, it can be hard to resist buying frenzy. But it’s important that you do. Before getting a loan or plunking down cash, you need to decide on an investment strategy. What type of house are you looking for, for example—one-family or multi-family, vacation destination, weekend destination or not? Figure out your purchase plan, then look for properties that fit that plan. It is always advisable to depend on trusted experts who have a track record in these things.
  11. Skimping on Research – Before buying a car or a television set, most people compare different models, ask a lot of questions, and try to determine whether the purchase they are considering is worth the money. The due diligence that goes into purchasing a house should be even more rigorous. There are also research considerations for each type of real estate investor—whether a personal homeowner, a future landlord or a land developer. Not only does it make sense to ask a lot of questions about the property, but you should also inquire about the area (neighbourhood) in which it is located. After all, what good is a nice home if just around the corner is a slum or a polluting factory.
    1. The following is a list of questions that would-be investors should ask regarding properties they are considering:
      1. Is the property near a commercial site, or will long-term construction be occurring in the near future? If so what would be the kind of construction, would it be beneficial or detrimental.
      1. Is the property located in a flood zone or in a problematic area, such as ones known for radon or termite problems? Is the ground water good enough for consumption?
      1. What is the plan of the developer? Does he have the stability and the capability to pursue the plans outlined.
  12. Doing Everything on Your Own – Many buyers think that they know it all, or that they can close a real estate transaction on their own. While you might have completed a number of deals in the past that went well, the process may not go as smoothly in a down market—and there is no one you can turn to if you want to fix an unfavourable real estate deal. Real estate investors should tap every possible resource and befriend experts who can help them make the right purchase. A list of potential experts should, at a minimum, include a savvy real estate advisor or firm who employs a competent home inspector, a legal team, and an insurance representative. Such experts should be able to alert the investor to any flaws in the home or neighbourhood and any defects in the title or easements that could come back to haunt you down the line.
  13. Forgetting that Real Estate is Always Local – You need to learn about the local market in order to make purchase decisions that are likely to help you turn a profit. That means drilling down on land values, home values, levels of inventory, supply and demand issues, and more. Developing a feel for these parameters will help you decide whether or not to buy a particular property or not. And if you are not local or are not abreast with the current local issues affecting land prices, it is always better to depend on local expertise.

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