Buying property is perhaps one of the life’s exciting ventures. It is a big step involving a substantial long-term financial commitment, and there are mistakes that you can make that can permanently bring you down altogether.
So what costly mistakes do buyers make when buying property and what glitches should you look out for when buying a home/land? Read on.
- Failure to observe due diligence: more often than not, buyers fail to physical inspect the property they intend to buy and only rely on information given by third parties or a search obtained at the lands registry.
It’s prudent to visit personally the property you are keen on buying at different times of the day and seasons to ascertain just how the environment is. The area might be quiet during the day and too noisy during the night, it might as well be prone to flooding.
- Not engaging professionals: the real estate industry is not a “one man show” and you need to engage a team of professionals like a real estate agent, valuer, surveyors and a closing attorney among others to guide you in the process.
Knowledge of the value of the property you want to purchase gives you a negotiating power, and a valuer can advise on the pricing of the property so that you can make an informed offer. Valuers also help in conducting a financial feasibility of the project you would wish to undertake to access its profitability and how to increase profits.
“Advocates will guide you in the negotiations or even in the drafting and interpretation of the Agreement for Sale before signing and failure to engage them when buying property is a costly mistake that may leave you exposed as your interests may not be well guarded,” says real estate advocate, Ms Jane Mugo, adding that advocates have a way of conducting a proper search on the property at the relevant Lands Registry.
- Over estimating the real estate market: Most people especially those who buy property with the aim of selling over estimate the real estate market. The appreciation rate is not as lucrative as Francis Odinga*, a buyer, shares of his experience.
“Most guys get too ambitious about the appreciation rates, hoping to reap big in the property in the near future but that’s not the reality on the ground. For instance, I bought a home in a prime area in Nairobi at Kshs. 5.5 million in 2011 with the hope that in three years, it would have appreciated tremendously, but six years later, the current market rate is only 6million,” he says.
- Buying property in an underdeveloped area assuming it will grow fast: Francis also says that another common mistake made by buyers when buying property is purchasing a home in an underdeveloped location with the hope that the area will emerge in a short while.
“Although there are few cases which leave up to this expectation, the development might take ages and in the worst scenario, you might realize that you’re the only person occupying the location for years on end with no other people showing interest on the property, he says.
“Kenyans tend to be overly real estate speculative; they hurriedly buy pieces of Land whose true underlying value is much less than the prices they pay for. The price offered for a piece of Land should be justified economically. The potential cash flows generated from the property should justify its value,” says Mutwiri.
He also urges Investors to also look at major infrastructures such as roads, railway lines, schools, factories that are coming up in underdeveloped areas as they would drive the demand of land in the area increasing its value.
- Assuming that an area has controlled development: one of the things that attract a buyer seeking to buy a home is the serenity of its location, which is often influenced by the infrastructure. So it’s prudent for you to establish beyond reasonable doubt by checking with the developer if there are plans for orderly settlement otherwise you might buy a home today and its swamped up by informal settlements.
- Failure to understand the dynamics of a mortgage
Majority of buyers who consider taking up mortgage as a financing option when buying a home are misinformed on the end to end process and often make the mistake of failing to factor in the cost of acquiring the loan.
According to Eric Okoth, a banker “The mistake I have seen most people make is just looking at the repayment period of a loan and how much installments they will be making monthly. They often overlook the Interest Rate as well as other mortgage closing costs like stamp duty charges, legal fees, insurance, management fees etc.”
“In the end, you find such people struggling to repay the loan and others are totally incapacitated to pay ultimately,” He says adding that buyers should always shop around for the best interest rates.
His sentiments that are echoed by Ms. Mugo, who advises that a buyer should establish “Whether or not as the purchaser he will be expected to meet the Vendor’s advocate’s costs), apportioned rates/rents over property, agency fees, etc.”
Francis also weighs in on the mortgage perspective and cautions buyers not to be too ambitious about their ability to repay a mortgage.
“When your bank is financing you for a mortgage, your credit worthiness is based on your current financial records, which in real sense is not permanent. Although banks have a requirement for buyers to take up insurance for their loans, you might lose your job or your business might go down in one way or another and considering that paying a mortgage is a long-term process, your ability to pay might be affected.