What’s better? Investing in commercial properties or investing in residential properties. This is a very important topic for any potential investor who is looking out for making an investment in real estate. We here at OSS have discussed everything that you need to calculate before you do make the investment in this market.
Investing in real estate in itself is very good for your portfolio as it’s another kind of diversity you can have in the form of investments, This helps in dividing your risks! By making investments in real estate you can benefit from the fact that Real estate is only a market that is comparatively least affected in times of economic crisis. Real estate investments can be classified into two forms and they are:
Residential properties.. when talking about the rental yield it gives you about 2.5-3%. Which really isn’t that bad. But, keeping in mind this is the rental yield we are discussing here! There are many benefits of investing in Residential properties for example.. It is very easy to get a loan from banks for the purchase of these kinds of properties. Also the leasing process is much easier. In comparison with commercial properties there is a low holding period as compared to commercial property. Now, talking about the draw-backs of investing in residential properties are that you have to make an initial investment of getting the interiors done for even giving it out for rental purposes and even after that the rental yield is not that high. Also, mainly a rental agreement in residential properties cannot exceed a period of 36 months. Also, buying a residential property is comparatively cheaper.
So, speaking about commercial properties.. It has a brilliant rental yield of 6.5-8.5% which is an excellent yield in terms of commercial projects in real estate. Also, it is possible to lease a commercial property out for long-periods that is up to 9 years. The commercial value is not very volatile! That means there are no major fluctuations with these kinds of properties. But, again that can be contemplated in a good and a bad way! The property values tend to be stable for prolong periods of time and also for it to be a commercial property it must be of a specific minimum size and also it is very difficult to sell as there are very few buyers for commercial properties in the market!
We must also keep in mind that anytime we take a loan for buying any of these properties be it.. Residential or Commercial there is a provision given to the individual while paying-off his Income tax these provisions come under Section 24 and 80C of the Income Tax Act.
So, after looking at the pro’s and con’s of both kinds of properties.. We can say that both have their own advantages and disadvantages. One has a higher yield but is harder to sell and the other has a lower yield but is easier to sell. So, it all depends on the perspective of the investor that what kind of risk is he willing to take.
Traditional residential loans, or residential mortgages, are typically distributed by banks to borrowers. Unlike residential mortgages that are typically between banks and the individual buyers, a commercial mortgage is made to a company. For tax purposes, it is also usually in the best interest of the borrowers to sign as a representative of a business entity — since the property is zoned for businesses uses.
In addition, commercial loans are riskier (in the eyes of lenders) than residential loans. This makes a commercial loan’s interest rates higher and terms shorter. Why? Because there is a whole secondary market for commercial lenders that is separate from traditional banking institutions.
In order to qualify for a commercial loan, investors are required to have a business plan as well as a solid credit score — for the most part. Commercial lenders are more concerned with the property’s projected cash flow than residential lenders are. They will want to know who will pay utilities, what type of maintenance will be required, and more before approving the loan.
Finally, the terms, conditions, restrictions and penalties vary greatly between commercial and residential loans. Homeowners usually finance their properties over lengthy periods of time. — most commonly with 30-year fixed rate mortgages. Although residential buyers have many other loan options available, this time frame is ideal due to a longer amortization period that creates smaller monthly payments. Residential loans are typically amortized over the life of the loan, so the loan is fully repaid at the end of the term. Unlike residential loans, terms for commercial loans typically range from five to 20 years, and the amortization period is often longer than the loan term. Commercial lenders are also able to customize the loan repayment schedule to each borrower’s specific requirements.
Choosing between a commercial vs residential investment property is no easy feat to tackle, especially because both come with their own set of benefits and drawbacks. Both will diversify your portfolio, both come with significant tax benefits, and both will bring you one step closer to achieving your goals of financial freedom…So how is an investor to choose?
The answer to that question ultimately depends on what it is he or she wants to gain by investing in real estate. Investors should take some time to think about their short and long term goals. If they are looking to make a quick buck to start, rehabbing or wholesaling a residential property might be the way to go. If, on the other hand, they are in it for the long haul and looking to achieve passive income, commercial properties offer attractive benefits.
If you want to earn the most returns, you might want to consider investing in commercial real estate. On the other hand, residential properties may be more appealing if you’re more comfortable working on a small scale. Thinking about how much time you’re willing to devote to your project as well as your risk tolerance can make it easier to decide where to invest your money.
As quoted by a few leading real estate experts.. Real Estate market is expecting push post-Lok Sabha Elections 2019 as the sops — reduction in GST, reduction in RBI Repo Rate etc. — announced by the central government ahead of the general elections 2019 notification would start showing its effect on the sector. In fact, the private equity and venture capital funding agencies have got a clue about the government intentions in regard to the real estate sector hence the question has become ripe into the Indian real estate sector as to which segment is a better investment option: commercial real estate or residential real estate? The industry insiders say that Real Estate Investment Trusts (REITs) are enough to indicate that commercial real estate is poised to give a better return for both individual and retail investors while the residential real estate will remain a hot destination for the individual investors.
Brigade Cornerstone Utopia is a brand-new residential venture by Brigade Groups, a brand well known for its innovative and unique endeavours. Brigade is one of the leading real-estate firms of India head-quartered in Bangalore. The firm has vast expertise in various portfolios that includes Residential, Offices, Retail, Hospitality & Education sectors. The Group has also been consistently ranked among the 100 Best Places to Work in India for 8 years in a row. The awards and recognition received by Brigade Group across various horizons mirror the accomplishments of Brigade as a proven brand, well established and authentic strengthened with excellent customer service and immaculate build quality.
Brigade Cornerstone Utopia in Whitefield, Bangalore East by Brigade Group is a residential project.The project offers Apartment and Studio Apartment with perfect combination of contemporary architecture and features to provide comfortable living. The Apartment and Studio Apartment are of the following configurations 1BHK, 2BHK and 3BHK, the size of 1 BHK Apartments in range of 782 – 799 sqft, the size of 2 BHK Apartments in range of 1097 – 1240 sqft and 3 BHK Apartments in range of 1538 – 1905 sqft. Brigade Cornerstone Utopia prize range from 36 Lakh - 1.06 Crore. The residential enclave Brigade Utopia features the very best in Brigade Group's luxury living segment. The project offers open Apartments with lavish highlights. The builder is ensured to carry a quality living experience to the community of Varthur Road, East Bangalore with brilliant architecture and an equivalent lifestyle in Brigade Utopia halcyon.brigade Utopia Location has amazing network and it is situated at the crux of Varthur Road – Balagere Road close to existing and forthcoming communities & facilities.
Brigade Groups is the most prominent real-estate firm of the India headquartered in Bangalore and has its operations in Mangalore, Mysore, Chennai, Kochi, Hyderabad and Chikmagalur, and a representative office in Dubai. Founded way back in 1986 by Shri M.R. Jaishankar, the firm has firmly established itself as the top real-estate brand of the country with vast expertise in property development discipline across Residential, Offices, Retail, Hospitality and Education Sectors. Brigade’s residential projects offer a wide range of luxury apartments, penthouses, villaments, senior living homes and fully integrated lifestyle complexes, mixed-use lifestyle enclaves and townships, premium residences, luxury apartments, value homes and urban studios. Brigade has received several national and international awards & recognitions and is well known as innovators and inventors to use technology as a catalyst for creating sustainable and scalable businesses in Real Estate Industry.
Out Of The Numerous World Class Amenities, The Significant Luxuries In Brigade Cornerstone Utopia Incorporates Landscaped Garden, Indoor Games, Cctv Cameras, Swimming Pool, Gymnasium, Play Area, Rain Water Harvesting, Club House, Tennis Court, Car Parking, Cricket Court, Basket Ball Court, Drainage And Sewage Treatment, Multi-Reason Hall, Guest House, Security, Visitor's Parking, Yoga, Aerobics And Meditation Room, 24hr Water Supply, Golf Course And Avenue Tree Plantation, There Are Number Of Benefits Of Living In Apartments With A Good Locality. The Location Of Brigade Cornerstone Utopia Makes Sure That The Home-Seekers Are Choosing The Right Apartments For Themselves.
The strategic location, it stands on, is the propertys biggest asset nestled comfortably in the opulent locales of Varthur Road near Whitefield, the project is much in demand since it is possible to access Brigade Cornerstone Utopia from every corner of Bangalore city. The projects location is exceptionally well-connected to different part of Bangalore, including Whitefield, ITPL, ORR, Marathalli, Sarjapur Road, Hoodi, and KR Puram, etc. A number of IT companies are located at Whitefied, thus boosting the propertys demand.
This wholesome smart township includes all elite features to be ranked as one of the leading ventures of Bangalore. The specifications associated with the project are of top-class and high-quality standards. May it be the in-housed High-street shopping and dining arena or the exquisite of multiplex with family entertainment & food court; Brigade Utopia stands tall to give an unparalleled housing accomplishment to its occupants over its peers. The premise includes extensive landscapings and provides separate access to residential wing thereby bestowing utmost privacy and security.
The specifications related to foundation, Flooring/tiling, Masonry, home security, joinery, lift, sanitary, painting, plumbing and electrical departments are of high-standards and quality. Each department is handled by group of skilled workers under the supervision of top Architects, Civil Engineers, landscape consultants and Structural Experts to deliver a product that tops in elegance and eminence.
Spreading over 47 acres of landscape this mixed-use and future-ready township luxurious project is designed to offer a different way of living with the tag of the green community of the town. The RERA approved project will comprise more than 4000 luxurious homes in G+26 floors structure of towers. Residents have a plethora of options to live as per their choice in studio apartments, 1, 2, 3 bedroom homes and senior living residences. Here each amenity is planned uniquely with the know-how of latest technology. What differentiates it from the rest of the developers' buildings is that its European themed building structure is different from other common residential apartments of the tech city Bangalore. A befitting place for highly well advanced IT gentry of the city.
Brigade Cornerstone Utopia township project is completely eco-friendly. Here residents can live in under complete natural atmosphere having all the ultra-modern amenities and can breathe fresh and pure air. The Bio-retention Pond, Medicinal Garden, Butterfly Garden, Wetland Garden, Sensory Garden, Natural pond, Respite Garden and Gazebo will give them the experience of living in a complete natural ambience. Living in a metro city like Bangalore one can hardly get such experience of nature. It is the greatest plus point for the resident here.
It is also a sustainable project where there is ample provision for wastewater treatment, rainwater harvesting tanks, solid waste management systems, solar panels and air quality metering. This unparalleled future township is so designed that residents don’t require to travel long distance for fun frolic and entertainment. A proposed multiplex with family entertainment and dining options, high-street retail are enough to engage them in the township of their own.
Brigade Cornerstone Utopia Varthur Road the neighbourhoods of Whitefield are highly developed with all physical and social infrastructures. Many reputed and outstanding schools, colleges, healthcare centres, multiplexes, luxurious hotels, restaurants, shopping malls, fuels stations are within the vicinity of Brigade Cornerstone. The most important part is that many Prestigious IT Tech Parks like Sigma Tech Park in Whitefield, Brigade Tech Park, and GR Tech Park etc. The other tech parks which are located in Sarjapura road are within 6 km distance which will hardly take 30 minutes to drive. The project is located in such a location where one can get an endless option to all the daily requisites. Another main reason for calling Brigade Cornerstone Utopia a royal township project is because within the premises commercial shops, Cineplex, and retail stores are also available.
After short-listing the property it is very important for an individual to check the Genuineness of a property. It is better to maintain a check-list while doing so.. This will help keep track of what task is completed and what’s not! This will help you properly understand the process of buying a house!
We here at OSS have simplified it into simple steps that you can refer to and go ahead with your purchasing process of the house.
Check the Title Papers.
It is mandatory to have a check of the legal documents of a property before you make the payment for the same. The most important thing is to check if the Title is clear or not. It is suggested that you go to a property Lawyer with the legal documents for staying on a safer side!
Check if it is Approved by Good Banks.
Another way of knowing if the property is legally clear for purchase is to have a look if it has been approved by leading banks. Banks only Approve properties that have all the legal clearances and valid documents.
Check for any loans or mortgages.
In case of resale, the previous owner does have the option of taking an additional loan against the property he owns. Be informed enough to know if the property has ever been mortgaged or not. This also is a pretty important point.
Check the constructed and sanctioned area.
Before going ahead and buying the property it is mandatory to ask the builder for the sanctioned plan and what you must do is to compare it with the actual built-up area. In some cases, there are illegal constructions which are not in accordance with the Sanctioned plan.
Check for encumbrance certificate.
An encumbrance certificate consists of all the details of previous registrations which a potential buyer can get from the sub-registrar’s office. It is a proof of free ownership and it testifies that the property is free of any hassles and Is a green signal for purchase.
Check if Property Tax has been cleared in full.
Property taxes are usually paid on an annual basis, It goes a long way to check if it has been paid for the tenure he owned the apartment as it shows how diligent he is as an owner and if he has paid all the taxes it gives a stamp of trust for making any kind of transactions.
There is also another thought and decision making process one must keep in mind to make all the above stated points go as smoothly as possible! What is a fake seller and why would anyone want to knowingly waste time and money on something so lame? It may seem like a bogus idea, but fake sellers are out there. Trust us, we know. From our short-lived personal experience to boot! So here’s the rub. Fake sellers can easily seem like real sellers. They do all the things a real seller would, such as put the house on the market, place FOR RENT signs on the lawn, have an agent and host open viewings. However, whether knowingly or unknowingly, they waste their time and money doing all of this because they are not really READY to sell. If you don’t know how to detect fake sellers, then you cannot avoid them. And if you don’t avoid them, then you may waste precious time and money to fruitlessly negotiate buying a house that isn’t really for sale. The number one reason that people cannot sell their homes is because of a grossly high asking price. When you hear that an owner is having difficulty selling their home at such a high price, beware! As with the case of our first loft offer, what it actually means is that the seller is refusing to accept the market’s opinion of what their house is worth. They may have an alternative motive, such as making up for the costs they’ve spent to upgrade their place. Or just to try to get more money from a buyer who knows nothing about the current market. This, by the way, is different from real sellers who mistakenly place too high of an asking price. Real sellers will wise up over time. Fake sellers will not. Our advice is to move on and go ahead and get in touch with a channelling partner who is really willing to take the troubles of a new house buyer and get him through without feeling any hassles in a safe and secure environment.
Getting a seller who is motivated is important. Most sellers are motivated by a life change, such as a job transfer, a recent marriage or divorce, retirement, etc. Having a REALLY motivated seller makes it better for the buyer, because they will have a better chance at negotiation. Our fake seller was obviously not motivated at all, which made it easy for him to be uncompromising. Lack of motivation is a giant red flag. Run the opposite way, especially if you hear them say “they are just testing the market”.
My best advice is to do the same as we did. If you find yourself dealing with an unrealistic, unmotivated, and uncooperative seller, it’s time to walk away. Find something else. Maybe that seller will wise up, but then again, maybe not. You don’t want to waste your time and energy trying to coax reason into a seller like that.
Plus, you may find that it ends up being a blessing in disguise and you find a property that checks off even more boxes! Like our customers did! In the end we can give you a tip on how you can actually boost your skills on how to catch a scam that may be out there.
You’d like to think the average web user is sufficiently well informed to recognize a scam when he or she encounters one, but it’s not true. Scammers wouldn’t continue to post these advertisements if they didn’t work to some extent, so fraudulent listings surface everywhere. You shouldn’t feel bad if you get taken in by a scam. Even people who have done their homework and have extensive experience in the real-estate industry can be duped by a sophisticated advertisement. “Consumers are now more aware of scams, but because scams have gotten more sophisticated, consumers are not sure they know how to avoid them,” So, keep in mind if something feels too good to be true be aware. There may be something on the other side that may be waiting to steal all your hard earned fruits and time.
Tips for buying properties in India.
The reason you should go ahead with reading this is because.. This article gives you an insight from both seller and buyer perspective of buying a property. Some may wonder why there is a need to know tips from a seller perspective, As they are the people making the profits. Here’s why considering seller perspective is also important while making a purchase of real estate property.
A seller before pitching the idea must educate himself of both the Pro’s and Con’s of the property he is dealing with. Hence, it is an advantage to know what the seller’s opinion is about the property as there is no one better to keep you better informed rather than a person who learns about properties for making a living.
One of the most important questions to be asked to the seller is the quality of construction! This is what determines the worth of your purchase. This cannot be easily judged hence it is mandatory to find an Agent who is trustworthy and loyal.. A person who can give you an unbiased opinion of the property and if in case there is something that makes the property a bad investment it is his job to bring under the light for you.
In this economy when you deal with Purchasing of a property there is a certain some-one called the consultants. These people make sure that they give you an insight free of cost and also help you in getting the best price possible. As these companies are the official RERA Approved Consultants for the projects. These people deal with all sorts of clients with varying budgets. But, the only constraint is that they deal with only BUYING of PROPERTIES.
These days while investing in a Project people prefer to purchase during the Pre-launch period. The one thing the customer requires is the On-Time delivery of his Home or Investment he has purchased so that his future plans remain unhampered. For checking the authenticity of the builder it is a MUST to check the history of delivery of his old projects which will give you an insight of the History of the builder and the Goodwill the company possesses.
Lastly speaking about the payment plan. It is very important to evaluate the payment plan offered by the Builders! It must be something that does not turn out to be a burden on the buyers pocket. As we all know buying a property deals with a lot of money being spent initially and also the EMI’s that have to be paid on a monthly basis must also be considered! A lot of properties these days give you a pocket friendly plan where after purchase and payment of the Down-Payment there is a certain grace period they offer before you even start paying your monthly bondage of EMI’s.
With just considering these mere facts it is possible to make a healthy investment in the real estate sector . Those being a good channeling partner with brilliant sales executives and a good and thorough research about the project! A few extra precautions may be taken by following these methods of dealing.
After you paid the deposit your lawyer should check whether the seller is the legitimate owner of the property and allowed to sell it. There should also not be any outstanding mortgages on the property. The seller should provide a no encumbrance certificate stating that the property is not already mortgaged.
When all documents are approved they have to be stamped at the Stamp Duty office. You and the seller have to sign them and you have to pay the outstanding sum. Finally, to become the legitimate owner of the property, you need to register with the Registry of Deeds. Your final governmental duties have to be paid now. They include Stamp Duty of between four and fourteen per cent, depending on the region. An additional registration fee has to be paid as well. It accounts for one till two per cent of the property price. There can be occasions where the said person can’t be physically present in India to buy a property, POA(Power of Attorney) is there. What this means is that an NRI can choose someone close to them such as a relative, friend or even colleague and allow them (legally) to complete the transaction on your behalf. However, to get a valid POA you have to visit the Indian Embassy of the city and country where you are located.
In the end, being distantly involved in real estate related activities can put you in a situation to bear losses. Having agents engaged in today’s time is misleading and increases the overall cost of transactions. It is a wise decision to look for real estate developers who do not involve brokers and rather involve channelling partners who have a much more evolved process.
If you’ve ever wondered if you being an NRI can apply for a loan in India? The answer is, Yes!NRIs can avail home loans from Indian banks and financial institutions to buy residential units, whether apartments, row houses and bungalows or land for building a home. Documents needed to process loan applications include salary slips, bank statements, copies of passport, valid visa, work permit, employment contract, work experience and salary certificates and statements of non-resident external (NRE) or non-resident ordinary (NRO) accounts, says Renu Sud, Managing Director, HDFC. “Tenure for home loans to NRIs is up to 15 years, depending on the age of borrowers, their profile and credit worthiness.”
Another query related to an NRI would be that in case he wants to buy a home in the form of a joint venture, is that even possible?NRIs can apply jointly for home loans only if the borrowers are related to each other either by blood or by marriage. “In joint home loans co-borrowers need not be co-owners in the purchased property but all. co-owners of the property have to be joint borrowers,” Says Karnad.
To get quality support in the area we specialize in you can go ahead and book a site visit right here on our website where we can give you insights about all the upcoming projects that are RERA approved and have a sustainable foreseeable future.
Impact of CoronaVirus on the real estate Market
Corona Virus breakout emerged in Wuhan city of China. China has allocated more than $10 billion to contain the coronavirus. The growth rates due to this virus for numerous countries have been cut. S&P Global Ratings has cut China’s 2020 growth forecast to 5 per cent from 5.7 per cent. Nine out of the top 10 countries in Asia are vulnerable to the virus and they include India. Hong Kong, Singapore, Taiwan, Japan, South Korea, Thailand, Malaysia and the Philippines.
. India faces a series of challenges due to the coronavirus outbreak. Pharma companies, mobile handset, consumer electronics and automobile sectors in India may witness lower production due to clogged supply from China.
The corona virus outbreak made RBI Governor Shaktikanta Das take note and suggest the need for a contingency plan to deal with the unfolding situation. According to Jimeet Modi of SAMCO Securities, “The overhang of Coronavirus will largely drive the mood of stocks in the short term. Investors are advised to wait and let the market settle down before allocating any meaningful savings to direct equities.”
It implies that if the global environment remains weak, commodity prices would fall, as is the case with the 20 per cent drop in crude oil prices, which should benefit India. However, India is not immune to a global slowdown. UBS said reports of the virus contagion have contributed to investors’ concerns during its marketing trip.
The report said, “Potential similarities between the Wuhan virus Coronavirus and SARS in 2003 have led many investors to question the extent of the impact on India. At this early stage, we only see a negligible economic impact, but India is not immune. India’s tourism contributed only 1 per cent of GDP in FY19. But, China is India’s third-largest goods export partner ($17 billion; 5 per cent share in India’s exports). Any likely slowdown in growth in affected Chinese cities could result in a further drag on raw material demand from India and thus could drag exports further.”
There is also a Birgitta side to all this havoc that is headed our way.. Economists are of the opinion that the disruption caused by the virus in China could pave way for more foreign investments in emerging economies like India, Bangladesh, and Vietnam as the world looks to reduce dependency on China, the largest manufacturing hub in the world.
Experts feel that India has a good chance of becoming an attractive manufacturing hub given the present situation, provided the government changes some of its trade policies to bring down commodity prices. An example of Vietnam, which has gained a huge growth boost due to higher density of electronics manufacturing, is before everyone.
H Nemkumar, Head – Institutional Equities, IIFL, said that the ill-fated coronavirus outbreak in China has offered India an opening to revive the ‘Make in India’ programme.
According to the Chief Economic Advisor of India, Krishnamurthy Subramanian, the coronavirus outbreak in China provides an opportunity for India to expand exports. India is one of China’s leading trade partners in Asia and has a huge trade deficit with that country.
“Coronavirus hit 789,240 lives with death tolls 37,820 globally.”
“Trump extended US social distancing until April 30.”
“Italy’s coronavirus deaths surpass 10,000.”
“India’s coronavirus lockdown leaves dozens people stranded and hungry.”
In the past 3 months, such headlines have become the first thing we interact with. We have been separated from our friends and workplaces and caged at our own apartments across 199 countries and territories; hopelessly waiting for the day to walk on the streets or enter public spaces.
But, what’s worse is that Coronavirus is not only instilling fear of the ‘End of the World’ in our minds, it is also bringing a major impact on different industries and crashing the global economy. A clarity of which you will get by the time you reach the end of this article.
India, where the economic growth is already set to slow down to a record 11-year-low, the 21-day lockdown would further worsen the situation in Asia’s third-largest economy. As is evident, research agencies are predicting a near-term halt in growth of real estate in India. PropTiger.com data shows housing sales in India’s nine major cities declined by 30% in the period between October-December 2019 as the festive season failed to revive consumer sentiment, which took a severe beating because of large-scale delays in housing projects and increasing cases of builder insolvency.
The Coronavirus spread has further delayed a recovery that might have seemed possible because of various government launched measures to revive demand though right now it doesn’t seem like prices will go down immediately. Niranjan Hiranandani, national president, NAREDCO, states that “Salvaging Indian realty, the second-largest employment generator is critical, not only from the GDP growth perspective but also for employment generation, since the sector has a multiplier effect on 250-plus allied industries.”
The centre in the recent past had announced higher tax breaks and lower interest rates on home loans to make purchases more lucrative, apart from setting up an Rs 25,000-crore stress fund for stuck projects.
If low interest rates (home loan interest rates are at 8% now) and high tax exemption (rebate against home loan interest payment is as high as Rs 3.50 lakh per annum) were going to make a change in the consumer behavior, the Coronavirus outbreak is likely to halt that shift, at least in the near to medium term.
As it is, site-visits by prospective property seekers are becoming out of question for the time being, postponing purchase decisions. “With the Coronavirus pandemic impacting all sectors of the economy, troubles have compounded for India’s realty sector which has been dealing with a ‘challenging scenario’ since the economic and policy reforms were introduced. The slowdown since February-end is apparent; and while site visits are almost non-existent, the decision-making process is hugely delayed,” says Hiranandani.
Mainly what you need to know about the Model Tenancy Act is that The Ministry of Housing and Urban affairs have drafted a ‘Model Tenancy Act’ which envisions to balance the interests of both the Landlord and the Tenant so that there accountable and transparent system to rent out the premises in a very disciplined manner.
The key factors that the Model Tenancy Act consists of is that:
• This act mainly focuses on the tenants refusing to move out of the property after the agreed rental period expires. If this happens the landlord has all rights to claim double rental value for 2 months and four times of the monthly rental after which. This will help put to rest one of the biggest fears landlords have while giving out properties for rent.
• The new Model Tenancy Act 2019 aims to keep the rental deposit at 2 months of the agreed upon rental value for residential and 1 month for any other kind of properties. Although in cities like Bangalore where landlords ask for at least 6-7 months of rental amount as deposit. It is going to become hard for them to adjust and also they will have a fear of not recovering the cost of any major damages caused by the tenant during his period of stay.
• The Act emphasizes on the fact that the landlord cannot refuse to provide essential utilities and access to common facilities.
• The landlord also cannot increase the rent without giving a good 3 month notice period. This is another big advantage of the Model Tenancy Act.
• Within Two months of executing the rental Agreement it is mandatory for both parties to Intimate the rent Authority about the tenancy agreement. The rent authority within 7 days will issue a Unique Identification Number to both parties.
• Mainly, It must be noted that Existing tenancies will not get impacted as draft model tenancy act will be applicable prospectively.
I don’t think that the draft Model Tenancy Act is skewed specifically towards the tenant or the landlord. Rental housing has been a major gap in the Indian real estate market and what has kept investors and buyers from tapping into real estate for rental returns hasn’t just been low returns but the lack of sufficient legal enforcement of the rental agreement. This Act has been brought in to address these deficiencies in the existing rent control laws. If you look at some of the major announcements—like the security deposit being capped to a maximum of two months’ rent, or the heavy penalty on the tenant if he fails to vacate the premises, or how landlords can’t arbitrarily hike up rentals mid-lease without sufficient cause and notice—it is clear that the intention is to balance out the common problems faced by both parties. The real concern here is not so much about whether it is skewed towards one party but about the implementation. What is required for the success of the Act is the complete implementation by all the states.
The Model Tenancy Act is a step forward from the archaic laws governing rent control. While the tenant has a cap on security deposit and protection from arbitrary increases, the landlord is entitled to stiff penalties for failure to vacate and transparent repossession mechanism. However, the draft stops short of addressing the weak contract implementation. In its endeavour to strike a balance, the draft seems to err on the side of caution by tilting the commercial deterrents in favour of the tenant, such as cap on security deposit.
For the past several years, yield on residential investment has not been commensurate with the risks involved with the rental housing sector. The need of the hour is to provide an enabling framework for emerging business models like co-living, while providing a time-bound dispute resolution mechanism for traditional tenancy formats. The government has an opportunity to make this a more comprehensive and enabling legislation to achieve the Housing for All objective by 2022.
At first look, the draft rules do seem to be favourable for both tenants and landlords. However, there are some inherent challenges. The cap on the security deposit can become a pain point for many landlords—in cities like Bengaluru, a ten-month security deposit (with some scope for negotiation) was the accepted norm. If a tenant defaults or causes significant damage to a property, two-months security deposit may not cover the expenses the property owner incurs.
While the government lays down the basic policies, the exact rules will likely change within each state since land is a state subject. Like we saw in the highly lopsided roll-out of Rera, the Model Tenancy Act 2019 may lose its real purpose if states do not follow the basic guidelines and try to dilute them.
The draft aims to bring in transparency in the highly unorganised rental space and leaves little room for either party to take advantage of the other. Among the many benefits that the draft proposes for both sides, we feel it is more tilted in favour of the tenant who is usually treated as the underling by both landlord as well as brokers.
The draft caps the security deposit to a maximum of two months’ rent in case of residential property and to a maximum of one month’s rent in case of commercial property. There is no standardisation of security deposit across cities and this proposal is quite relieving. Issues such as increasing rent, eviction of tenants, etc. have also come within the ambit of this draft and a landlord cannot increase the rent arbitrarily or ask the tenant to vacate without prior notice. The draft Act also favours the owners in multiple ways. An efficient system is in place to curb challenges faced by them due to unscrupulous tenants who do not vacate in time and do not leave the property in a good shape.
For this reason, the Model Tenancy Act, like RERA, may well become a process rather than an event, and may need several course corrections to reduce regional dilutions before it becomes a force to reckon with.
The area analysis of all the corners of Bangalore is mandatory before moving into the city. As it will give you a bigger picture of what Bangalore really is. Bangalore as well can see has people from all corners of the country coming down for their own personal reasons and a few even choose to settle down. This is a guide for those people who actually choose to stay!
Bengaluru North is the most recent up and coming areas that Bangalore has witnessed as it is that side of Bangalore that has still not been tampered with much! It is a place for people who would love to stay in the nature inside the city limits of the concrete jungle. The Airport is the closest from this are! It takes a maximum of 25-30 minutes to get to the Airport from this side of the city. One of the special Economic Zones (SEZ) in India is coming up in Bangalore North along with a lot of interesting Residential Projects.
The drawbacks of this area is that there is a shortage of water in that side of the city. Not as much as that, that it could be called an area with completely No Water. The other point is that it is a little far from the heart of the city also it is not yet a completely established area! Parts of that side of the city even have people farming and there are people taking care of their herds. Apart from this it is one of the best areas to Invest in. Localities like Hebbal, Hennur and Thannisandracome under this side of the city!
This side of the city is very well-developed. Has all amenities that a good locality would have like good shopping malls, classy Hotels and what not. This area has the whole IT Hubs based inside it. This area has all the large companies that are based in Bangalore. Hence, people who come from other places and are working the one of the technology parks inside there prefer living In that side of the city! As there is so much in flow of the corporate crowd there are many people looking out for rented flats in that area. Which suggests that, that is a very good area to invest in for earning a good rental yield.
Talking about the drawbacks of the area there is A LOT of traffic people face on that side of the city which tells us that there are high levels of Nox in that area which obviously ishazardous to health and more over it is not a place for people who are looking for some good greenery around them.
This is the oldest area in Bangalore. It has a few of the heritage spots of the city in it! Staying on this side of the city will give you the true essence of staying Bangalore. The majority of people who live there have been staying there for quite some time. The real taste of Bangalore in terms of food also can be enjoyed this side of the city! This side of the city is also very well developed as the World Trade Center coming within this jurisdiction. This area also gives you a very good connectivity to all the sides of the city.
Every area has their own kind of drawbacks. So, the drawbacks faced by this area are that it is very Expensive to buy a property in this side of the city and also that it isn’t suitable for people working in the Malleshwaram, Rajajinagar and Mysore road.
This side of the city is a little like Bangalore North the only difference being that it is actually possible find out that Bangalore used to be a hill station by looking at this side of town. The roads go uphill and downhill in many complicated ways! This area is a very calm and serene place. On this side lies the Art of Living Ashram that people from various countries visit. In case anyone is planning on building their own house in a free and open space. This is the place to invest!
Although, this side of town is not a really great place to invest due to various reasons. One of the reasons is that it is 50 Kms from the airport and with the traffic conditions in Bangalore. 50 Kms is too much to handle! Also, there is not much of the commercial development happening on that side of the city! A few areas on this side of the city are: Bannerghatta, Kannakpura and many others.
Central Bangalore is one the BEST localities to stay in. As it has everything! This is the center most part of the city because of which the connection to any part of the city is unbelievable! There are places like Brigade road, Indiranagar and Shanthi Nagar that come under this jurisdiction. This area has one of the best crowds of Bangalore living in it. As there are both residential and commercial requirements of people over here It makes either kind of investment fruitful! The rental yield in this area is just spectacular!
The only drawback is that it is expensive in a very deadly manner. Not everybody can afford purchasing in this area as even the rent for any property is extremely high and one more thing is that there is very little open space in this locality. It is in the heart of the concrete jungle.
From luxurious apartments, villas, and plots to affordable housing, Bangalore is home to it all. With an abundance of real estate options available in this city, it might be difficult to select the best investment option. This blog will help you invest in the most preferred residential apartment you can call home. The north, south, east, and west zones are the strong pillars of Bangalore. Over the years, all of the zones have witnessed tremendous infrastructural growth and development. Supported by phenomenal transport routes, malls, parks, educational institutions and many more social amenities, the IT capital of India has turned out to be the perfect destination to invest in the real estate sector. Builders, investors, and home buyers believe and have already experienced whopping returns on their investment
Buy a flat or rent a flat? This is a question everyone ponders upon, as in certain cities people only stay for work purposes. It’s true that buying is always as a second opinion for people as compared to renting. But, with Rentals there is a sure shot guarantee that there will be no return. On the other-hand there is Buying where there is a higher chance of you getting a good or a reasonable return!
The disadvantages of buying are pretty limited! The #1 constraint is the interest you will paying. Although, the current government is taking certain steps for reducing the rate of interest of the housing sector. Yet there isn’t such an impact for the people who are not in the super-rich category.
Looking on the brighter side. There is always the option of Purchasing. There are quite a few advantages of buying a house. Owning a house gives an individual the long-term benefits of security, equity and potential growth in personal wealth. The value of the real estate asset is bound to increase with a given period of time which gives you the luxury of enjoying profits if given a certain period of time. Also, this as well comes with its own risks.
Moreover, it depends on how you look at the matter. If you’re looking out for a short-term investment, then the best suggestion for you would be renting or If you’re looking out for a long-term investment then the option advisable to you would be Buying at any given day.
In a country like India where people prefer living with their family. Those people wouldn’t prefer moving around as much. As we all know moving is always a pain to carry out. In these cases, also people do prefer buying as it gives them the sense of security and stability.
So, coming back to the cons of buying a house. They would be that you would be bound to pay certain amount every month no matter what the cost. Technically speaking that means a certain amount being blocked from your account before your pay-check even arrives. One last thing, maybe that. In certain cases, if the property is not well-evaluated before buying an individual ends up paying more as interest amounts as compared to the appreciation incurred by him.
Buy a flat or rent a flat? This is a question everyone ponders upon, as in certain cities people only stay for work purposes. It’s true that buying is always a second opinion for people as compared to renting. But, with Rentals there is a sure shot guarantee that there will be no return. On the other-hand there is Buying where there is a higher chance of you getting a good or a reasonable return!
The disadvantages of buying are pretty limited! The #1 constraint is the interest you will pay. Although, the current government is taking certain steps for reducing the rate of interest of the housing sector. Yet there isn’t such an impact for the people who are not in the super-rich category.
Looking on the brighter side. There is always the option of Purchasing. There are quite a few advantages of buying a house. Owning a house gives an individual the long-term benefits of security, equity and potential growth in personal wealth. The value of the real estate asset is bound to increase with a given period of time which gives you the luxury of enjoying profits if given a certain period of time. Also, this as well comes with its own risks.
Moreover, it depends on how you look at the matter. If you’re looking out for a short-term investment, then the best suggestion for you would be renting or If you’re looking out for a long-term investment then the option advisable to you would be Buying at any given day.
In a country like India where people prefer living with their family. Those people wouldn’t prefer moving around as much. As we all know moving is always a pain to carry out. In these cases, also people do prefer buying as it gives them a sense of security and stability.
So, coming back to the cons of buying a house.They would be that you would be bound to pay a certain amount every month no matter what the cost. Technically speaking that means a certain amount being blocked from your account before your pay-check even arrives. One last thing, maybe that. In certain cases, if the property is not well-evaluated before buying an individual ends up paying more as interest amounts as compared to the appreciation incurred by him.
When it comes to living on rent versus living in one’s own home, people who advocate the former often argue that a rental home costs less, as compared to owning a home. Those who favour owning a house, cite the freedom that it offers. While owning a home is typically the dream of every Indian, sky-rocketing property prices in the recent past have led people to opt for renting, rather than buying, says Ajay Jain, executive director – investment banking and head real estate group, Centrum Capital Ltd.
“Landlords in most states also tend to restrict the number of years that a tenant can occupy their house, due to the weak protection provided by the law to the landlords. With lower interest rates and the government subsidy for first-time buyers of affordable homes, owning a home is now possible for many more people,” opines Amit Oberoi, national director, knowledge systems, Colliers International India.
Looking at all of these statements given by the big players in the market it is safe to say there are various pros and cons to both. The mindset and financial backing is a very important factor to be considered while dealing with decisions this intricate.
Owning a home is a financial commitment that requires you to plan ahead and reflect on where your life is headed. Before deciding whether to rent or buy, ask yourself what your budget is and if either choice would require you to stretch your finances. Write out your additional financial and savings goals to see how each choice might affect them. Make sure you still have enough money to save for retirement, for example. Compare some specifics to see which is a better fit.For years, the rule of thumb stated renting is cheaper than buying—so renting freed up money for other things, such as savings. However, that may not always be the case. Shifting real estate markets mean it may be cheaper to buy than rent in certain areas, though you likely need to pay more up front. The right option for you is the one that best fits your goals and finances.
Renting vs. buying a home is a big decision, and there are pros and cons to each option. In fact, a higher percentage of U.S. households are renting than at any point since 1965, according to a Pew Research Center analysis of U.S. Census Bureau data released in 2016.
For some people, renting comes down to what they can afford at the moment.
“I was a long-term renter because I wanted to wait to buy until I could afford to stay in my current neighborhood,” says Atlanta resident Jennifer Walker, a public relations executive who bought her first home this spring. “I didn’t realize that there were affordable options.”
The reason why the US was taken as an example is because the real estate market similarities are quite while being compared with in a couple states in India as well.
A few questions to ask yourself and commit to are as follows..
What can you afford?
How long do you plan to stay in the home?
Do you want stability or flexibility?
Can you afford to be responsible for home repairs/maintenance?
What are your financial, career and family goals?
The financial burden that an individual may go through may be unrealistic when his ends aren’t meeting this can be said by just putting the numbers together and making a simple calculation. There are different costs associated with renting and buying. Using Bankrate’s rent vs. buy calculator helps you break down some of these expenses.
Most rental properties require a security deposit, which protects the landlord against damage caused by the renter. You’ll usually put down the first and final month’s rent payments when you sign a lease. When evaluating a lease contract, ask if your monthly rent includes utilities, such as water, electric, gas, cable or internet.
For homebuyers, one of the biggest ongoing costs of homeownership is your monthly mortgage payment, which includes the loan’s principal and interest amounts. Your payments can go up or down over time if your loan is variable rate or your property taxes and homeowners insurance premiums change. If you put less than 20 percent down, your lender will typically require you to purchase private mortgage insurance, or PMI, which drives up your monthly payments, too.
The difference between pre-qualified and pre-approved is that a lot but both the terms are inter-linked. Pre qualified is the first step to Pre-Approval.
Pre-qualification is not a Guarantee that you are being assured the loan. It just means that you may qualify for one! In this step they take all your financial details they require for them to do the math and give you an amount that you would be eligible for.
After everything is done and if you are eligible they will further ask you about your goals and future prospects and give you the best interest rate possible. The pre-qualification is a verbal conversation between the loan buyers and Bank officials.
In case of Pre-Approval the Bank will make an in-depth and comprehensive verification of the loan buyers credit scores, annual income, income over the last few years and many other factors. The process isn’t done verbally and also isn’t based on the details given by the loan buyer over the phone! Here, the banker will do a thorough background check of the loan buyer and only then approve the loan process for the individual.
To conclude we can say that in the case of Pre-qualified loans you are not completely entitled to getting that loan. It is NOT a sure thing. Although, receiving a pre-qualified request means that you are above the crowd. Now, in the case of Pre-approved loans you have almost no constraints! But again, the bank holds all rights to deny you that loan at any point given and after which customers may argue but on valid points. Not on grounds if there has been something wrong detected at the end of the process but grounds where the reason has not been made clear to the individual or applicant.
Pre-Qualified is Getting pre-qualified involves supplying a bank or lender with your overall financial picture, including your debt, income, and assets. The lender reviews everything and gives you an estimate of how much you can expect to borrow. Pre-qualification can be done over the phone or online, and there’s usually no cost involved. It’s quick, usually taking just one to three days to get a pre-qualification letter. Keep in mind that loan pre-qualification does not include an analysis of your credit report or an in-depth look at your ability to purchase a home. It’s based solely on the information you hand over to the lender, so it doesn’t mean much at all if you don’t provide accurate data.
The initial pre-qualification step allows you to discuss with your lender any goals or needs you might have regarding your mortgage. Your lender can explain your various mortgage options and recommend the type that might be best suited to your situation. Your pre-qualified amount isn’t a sure thing, because it’s based only on the information you’ve provided. It’s just the amount for which you might expect to be approved. A pre-qualified buyer doesn’t carry the same weight as a pre approved buyer, who has been more thoroughly investigated.
Pre-qualifying can nonetheless be helpful when it comes time to make an offer. “A pre-qualification letter is all but required with an offer in our market,” says a source.
. “Sellers are savvy and don’t want to enter into a contract with a buyer who can’t perform on the contract. It’s one of the first questions we ask of a potential buyer: Have you met with a lender and determined your pre-qualification status? If not, we advise options for lenders. If so, we request and keep on file a copy of the pre-qualification letter.”
Pre-Approved is Getting preapproved is the next step, and it’s much more involved. “A pre-qualification is a good indication of creditworthiness and the ability to borrow, but a preapproval is the definitive word,” says a source.
You must complete an official mortgage application to be preapproved, and you must supply the lender with all the necessary documentation to perform an extensive check on your financial background and current credit rating. The lender can pre approve you for a mortgage up to a specified amount after reviewing your finances. You’ll also have a better idea of the interest rate you’ll be charged on the loan at this point, because this is often based in part on your credit score, and you might even be able to lock in an interest rate. Some lenders charge an application fee for pre approval, which can amount to several hundred dollars.
You’ll receive a conditional commitment in writing for an exact loan amount, allowing you to look for a home at or below that price level. This obviously puts you at an advantage when you’re dealing with a seller, because you’re one step closer to getting an actual mortgage.
The other advantage of completing both steps—prequalification and preapproval—before you start to look for a home is that you’ll have a good idea in advance of how much you can afford. You won’t waste time looking at properties that are beyond your means. Getting preapproved for a mortgage also enables you to move quickly when you find the perfect place, and it lets the seller know that your offer is serious in a competitive market.
You’ll give your lender a copy of your purchase agreement and any other documentation necessary as part of the full underwriting process after you’ve chosen a home and made an offer. Your lender will hire a third-party certified or licensed contractor to do a home appraisal to make sure the house you want to buy is worth the amount you’re going to borrow.
Affordable Housing in Bangalore is of utmost importance to the Builders in the coming days as there are numerous migrants from different states coming down to the City for making their living. This is creating a lot of demand for affordable housing in the real estate sector.
All the Tier-A builders in the market these days themselves are focused on building top-notch houses that even the middle-class people can consider purchasing! Although, It isn’t an easy task to give all the luxury features in a budgeted condo.. The builders have taken it upon themselves as a challenge to accomplish it!
There are new people coming into Bangalore everyday and after working for just a year look forward to buying an apartment for their own safe haven. These days everybody who once had a good cash savings prefers to go ahead and make an investment in the real estate field. Now, this is becoming possible even for the Middle-class families whose incomes are extremely reasonable.
Let’s consider an example.. Mr. Arnab has an income of 60,000/- a month and lives with his parents and wife and also a Kid. He has been working for about 6 years now and has never made an investment in Real estate before.. But is thinking about it now as he has a good cash savings and has to give a safe and secure environment to his family! So, having a budget of 60 lacs starts his hunt for buying a house! He finally comes across a property called Brigade El dorado. Where.. A 3BHK costs him about 45 lacs that is without calculating the registration costs and 5%GST! He then approaches them and finds out he is eligible for another deduction of 2.67 lacs under the PMAY scheme. Keeping in mind that the Brigade El Dorado is a magnificent project that has ALL Top-Notch facilities you can think of! For him getting a house that gives you all of this at a mere 42 lacs is like a dream come true! These Big projects have helped individuals actually get out their money’s worth!
Previously, in the market.. At this rate you had the option of buying a property only with local builders! Also, there are only a limited amount of local builders who actually give quality apartments the rest of them are just mainly PROFIT ORIENTED.
A few apartments that even the folks from the middle class can purchase are:
SHRIRAM 107 at 28 lacs*
Godrej 24 at 37 lacs*
Assetz Here and Now at 34 lacs*
Orchid Picadally at 52 lacs*
SHRIRAM Dil chahta hai dobara at 24 lacs*.
There are many other properties as well that offer a brilliant price with unreal amenities with an apartment that is worth going through! As we know, millennials are the new face of Indian realty. Quality houses that are sensibly priced, have over the years gained prominence amongst them. This is up to the extent that the generation is looking forward to fulfilling their aspirations of purchasing a home sooner than expected. Compact yet quality living is one of the recent trends that is widely accepted by the first-time homebuyers. The demand for affordable residential units, is in turn, driving the growth of this particular segment.
As per an industry report, affordable housing has witnessed a growth of 22 percent in the sales velocity during 2018. Unfortunately, the supply is not at par with the demand existing in this segment. The term ‘affordable’ as a buzzword is not even in line with the Government’s definition of affordable housing. However, the residential markets such as Bangalore, Chennai, Pune, Hyderabad and Kolkata have witnessed an exponential growth, which is only corroborated by a recent report which states that people’s propensity to spend on housing is likely to improve over the next three years across the cities. The Budget announcement towards the affordable housing segment gave a ray of hope to those who were dreaming to own homes post the reduction in GST rates. The escalating demand for chic and affordable housing is expanding and is expected to impact the overall sales in the residential market.
Post the introduction of several regulations, the realty sector has now become more organised and transparent. As a result, the homebuyers have started trusting the players in the market. Affordable segment has successfully garnered attention from the homebuyers and will further drive growth in the residential market. The current governmental reforms with regards to real estate and the initiatives towards providing housing to all will also provide a boost to the realty sector on a large scale.
India has seen a rise in the affordable housing sector, which over the previous 3-4 years has dominated the residential segment. In the past five years, the average size of apartments in most large cities has decreased. Realtors target a large segment of buyers, particularly millennials who prefer affordable homes in well-connected areas over large apartments in distant areas. The millennials inclination towards buying a home is also driven by the Pradhan Mantri Awas Yojana (PMAY) scheme and due to fewer liabilities on the home buyers. Developers also have been venturing into the segment because of the demand surge and to avail income tax exemption by the government under PMAY scheme.
Bangalore we all know is the 5th largest city of our country with a population of 9milllion + it is preferred as one of the best-sought places for investment destinations. Popularly known as Silicon Valley the city has witnessed the fastest growing pattern in some years. The crown fetches one more feather of being an IT Hub of India it is a metropolitan city which is experiencing a robust of real estate development and trends. People who are an investor and who want to invest in real estate always want to be updated and keep finding the new developing and current market trends in the areas. Being such a metropolitan city the job market has also developed tremendously. The city has premier educational institutes, hospitals, shopping malls, and many other infrastructural amenities. If we talk specifically about the realty sector Bangalore is dominated by residential and commercial projects both. The demand for 2BHK, 3BHK, penthouses and villas are high whereas affordable housing which has equipped the market right now has added the value to living. The biggies of real estate are coming up with highly advanced projects which are providing the buyers with more and more options.
Need a crash course on real estate terms? This glossary will get you started.
DTI, PMI, LTV … TBH, it can be hard to keep all this stuff straight. This lexicon of real estate terms and acronyms will help you speak the language like a pro.
Appraisal management company (AMC): An institution operated independently of a lender that, once notified by a lender, orders a home appraisal.
Appraisal: An informed, impartial and well-documented opinion of the value of a home, prepared by a licensed and certified appraiser and based on data about comparable homes in the area, as well as the appraiser’s own walkthrough.
Approved for short sale: A term that indicates that a homeowner’s bank has approved a reduced listing price on a home, and the home is ready for resale.
American Society of Home Inspectors (ASHI): A not-for-profit professional association that sets and promotes standards for property inspections and provides educational opportunities to its members. (i.e., Look for this accreditation or something similar when shopping for a home inspector.)
Attorney state: A state in which a real estate attorney is responsible for closing.
Back-end ratio: One of two debt-to-income ratios that a lender analyzes to determine a borrower’s eligibility for a home loan. The ratio compares the borrower’s monthly debt payments (proposed housing expenses, plus student loan, car payment, credit card debt, maintenance or child support and installment loans) to gross income.
Buyers market: Market conditions that exist when homes for sale outnumber buyers. Homes sit on the market a long time, and prices drop.
Cancellation of escrow: A situation in which a buyer backs out of a home purchase.
Capacity: The amount of money a home buyer can afford to borrow.
Cash-value policy: A homeowners insurance policy that pays the replacement cost of a home, minus depreciation, should damage occur.
Closing: A one- to two-hour meeting during which ownership of a home is transferred from seller to buyer. A closing is usually attended by the buyer, the seller, both real estate agents and the lender.
Closing costs: Fees associated with the purchase of a home that are due at the end of the sales transaction. Fees may include the appraisal, the home inspection, a title search, a pest inspection and more. Buyers should budget for an amount that is 1% to 3% of the home’s purchase price.
Closing disclosure (CD): A five-page document sent to the buyer three days before closing. This document spells out all the terms of the loan: the amount, the interest rate, the monthly payment, mortgage insurance, the monthly escrow amount and all closing costs.
Closing escrow: The final and official transfer of property from seller to buyer and delivery of appropriate paperwork to each party. Closing of escrow is the responsibility of the escrow agent.
Comparative market analysis (CMA): An in-depth analysis, prepared by a real estate agent, that determines the estimated value of a home based on recently sold homes of similar condition, size, features and age that are located in the same area.
Compliance agreement: A document signed by the buyer at closing, in which they agree to cooperate if the lender needs to fix any mistakes in the loan documents.
Comps: Or comparable sales, are homes in a given area that have sold within the past six months that a real estate agent uses to determine a home’s value.
Condo insurance: Homeowners insurance that covers personal property and the interior of a condo unit should damage occur.
Contingencies: Conditions written into a home purchase contract that protect the buyer should issues arise with financing, the home inspection, etc.
Conventional 97: A home loan that requires a down payment equivalent to 3% of the home’s purchase price. Private mortgage insurance, which is required, can be canceled when the owner reaches 80% equity.
Conventional loan: A home loan not guaranteed by a government agency, such as the FHA or the VA.
Days on market (DOM): The number of days a property listing is considered active.
Depository institutions: Banks, savings and loans, and credit unions. These institutions underwrite as well as set home loan pricing in-house.
Down payment: A certain portion of the home’s purchase price that a buyer must pay. A minimum requirement is often dictated by the loan type.
Debt-to-income ratio (DTI): A ratio that compares a home buyer’s expenses to gross income.
Earnest money: A security deposit made by the buyer to assure the seller of his or her intent to purchase.
Equity: A percentage of the home’s value owned by the homeowner.
Escrow account: An account required by a lender and funded by a buyer’s mortgage payment to pay the buyer’s homeowners insurance and property taxes.
Escrow agent: A neutral third-party officer who holds all paperwork and funding in trust until all parties in the transaction fulfill their obligations as part of the transfer of property ownership.
Escrow state: A state in which an escrow agent is responsible for closing.
Fannie Mae: A government-sponsored enterprise chartered in 1938 to help ensure a reliable and affordable supply of mortgage funds throughout the country.
Federal Reserve: The central bank of the United States, established in 1913 to provide the nation with a safer, more flexible and more stable monetary and financial system.
Federal Housing Administration (FHA): A government agency created by the National Housing Act of 1934 that insures loans made by private lenders.
FHA 203(k): A rehabilitation loan backed by the federal government that permits home buyers to finance money into a mortgage to repair, improve or upgrade a home.
Foreclosure: A property repossessed by a bank when the owner fails to make mortgage payments.
Freddie Mac: A government agency chartered by Congress in 1970 to provide a constant source of mortgage funding for the nation’s housing markets.
Funding fee: A fee that protects the lender from loss and also funds the loan program itself. Examples include the VA funding fee and the FHA funding fee.
Gentrification: The process of rehabilitation and renewal that occurs in an urban area as the demographic changes. Rents and property values increase, culture changes and lower-income residents are often displaced.
Guaranteed replacement coverage: Homeowners insurance that covers what it would cost to replace property based on today’s prices, not original purchase price, should damage occur.
Homeowners association (HOA): The governing body of a housing development, condo or townhome complex that sets rules and regulations and charges dues and special assessments used to maintain common areas and cover unexpected expenses respectively.
Home equity line of credit (HELOC): A revolving line of credit with an adjustable interest rate. Like a credit card, this line of credit has a limit. There is a specified time during which money can be drawn. Payment in full is due at the end of the draw period.
Home equity loan: A lump-sum loan that allows the homeowner to use the equity in their home as collateral. The loan places a lien against the property and reduces home equity.
Home inspection: A nondestructive visual look at the systems in a building. Inspection occurs when the home is under contract or in escrow.
Homeowners insurance: A policy that protects the structure of the home, its contents, injury to others and living expenses should damage occur.
Housing ratio: One of two debt-to-income ratios that a lender analyzes to determine a borrower’s eligibility for a home loan. The ratio compares total housing cost (principal, homeowners insurance, taxes and private mortgage insurance) to gross income.
In escrow: A period of time (30 days or longer) after a buyer has made an offer on a home and a seller has accepted. During this time, the home is inspected and appraised, and the title searched for liens, etc.
Jumbo loan: A loan amount that exceeds the Fannie Mae/Freddie Mac limit, which is generally $425,100 in most parts of the U.S.
Listing price: The price of a home, as set by the seller.
Loan estimate: A three-page document sent to an applicant three days after they apply for a home loan. The document includes loan terms, monthly payment and closing costs.
Loan-to-value ratio (LTV): The amount of the loan divided by the price of the house. Lenders reward lower LTV ratios.
Market value coverage: Homeowners insurance that covers the amount the home would go for on the market, not the cost to repair, should damage occur.
Mechanic’s lien: A hold against a property, filed in the county recorder’s office by someone who’s done work on a home and not been paid. If the homeowner refuses to pay, the lien allows a foreclosure action.
Mortgage broker: A licensed professional who works on behalf of the buyer to secure financing through a bank or other lending institution.
Mortgage companies: Lenders who underwrite loans in-house and fund loans from a line of credit before selling them off to a loan buyer.
Mortgage interest deduction: Mortgage interest paid in a year subtracted from annual gross salary.
Mortgage interest rate: The price of borrowing money. The base rate is set by the Federal Reserve and then customized per borrower, based on credit score, down payment, property type and points the buyer pays to lower the rate.
Multiple listing service (MLS): A database where real estate agents list properties for sale.
Origination fee: A fee, charged by a broker or lender, to initiate and complete the home loan application process.
Piggyback loan: A combination of loans bundled to avoid private mortgage Insurance. One loan covers 80% of the home’s value, another loan covers 10% to 15% of the home’s value, and the buyer contributes the remainder.
Principal, interest, property taxes and homeowners insurance (PITI): The components of a monthly mortgage payment.
Private mortgage insurance (PMI): A fee charged to borrowers who make a down payment that is less than 20% of the home’s value. The fee, 0.3% to 1.5% of the yearly loan amount, can be canceled in certain circumstances when the borrower reaches 20% equity.
Points: Prepaid interest owed at closing, with one point representing 1% of the loan. Paying points, which are tax deductible, will lower the monthly mortgage payment.
Pre-approval: A thorough assessment of a borrower’s income, assets and other data to determine a loan amount they would qualify for. A real estate agent will request a pre-approval or pre-qualification letter before showing a buyer a home.
Pre-qualification: A basic assessment of income, assets and credit score to determine what, if any, loan programs a borrower might qualify for. A real estate agent will request a pre-approval or pre-qualification letter before showing a buyer a home.
Property tax exemption: A reduction in taxes based on specific criteria, such as installation of a renewable energy system or rehabilitation of a historic home.
Round table closing: All parties (the buyer, the seller, the real estate agents and maybe the lender) meet at a specified time to sign paperwork, pay fees and finalize the transfer of homeownership.
Sellers market: Market conditions that exist when buyers outnumber homes for sale. Bidding wars are common.
Short sale: The sale of a home by an owner who owes more on the home than it’s worth (i.e., “underwater” or “upside down”). The owner’s bank must approve a lower listing price before the home can be sold.
Special assessment: A fee charged by a condo complex HOA when cash on reserve is not enough to cover unexpected expenses.
Tax lien: The government’s legal claim against property when the homeowner neglects or fails to pay a tax debt.
Third-party review required: Verbiage included in a home listing to indicate that the lender has not yet approved the home for short sale. The seller must submit the buyer’s offer to the lender for approval.
Title insurance: Insurance that protects the buyer and lender should an individual or entity step forward with a claim that was attached to the property before the seller transferred legal ownership of the property or “title” to the buyer.
Transfer stamps: The form in which transfer taxes are paid by the home buyer. Stamps can also serve as proof of transfer tax payment.
Transfer taxes: Fees imposed by the state, county or municipality on transfer of title.
Under contract: A period of time (30 days or longer) after a buyer has made an offer on a home and a seller has accepted. During this time, the home is inspected and appraised, and the title is searched for liens, etc.
Underwater or upside down: A situation in which a homeowner owes more for a property than it’s worth.
Underwriting: A process a lender follows to assess a home loan applicant’s income, assets and credit, and the risk involved in offering the applicant a mortgage.
VA home loan: A home loan partially guaranteed by the United States Department of Veteran Affairs and offered by private lenders, such as banks and mortgage companies.
VantageScore: A credit scoring model lenders use to make lending decisions. A borrower’s score is based on bill-paying habits, debt balances, age, variety of credit accounts and number of inquiries on credit reports.
Walkthrough: A buyer’s final inspection of a home before closing.
Water certificate: A document that certifies that a w
Do you need one? Do they pocket the whole commission? Let’s set the facts straight.
Buyers and sellers often enter the market with misconceptions about real estate agents — how they work, how the process works and what the agency relationship is all about.
It’s helpful to point out, without getting too far into the weeds, that in any one real estate transaction, there are most likely two agents: one for the buyer and one for the seller.
Here are five myths (and five truths) about working with both buyer’s and seller’s agents.
Most people assume that their agent is pocketing the entire commission. That would be nice, but it’s just not accurate.
First, it’s helpful to know that the seller pays the commission, and they split it four ways: between the two brokerages and the two agents.
Finally, the brokerage commission isn’t fixed or set in stone, and sellers can sometimes negotiate it.
If you’re a seller, you sign a contract with the real estate agent and their brokerage. That contract includes a term — typically six months to a year. Once you sign the agreement, you could, in fact, be stuck with their agent through the term. But that’s not always the case.
If things aren’t working out, it’s possible to ask the agent or the brokerage manager to release you from the agreement early.
Buyers are rarely under a contract. In fact, buyer’s agents work for free until their clients find a home. It can be as quick as a month, or it can take up to a year or more. And sometimes a buyer never purchases a house, and the agent doesn’t get paid.
Before jumping into an agent’s car and asking them to play tour guide, consider a sit-down consultation or a call, and read their online reviews to see if they’re the right fit.
Otherwise, start slow, and if you don’t feel comfortable, let them know early on — it’s more difficult to break up with your agent if too much time passes.
Today’s buyers get most things on demand, from food to a ride to the airport. When it comes to real estate, buyers now assume they need only their smartphone to purchase a home, since most property listings live online.
First-time buyers or buyers new to an area don’t know what they don’t know, and they need an advocate.
The listing agent represents the seller’s interests and has a fiduciary responsibility to negotiate the best price and terms for the seller. So working directly with the selling agent presents a conflict of interest in favor of the seller.
An excellent buyer’s agent lives and breathes their local market. They’ve likely been inside and know the history of dozens of homes nearby. They’re connected to the community, and they know the best inspectors, lenders, architects and attorneys.
They’ve facilitated many transactions, which means they know all the red flags and can tell you when to run away from (or toward) a home.
Many people think that all agents are created equal.
A great local agent can make an incredible difference, so never settle. The right agent can save you time and money, keep you out of trouble and protect you.
Consider an agent who has lived and worked in the same town for around ten years. They know the streets like the back of their hand. They have deep relationships with the other local agents. They have the inside track on upcoming deals and past transactions that can’t be explained by looking at data online.
Compare that agent to one who’s visiting an area for the first time. Some agents aren’t forthright and might be more interested in making a sale. Many others care more about building a long-term relationship with you, because their business is based off referrals.
In a previous generation, sellers who wouldn’t deal with any agents tried to sell their home directly to a buyer to save the commission.
Smart sellers understand that real estate is complicated and that most buyers have separate representation. And many FSBO sellers will offer payment to a buyer’s agent as an incentive to bring their buyer clients to the home.
If you see a FSBO home on the market, don’t be afraid to ask your agent to step in. Most of the time the seller will compensate them, and you can benefit from their knowledge and experience.
Learn how to navigate the tricky tax laws around investment properties, including ways to save.
There are certain things you can do as a real estate investor to help manage your tax bill and maximize your after-tax return on investment. To do so, however, you need to understand the primary ways in which investment real estate portfolios get taxed. You must also have a general grasp of some abstract concepts like calculating your tax basis, as well as the depreciation of capital investments.
Warning: This article is not going to make you an expert. But it will acquaint you with the basic terminology so you can be better prepared for a meeting with your tax adviser.
The IRS taxes the real estate portfolios of living investors in two primary ways: income tax and capital gains tax. (A third way, estate tax, applies only to dead investors.)
Rental income is taxable — as ordinary income tax. That means you must declare it as income on your tax return and pay income tax on it. Unlike wages, rental income is not subject to FICA taxes.
Your income is everything you get from rents and royalties on the property, minus any deductible expenses. You can’t deduct everything though. You can only deduct mortgage interest and repairs you make that restore the property to its original minimally functional condition. You can’t deduct capital investments like new buildings, additions or renovations. More on these later.
The second tax bill you need to worry about is capital gains tax. The IRS taxes you on any net profits you get out of a property when you sell it. If you’re flipping the property and you’ve owned it for less than a year, you pay short-term capital gains tax, which is the same rate as your marginal income tax rate. If you’re in the 28% tax bracket, you’ll pay a 28% tax on short-term capital gains.
If you hold the property for 12 months, you’ll qualify for more favorable long-term capital gains. Depending on your marginal income tax bracket, these taxes could range from 0% to 15%. In every bracket, however, the IRS takes a smaller cut out of long-term gains than out of ordinary income or short-term gains.
You pay capital gains tax on the difference between your selling price in the property and your adjusted tax basis. Your adjusted tax basis in a property is the original cost you paid for the property, plus any amount invested in renovations and improvements (including labor costs on these projects) that you have not previously deducted for taxes.
If you have deductions associated with the property, you subtract them from your tax basis. If your adjusted tax basis is higher than your sale, you have a capital loss. You can subtract capital losses from a given year from capital gains to reduce your tax bill. If you have more capital losses than capital gains, you can “carry forward” these capital losses into future years to offset future capital gains. If you have no capital gains, you can deduct $3,000 annually until you have recognized all your capital loss carryforward.
The IRS provides an important exception to capital gains taxation, made-to-order for real estate investors: If you own an investment property, you can sell your property at a profit and roll your money over into another property within 60 days without having to pay capital gains taxes at all. This transaction is known as a Section 1031 exchange, named for the section of the U.S. Revenue Code that allows it. You cannot swap your rental property for a personal residence, or vice versa. For this reason, these exchanges are called like-kind exchanges, in that the property you replace it with needs to be substantially similar to what you sold.
The 1031 exchange makes it possible for real estate investors to defer paying capital gains tax, which is another advantage over investing in mutual funds, stocks, bonds and other securities or collectibles. Outside of a retirement account, you have to pay tax on gains in these items by April 15 of the year after you sold them.
This is a broad concept, so we can only cover the very basics here. When you buy investment property — be it a building, a computer or a horse — the IRS knows that the item won’t stay young and new forever. Over time, the property will decrease in value. Depreciation is the process of claiming a deduction to compensate you for the property’s decrease in value during the year.
Note: You can’t depreciate your personal residence. You can only depreciate investment property. For more information on the process of depreciation, see IRS Publication 946, How To Depreciate Property.
Land, of course, doesn’t depreciate. But minerals underneath the land do. If you are extracting oil or other minerals, or timber, for that matter, from the land, you will account for the gradual loss in value through a process called depletion.
Likewise, when you make a purchase of investment real estate or capital equipment with a useful life of longer than a year, the IRS knows you will be using that property to generate income for a long time to come.
Except in certain circumstances, the IRS does not allow you to deduct the full cost of your investment in the first year. Instead, you must amortize your investment over a number of years. For real estate, you must spread the deduction out over 27.5 years.
Again, these rules are complex. But in a nutshell, if you are a passive investor — meaning you are not working day to day in the business of managing your real estate investments — you are subject to passive activity rules. Basically, you can only deduct passive losses to the extent that you can cancel out gains from passive activities. These rules restrict your ability to use passive activity losses to offset capital gains elsewhere in your portfolio. Congress implemented these rules in 1986 to eliminate tax loopholes and abusive tax shelters.
Most individual investor landlords can deduct up to $25,000 per year in losses on rental properties, if necessary (subject to income limitation). Hopefully you won’t have to make use of this provision much.
Expect to pay property taxes to local and county governments each year. Your local government will assess the market value of your property at its “highest and best use” and charge you a percentage of that value every year. You can deduct property taxes against your rental income, though, provided the property tax is uniformly assessed throughout the jurisdiction and is not a special assessment.
Watch for opportunities to take deductions for these common real estate investment expenses:
Employees (but if they are working on capital improvements or renovations, you have to amortize their labor costs as part of your capital investment, rather than as a current year expense.)
Get those rainy day funds in order — you're going to need them.
You’re excited because you just found the perfect home. The neighborhood is great, the house is charming and the price is right.
But the asking price is just the beginning. Be prepared for additional — and often unexpected — home-buying costs that can catch buyers unaware and quickly leave you underwater on your new home.
For almost every person who buys a home, the spending doesn’t stop with the down payment. Homeowners insurance and closing costs, like appraisal and lender fees, are typically easy to plan for because they’re lumped into the home-buying process, but most costs beyond those vary.
The previous owners of your home are the biggest factor affecting your move-in costs. If they take the refrigerator when they move out, you’ll have to buy one to replace it. The same goes for any large appliance.
And while these may seem like a small purchase compared to buying a home, appliances quickly add up — especially if you just spent most of your cash on a down payment.
You’ll also be on the hook for any immediate improvements the home needs, unless you negotiate them as part of your home purchase agreement.
Unfortunately, these costs are the least hidden of those you may encounter.
When purchasing a home, definitely hire a home inspector (this costs money too!) to ensure the home isn’t going to collapse the next time it rains. Inspectors look for bad electrical wiring, weak foundations, wood rot and other hidden problems you may not find on your own.
Worse still, these problems are rarely covered by home insurance. If an inspector discovers a serious problem, you’ll then have to decide if you still want to purchase the home. Either way, you’ll be out the cost of hiring the inspector.
Another cost is your own comfort. There are a number of smaller considerations you may not think about until after you move in.
Are you used to having cable? If so, is your new home wired for cable? It’s much harder to watch a technician crawling around punching holes in your walls when you own those walls.
And if you’re moving from the world of renting to the world of homeownership, you’ll probably be faced with much higher utility bills. Further, you could find yourself paying for utilities once covered by a landlord, like water and garbage pickup.
The best way to prepare for the unknown and unexpected is through research and planning. This starts with budgeting before house hunting and throughout your search.
Look at homes in your budget that need improvements, and then research how much those improvements could cost. Nothing is worse than buying a home thinking you can fix the yard for a few hundred dollars and then realizing it will cost thousands.
There’s really no limit to how prepared you can be. Say you find a nice home that’s priced lower than others in the area because of its age. You may save money on the list price, but with an older house, you could be slapped with a much higher home insurance payment, making the house more expensive in the long run.
This is where preparation comes in. Research home insurance and property prices in the areas you’re considering to make more educated decisions before you ever make that first offer.
Clearly define how much you intend to put toward your down payment, and then look at how much cash that leaves for improvements and minor costs, like changing the locks. That way, when you find a house at the high end of your range, you’ll know to walk away if it requires a new washer and dryer or HVAC system upgrade.
Establish a rough estimate for as many costs as you can think of, and be extremely critical of homes at the top of your budget — otherwise, you could easily end up being house-poor.
Know your budget and plan ahead. Buying a home is a lot less scary when you know what you’re getting into.
If you haven’t realized it by now, we’re junkies for real estate data. Our latest fix comes from the California Association of Realtors, or CAR, which recently published their 2006-2007 Real Estate Research Report on Internet vs. Traditional Buyers. This study is chock full of fascinating data points, and here are a few we found most interesting:
Now bear in mind, this study was conducted in California only, and given the very local nature of real estate there could be very different trends in other parts of the country. All of this brings me to some burning questions that I have for you, Zillow Blog readers: