Buying a house is a huge investment. When you park such a large sum of money in an investment option like a house, it is important to consider its viability. It is always better to do thorough research on its historical returns, liquidity, and affordability. Therefore, though real estate is considered a lucrative investment, it is important to judge if it is the right time to buy a house. Before you take the plunge towards purchasing a house, watch out for the challenges associated with it.
You should consider these factors before buying a house –
1. Buying a house could be a costly investment
The prices of properties across the top seven cities in India are believed to be risen by an average of 38% in the last decade of 2010-2020. Considering these statistics, buying a house currently could be expensive. Having said that, you should consider your affordability while buying a house. Taking a debt to pay for a house might not be a wise decision owing to the current economic slowdown and pandemic-induced job cuts. Agreed, you could get tax benefits on the home loan, but the cost of EMI (equated monthly installment) cannot be overlooked as a burden on your budget.
2. It could be difficult to liquify your investment
Having an investment that can be easily liquified is important. But with a house property, liquidity could be an issue. Usually, selling off real estate property is tricky as it takes months or even a year to sell a house at a profitable rate. In such a case, your money could get blocked in your investment, not being helpful in case of an emergency.
3. Poor investment yield
There has been a downfall in the returns from the real estate market in the last few years. According to a report by the Reserve Bank of India’s (RBI) House Price Index, the returns from owning a house between 2015 – 2020 have been subdued at 5.5% per year. You might have to face low rentals and poor investment yield with a house property investment.
4. Better alternative available
Owing to the potential of capital appreciation in real estate, buying a house could be your first choice as an investment. However, considering that you might have to start incurring expenses in its maintenance, even before you start earning a rental income, it could be better to look for alternative investment options. There are various other lucrative investment options that have the potential of giving high returns, for example, mutual fund investment.
Mutual funds help you diversify your portfolio by investing in a basket of securities. There are different types of mutual funds that you can choose as per your needs and risk tolerance. You can Invest in mutual funds with the help of various mutual fund investment guides online. Also, you can start investing in mutual funds with a small amount as low as Rs 100.
Among the various investment options that we consider parking our earnings, real estate often tops the list. However, buying a house carries various nitty-gritty, knowing which is important to make an informed decision. Therefore, before you invest in a house property, do consider the above-mentioned factors. Happy investing!