Among the options of residential, industrial, and commercial properties, the most prominent option in India is residential property investment which includes dealing with apartments, flats, and houses. Investment options like commercial and industrial properties tend to give a specific amount of return unlike the residential properties.
The process of property management is important to understand before deciding whether to invest in a property or not. If it seems time-consuming to you, you can contact real estate agencies as they can help you in this regard. Once you hand over the investment concerns to these firms, they’ll provide a variety of services to make your investment profitable in return for a small sum. They offer the following services:
• Marketing of tenants.
• Arrangements for rent collection.
• Fixing repairs.
• Providing tax summaries.
1. A Few Initial Hiccups
For investing in residential properties, you have to bear some additional costs which include:
• Stamp Duty: It is the biggest fee which will depend on the price of the property. Sometimes, it can reach up to 6%.
• Deposit: It may be necessary to deposit a specific percent of the property purchase price.
• Conveyance Fees: It is deducted when you have bought a property for investment purposes.
• Legal: It is necessary in case of legal ownership transfer.
2. Ongoing Expenses
Renting out a residential property can be very profitable, but it is not that simple to manage. While computing your returns, estimating the ongoing costs is a major part of property investment. As it is not an easy task, make sure you prepare yourself for the following expenses:
• Cost of interest on a borrowed capital.
• Cost of insurance which needs to be renewed after a specific period of time.
• An annual tax payment upon purchasing a property for investment purposes.
• Cost of repairs, which varies according to the property maintenance.
3. Negative Gearing
With the excitement of great returns, investing in residential properties requires you to be careful. The net value of your property is more than the net outgoing capital, therefore it’s important for you to know that your success and failure depend on the market situation and there’s no guarantee about it. Some cash flow issue may arise and thus managing your finances may become tougher. Thus, if you’re planning to invest in a residential property, you should know the difference between ‘investment’ and ‘ a second home’.
Investing in a residential property is not a cakewalk. It means that you’re an investor as well as a landlord, and you have to take the responsibility for both roles. Being a landlord is not as easy as it seems to be and tenants will never understand this.
Before investing in a residential property to rent it out, it is important to ask yourself that am I ready to become a landlord? Am I responsible enough to handle all the landlord issues? There are many things to consider before deciding to invest, like additional costs, ongoing expenses, extended vacancies, cash flow issues, and late rent payments. If you are able to handle all these matters, you can make your investments.