Look before you Leap

The task of finding the right home, for most individuals, is nothing short of mammoth. For those who have endured the journey more than once, can tell you it doesn’t get easier with practice. The process of home buying should ideally involve a series of steps beginning from gathering basic information about the product, to matching it with your requirement and finally ascertaining a value that is justifiable to both the buyer and the seller. The number of steps you take from the start to the end depends upon the information you wish to gather, the advice you seek and finally the closure with those selling you the product. While many people tend to believe the most important aspect of this exercise to get the right deal, in reality a good price is only the tip of the iceberg.

Step 1: Understanding the product

When looking to purchase any product, it is essential to begin with understanding its features and qualities. In home buying we begin with understanding the tangible qualities of the property in question. Measuring and calculating the actual usable carpet area, room sizes, orientation, and layout help in determining whether the property will meet your requirements with regard to space and utility. A good property is one which has high quality finishing and is equipped with furnishing suitable to your needs. A well-planned building has all its electrical, plumbing, heating, and ventilation systems in place. It has robust firefighting and security systems and sufficient elevators to cater to the number of flats in the tower. A good residential complex will have a plethora of amenities like a fully equipped gymnasium, multi-purpose courts, reserved parking, convenience stores and green zones. Lastly, it is important to take note of the surroundings of the complex. Understanding the gentry and neighborhood will help you assess the safety and sanitation levels and determine how easy it may or may not be to access public transport, procure domestic help, access basic daily essentials and more.

Step 2: Calculating the VFM price

Once you have shortlisted properties that match your requirement and have all the necessary technical features to be labeled a quality product, your focus should shift towards the legal and commercial aspects of the same. Properties built on leasehold land with short lease periods are less valuable than those built on free hold land. When the ownership history is not cleared stated, there are litigations attached to the property or the property papers are fudged, your ownership will always remain uncertain. Therefore, it is integral to have a thorough understanding of the ownership of the land upon which the property has been built and the property itself, especially so in the case of resale flats.

The final price offered by a seller is indicative of how he values his asset. For a buyer to ascertain the correct value of a property he must not only consider the price at which the seller is willing to close but also the additional costs he will have to incur. If you need additional car parking slots, the property needs extensive renovation or major repair work, these costs must be added to the total cost of the product. EMIs and society maintenance costs are examples of indirect costs you will bear once you purchase the property and therefore must also be made a note of. Finally, the time frame within which you will need to pay their entire amount, the payment scheme offered and the cash component will determine your affordability. A good broker is one who can identify the right value for money (VFM) price and use his negotiation skills to get you the best deal in the pertaining market conditions.

Step 3: Capital appreciation potential

For most individuals, any investment in real estate is a long-term one which is likely to be passed down to their future generations. Before plunging into such an investment, it is important to study the industry, its market and price trends and calculate the possible ROI in the years to come. To do this analysis REITs, fund managers and investment consultants need to use the right financial tools for ascertaining the future valuations. The prospects and probability of your property appreciating in value in the future will be determined by the continuous yield it brings in and your regular cash-on-cash earnings.

It is common practice for many to focus on the second step while neglecting the first and last step. Ascertaining the correct value of a property and the right time and price to buy it will ensure you minimize risk and get the biggest bang for your buck. It is essential to seek advice from professional, well-informed, and knowledgeable persons rather than those who can guarantee only the best deal. When you undermine the importance of understanding the real value of a property and ensuring it meets with the minimum criteria of safety, legitimacy, and durability you not only risk your present but also the future of those inheriting your investment. Without information, as a buyer you are bound to be blindsided and at a loose end, should any issue arise, that could have been resolved with a little bit of research before your purchase. Caveat Emptor.

“Views expressed are the personal views of the author. Any action taken based on the views will be the responsibility of the user alone.”

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