A simple guide to read before buying a property

A simple guide to read before buying a property

Buying a real estate property is one thing which an average person does 2 or 3 times in his/her lifetime and there are so many factors involved in it that it becomes really easy to go wrong. Here I’m going to discuss few factors which I’ve personally learnt out of my experience. Here I’m going to discuss only about residential property and not any commercial property.

There is a famous saying that when you buy a real estate there are 3 factors that are utmost important viz. location, location and location. Below is my attempt to elaborate this statement, hope it turns out to be helpful for you.

A person typically buys property in an urban area for any of these 3 objectives

1. Self use
2. Investment
3. Hybrid

1. Self use

• When you buy for self use, generally you’re planning to stay there for at least 10 year if not more. All the access to the amenities like school, hospitals, malls, park etc have to be considered while buying. Depending upon your budget try to be closer to the city centre as much as possible for better connectivity. The negative point here is city centre is usually crowded but the accessibility to everything is much there. Do not expect the prices of the property to go up much since the infrastructure development is already saturated in that area which has already been discounted in the price you bought it. 

• If you’re in a dilemma of whether to buy a big house with average interior or a small house with premium interior my advice is to go for a bigger house, you can buy interiors at a later date when your cashflow improves but you will never be able to buy square feet later unless you shift.

• The property should not have aged more than 5 years, generally if you’re planning to stay there for 10-15 yrs, it becomes difficult to sell a property in future which is 25-30 year old construction. Not many banks/NBFC are willing to finance it for 20 years loan and generally you will have to sell it at a discount than the market price to be able to sell it in due course of time.

2. Investment

• When you buy it for investment, it is a different ball game all together. First thing you need to know is where the city is growing towards. In a city like Mumbai, you do not have too much option since west and south is all sea, it can only grow north or east. In a city surrounded by land, it typically expands towards the neighbour developed city. For eg. Pune has mainly expanded towards western side which connects better with Mumbai. Always buy a property in the outskirts of the city where it is growing. Over a period of time when city grows, it will no longer be the outskirt and access to amenities, offices etc will become better. Investor often make such mistakes and buy at prime location for better rental yields but rental yield is just 2-3% of total property value and you also have to account for annual maintenance, property tax, tax on rental income etc which will bring down the effective yield much lower. The prime location can give a better rent but the overall gain in property value will be relatively low which is the larger picture.

• Go for either 1/2 BHK, it is relatively easier to liquidate, you will find a tenant and buyer much faster. You’ll not have to sell the property at discount for faster liquidation which 4/5 BHK owners often face.

• Buy a new property and sell before it ages beyond 15 years. There are 2 reason to sell it sooner, one is already mentioned above in self use section, the other is because the structure of the property might get out dated.  For e.g. The age old property that we see is normally a chawl system where all the houses are in one line, the window is across the main door outside the corridor. The privacy is a big concern here, that was solved later by block system. Now that too is getting improvised with no shared wall concept, all glass wall, houses with smart space planning etc. An outdated property then has to be sold at discount.

3. Hybrid

• Now this is a house that you buy and live in but not permanently, you’re there for 5-7 years and want to move in to bigger house or different city later. You also want a better returns on investment plus at the same time do not want to discount too much on amenities part. The best of both world makes it very complicated to buy. You will have to trade off on certain stuffs to get the other one.
• The best and most efficient way is to pen down and colour code the list of amenities that you are not willing to let it go, willing to let it go and may let it go. Accordingly pin down to location that best fits your requirement. In self use house, your aim is to balance current as well as future needs, here you have to give more weightage on current needs.
• You might not want to spend too much on interiors here. It might give you an advantage when you sell but avoid spending it lavishly.

In a country like India, where a rented agreements are of short tenure, people living with families and parents often prefers to buy a house even for short term to avoid regular shifting. A luxurious house in a premium location might give you the fully furnished house but a budget house where most of the people live in has to bring their furniture along with them. The property and furniture in most of the cases do not fit well with structure of the house. There are certain mismatches like colour of the furniture and well, size of furniture and dimension of wall to name a few. Often it does not give a good vibe that an owned house with proper furniture and interior provides. Apart from all the financial calculations these are the soft factors that I believe should be considered before buying a house.