Buying property is an excellent investment. Real estate almost always shows an upward trend in terms of value, hence you are bound to get a higher price for the property when you sell it. But entering the property investment arena is not easy. There are several ways in which you can go wrong. Hence, it is essential to know how to proceed so as to attain financial success in property investment.
Consider the following tips if you are investing in property:
- Reduce or eliminate existing liabilities. Improving your credit history and your repayment capability are key to securing a good loan against property. If you have taken other property or business loans in the past, it is time to either repay them or reduce your liability significantly. You might even cancel old credit cards that you no longer use – credit card usage is also considered when calculating your loan eligibility.
- Repay personal loans. Many people borrow personal loans to tide over sudden financial crises. While these loans are good solutions at the time, they come at a higher rate of interest. It is wiser to repay these loans quickly so that your repayment capacity is increased and your credit score is improved.
- Research different lenders. You might be tempted to take a loan against property from a lending institution that you have a long relationship with. You may even have taken other loans from the same lender in the past. However, consider taking a loan against property from a different lender at some point of time – it is not wise to allow one lender to assess your entire portfolio as a whole, rather than individually.
- Don’t pledge all your securities to the same lender. If you are an investor who has several properties purchased but pledged with the same lender by way of loans, then you may have a problem when you wish to realign some of these properties if their value rises. You might want to switch to another lender offering a lower rate of interest, but the current lender may not allow you to do so. In this way, you might miss out on a good loan product elsewhere.
- Prepare a detailed plan. Not approaching the property investment arena with a plan can scupper any potential success you might experience at a later stage. Prepare a detailed report of how your property portfolio will shape up, your cash flow analysis, your repayment strategy and time frame, etc. This will instill confidence in the lender about your methodology in handling the property portfolio.
- Review interest rates periodically. The RBI cut repo rates on home loans last year. If you have borrowed loan against property from a bank, you are liable to a lower rate of interest when the repo rate is cut (the interest rate is not reduced for loans borrowed from financial institutions). Meanwhile, you might feel that switching from a fixed rate of interest to a floating rate serves your finances better. A periodic review of interest rates is thus, necessary.
- Set up alternative cash reserves. Prepare a plan for tackling low cash reserves or a lack of income, either through a loss of job or loss of business. You might consider setting up alternative cash flow systems, or aim to monetize one or more of your properties to raise capital, etc.
- Structure your loan with an accountant’s help. A badly structured loan portfolio will result in increased taxation and reduce flexibility in terms of disallowing you to cross securities. Structure your portfolio with the help of an accountant to increase your deductions.
- Choose the right interest rates. You might go with a fixed rate of interest when you take a loan against property, but if you repay the loan over a long period of time, you end up paying much more than you borrowed. If you are confident of repaying the loan earlier than the stipulated tenure, you could select a floating/variable rate of interest for lower repayment amount.
- Hire an experienced broker to negotiate your deals. You might not be adept at negotiating the price of the property, or even the best loan amount. Hiring a broker who knows the property investment space well and who also has contacts with lenders is a big plus. The broker can get you the best price for your home and also help you with getting a higher loan amount.