It’s a fact that there is nothing that empowers people more than home ownership. Qualify for a loan and you can lay claim to your own piece of land. More importantly if its your first home it is the ground floor of a bright future for you and your family – an investment that can help fund your children’s education and secure your own retirement.
But I would urge you to look at home ownership with a different outlook. Do not look at your first house as a final destination or ultimate achievement but rather as a starting point. Consider home ownership as a stepping stone to a better life today and not just four decades from now. The fact of the matter is that you can have a prosperous and happy future much faster than you think. Wealth and security do not have to wait until you are in your sixties. But first you will have to adopt a new type of thinking and and break out of the one-home-per-person mindset.
Today practically anybody can buy a first home. Home loans abound for every type of house and budget. Going ahead with a first time home purchase is certainly much easier than when your parents tried it.
Types of Properties Worth Investing in
So where should you start on your real estate journey? The following four options make the most sense:
- First Home
- Trade-up Home
- Vacation Home
- Flipping Property
Each of the four options has its pros and cons. You should consider the potential of each but if you are in the market to buy a home do not assume that your options are limited to only one of the above. Let us dwell briefly on each of the four options.
1. Your First Home
Buying your first home is a really special feeling. And it is different than any other real estate investments you will make in the future. Firstly, it is a 3-part commitment – to yourself, your spouse if you are married and to the community that you will be entering. For one you start feeling like a person of more standing in the community. You may have listened politely as others around you went on and on about the home that they have just purchased. Its now your turn to have fun and turn the tables and let other people listen to you talk about the terrific apartment you just brought!
If you are a renter who is thinking twice about buying property especially in Mumbai’s high priced market think again. Its true that as a renter you do not have to worry about paying taxes, repairing the house etc. etc. There are plenty of topics on Quora on how it makes more sense to stay on rent as opposed to living in your own house. Renting is convenient. Is that so bad?
Buying your first home is not the culmination. It is in fact the beginning of your journey. You should not be taking this process casually. You cannot be waltzing around your house in your slippers looking through the newspapers of through online portals to find your first house. Remember that your first house is probably the first of two or three or even more houses that you will buy in your lifetime. And the first house purchase is a template that you will be using for the following homes as well. Its time to get busy!
Some people procrastinate and wait for years hoping to buy their first home from a relative or a friend or hoping to hear about an available house in their building or neighbourhood. That is too long. You need to take a decision because when you have decided to buy your first house its decision time.
You should start by properly defining what kind of house you want and the neighbourhoods that you like best. Even if you are picking your home town or suburb where you grew up in you should definitely explore a larger area. When you go house hunting in other places you may be pleasantly surprised by the changing neighbourhoods in other areas and homes in many of these now changed neighbourhoods would make excellent investments.
Once you have your basic needs and requirements worked out in your head and on paper you will save a lot of time and effort when you approach a real estate agent to help you in your search. When you meet a real estate agent whom you want to assist you in your search make sure that you communicate your circumstances clearly to the agent. For example the agent may want to know exactly the configuration of the house you have in mind, your maximum budget, the number of car parks you need, higher floor or lower floor, the neighbourhoods you are looking at and so on.
A good real estate agent or agency will assist you in making these decisions.
2. The Trade Up House
You may feel the need to purchase a bigger house because your family is expanding or maybe because you are feeling too restricted in the current house you are currently living or due to circumstances like WFH in the post-Covid world you need an extra room for an home office. Or maybe you are getting married and want to start a family. When you buy an upgraded home over the one you plan to leave behind there are many reasons for the decision.
There are a thousand good reasons why people may need to buy a better home than the one they currently live in. There are also financial benefits of buying a larger home. If you upgrade from say a 2 Cr home to a 4 Cr home without overstretching your finances then you automatically increase your own net worth as your home’s value increases in the market.
You can use the equity that you have gained in your present home and use any appreciation in its value as leverage to buy a more expensive home. We would in fact go so far as to suggest that you should start looking at your next real estate investment as soon as you become settled in your new home because bigger investments take time to be put together properly. You may have to wait for your mortgage payments to gain you some equity or for your present home to increase significantly in value before you can act.
Many people in fact wonder whether it is a good idea to upgrade or whether to simply renovate the current house they are living in. If you renovate your current house you get to keep that house. On the other hand you may have to living with ongoing construction work for much longer than you expected especially if you live in a standalone house. One way to decide which way to go is to compare the current value of your house with those of others in your neighbourhood. If the estimated value of your home is already on top you probably do not need to renovate. You may spend a lot of money on renovations only to realize that your house wont appreciate enough for you to recover the expenses and make a profit when you sell.
Finding the right upgraded house can often be a big problem too. As compared to the time when you purchased your first home you have evolved as a person and have become more particular and choosy about your wants. You are more confident now than you were before and are therefore more willing to take a quick call when you see what you want.
3. Vacation Home
Your second home could be a weekend retreat, a vacation home or literally a second home in which you spend almost as much time as your first home. All kinds of second homes can be bought but the most popular second home of choice have always been vacation homes. Vacation homes at scenic locales are now all the rage as the world recovers from the Covid-19 pandemic and everyone realizes the true value of working from home and staying together with your family in a beautiful and scenic beach or mountain resort.
Traditionally almost 80% of second home sales are of vacation homes. Many of these are in established resort cities like Dehradun, Manali, Dharamsala, Darjeeling, Ooty, Coorg and closer home – Lonavala, Khandala, Alibaug and of course Goa! Homes in these areas rose an average of 20 % between mid 2020 and mid 2021 according to our own survey. The median age of first home buyers in India is 35. The median age of second home buyers is 50. But if you are younger do not wait to buy a second home until you are 50! Think of how much better off you would be if you were buying your first home at the age of 22 and your second home at the age of 32! As always the golden rule of real estate investing applies – The best time to buy a house is ten years back!
Internet listings entice people to check our resort properties and homes in places they might not have looked otherwise. All in all the second home market is driven by several different forces.
Flipping can also be termed as “investment properties” purchased purely for turning a profit. You can look out for a somewhat lower priced or distressed sale house in a great neighbourhood and renovate the property, clear any property disputes regarding titles or ownership and then sell it for a tidy profit. You can buy such homes as an investment strategy too by using your existing home’s equity to buy or secure a short-term loan. Before you make the decision to flip you need to answer the following questions:
- By how much will your renovations increase the value of the house?
- Can you realistically estimate renovation costs and time?
- Can you finance all the costs involved in buying, renovation, legal fees etc.?
- Do you have enough money to hold the property if it does not sell immediately?
If you are sure that flipping is something you want to do then do not hesitate. Get your trusted real estate agent on the phone and start searching for distressed sale properties in the market. Just make sure that you correctly estimate the buying and renovation costs right at the very start.
Hope this article has given you the right impetus needed to think about buying a house. Whether its your first or your second it does not matter. What matter is that you realise the value of owning your own home and increasing your net worth and equity as the years roll by!