Real Estate Investment Mistakes
Unlike any other investment, making a mistake in real estate will burn a hole in your pocket. While there are plenty of real estate investment opportunities available, every investor must be aware of the market and understand the concepts fully to make informed decisions. According to a study by Knight Frank, real estate investors in India face a loss of 25 to 30%. Mistakes, including legal issues, overpaying, delayed possessions, and poor location choice, happen due to inadequate knowledge about the market. This article aims to list the 10 most common real estate investment mistakes and how you can sidestep them.
Mistake 1: Inadequate Market Research
One of the main reasons investors lose money is failing to do adequate research. Before investing, it is crucial to analyze demand-supply trends, price history, and future growth potential. For example, investing in an area with oversupply or poor infrastructure can cause a whopping 20% to 30% erosion.
Here’s how you can stay aware:
- Use platforms such as Magic Bricks and PropTiger reports to be up to date with property valuation and price trends.
- Check RERA’s official website to verify the builder’s authenticity and project delays.
- Stay up-to-date with local news to understand the local market, such as new infrastructure.
Mistake 2: Ignoring Legal Due Diligence
Skipping legal verification can be a costly mistake. A report from RERA points out that 30% of property disputes in India stem from unclear titles or fraud. Ignoring legal due diligence can result in financial loss, litigation, and even demolition of the property.
In 2021, in Chennai, investors and home buyers lost around 50 crores due to a fraudulent scheme. The court ordered demolition of the project.
Here’s how you can avoid it:
- Verify the project details and authenticity on the official RERA
- Verify 30-year title deeds and encumbrance certificates
- Hire an independent lawyer for due diligence
- Seek the advice of real estate experts.
Mistake 3: Overlooking Financial Planning
Overlooking financial planning is one of the most common blunders. People rely mostly on loans and overestimate affordability. In 2022, several buyers experienced foreclosure, losing too much money due to the delay in the completion of the property.
Here’s how you can avoid it:
- Prefer ready-to-move properties over under-construction properties
- Have a buffer fund of 20 % to 30% in case of emergency
- Thoroughly assess repayment capacity before borrowing.
Mistake 4: Underestimating Repair and Maintenance Costs
Commonly, people focus on the purchase cost of the property alone and ignore the maintenance and repair costs. These costs may sound trivial; they will end up poking a hole in your purse. For example, in Bengaluru, a property owner had to spend 40% more than the projected cost due to poor building planning.
Here’s how you can avoid it:
- Stow away 20 to 30% extra for maintenance costs.
- Verify the builder’s maintenance history before purchasing.
Mistake 5: Emotional Decision Making
Taking a financial decision dominated by emotions is the worst thing an investor can ever do. It often leads to poor location choice or overpaying. In 2008, people of Mumbai rushed to buy India’s tallest residential tower at an overly inflated price, only to face a 30% value drop when the market settled. Getting driven by emotions is mostly caused by peer pressure and a lack of market knowledge.
Here’s how you can avoid it:
- Consult a financial advisor
- Compare 3+ properties with price per sq. ft. and rental yields
- Set ROI criteria before investing.
Mistake 6: Neglecting Location Factors
Choosing the wrong location can cause stagnant growth in the long run. Prime factors such as connectivity, infrastructure, and future development plans should be taken into consideration before investing, since they directly dictate the property prices over time. Here are some top investment locations in Chennai:
- Siruseri (IT Corridor) – High rental demand from tech professionals, excellent rental yields (8-10%).
- New Perungalathur – Potential hotspot because of CMRL Phase 2 expansion of metro connectivity & affordability.
- Perumbakkam – Affordability with future infrastructure coming up (note: historical development delays).
Pro tip: Investors in New Perungalathur reaped a whopping 18-22% appreciation in property prices due to the announcement of the metro rail phase 2. Villas in Siruseri are in high demand due to the IT influx.
Mistake 7: Failing to Diversify Investments
Not diversifying your investment may pose a threat in the long run. It is always better to diversify to reap maximum benefits and reduce risk. Here’s how you can diversify your investment:
- Combination of property types: residential (OMR), commercial (New Perungalathur), and plotted land (Sriperumbudur).
- Various locations: Mix set areas (Alwarpet) and upcoming ones (New Perungalathur).
- Look at REITs for trouble-free exposure.
Mistake 8: Overlooking Infrastructure and Connectivity
Neglecting infrastructure growth may result in poor returns or stagnant property prices. For example, investors who invested in properties in Noida Extension (2010-12) prior to the metro and expressway clearances experienced 3-4x appreciation after completion (Business Standard, 2022). On the other hand, those areas with unplanned infrastructure tend to underperform.
Important Chennai Infrastructure Projects that are Affecting Real Estate:
- Metro Phase 2 (Madhavaram–Siruseri) driving New Perungalathur
- Chennai Peripheral Road driving to Sriperumbudur.
In short, it is wise to start looking for apartments for sale in Perungalathur to use the boom to your advantage.
Here’s how you can avoid this:
✔ Monitor government master plans (CMDA website)
✔ Prefer locations with existing/approved projects
✔ Avoid remote places without connectivity
Mistake 9: Ignoring Market Trends and Economic Indicators
Missing the real estate cycles and economic changes can result in purchases at peak levels or loss of growth prospects. For instance, investors who bought high-end apartments in Mumbai (2014-15) during a price hike experienced 20-30% corrections when demand tapered off (Livemint, 2017).
How to Stay Ahead?
✔ Watch the RBI repo rates
✔ Monitor unsold inventory levels
✔ Track GDP growth & employment market trends (IT/industrial expansion leads to housing)
✔ Utilize RERA portals for alerts on project delays.
An example of riding the market trend can be buying a residential plot in Trichy, Panjapur. The government has spent Rs. 349.98 crore, building Trichy’s new bus terminus in Panjapur. Looking for a plot for sale in Trichy can be the best investment decision you can ever make.
Mistake 10: Lack of a Clear Investment Strategy
Investing without a clear purpose tends to result in irrational choices or lackluster investments.
Here’s how you create a strategy:
✔ Establish purpose (rental yield, capital gain, or use by self)
✔ Establish timeframes (short-term flip or long-term holding)
✔ Align with risk appetite (high-growth vs. stable assets)
✔ Review annually and adjust for market changes
TL;DR?
Real estate investments can be highly rewarding, only if done strategically. It is crucial for every investor to have adequate market knowledge, a financial advisor, and a solid strategy to reap maximum benefits. Mainly, verify and analyze the property with the mentioned official government website to make sure that you are purchasing from a legitimate builder.
Who are we?
We are Isha Homes, one of the best builders in Chennai. We have been delivering homes with heat for more than two decades. We are committed to offering affordable housing in Tamil Nadu (Chennai and Trichy) and providing valuable information to empower you in your quest for real estate information.
Real estate growth in Chennai is imminent; it is wise to buy a property in one of the hotspots of Chennai for promising returns. Take a look at our ongoing projects and book your site visit.