Real estate investment basics: what first-time buyers should understand

This is general education, not investment or financial advice. Property can lose value and can be hard to sell. Talk to a qualified adviser about your own situation.

People buy property to live in, to earn rent, or to hold it as it grows in value. Many do a mix of these. Before treating a purchase as an investment, it helps to understand where the money comes from and where it can leak away.

How property can earn money

• Rent: regular income from a tenant, after costs such as maintenance, taxes and gaps between tenants.
• Appreciation: the property may be worth more when you sell, but this is never guaranteed and can take years.
• Use: living in it yourself can replace the rent you would otherwise pay.

Costs people forget

• Registration, stamp duty and brokerage when you buy, and again when you sell.
• Loan interest, if you borrow, which can be larger than the rent you collect.
• Maintenance, repairs, society charges and property tax.
• Months with no tenant, and the effort of finding a new one.

Risks to weigh

• Liquidity: selling a property takes time, and you may not get the price you hoped for when you need the money.
• Concentration: one property in one area puts a lot of your savings in a single place.
• Project and legal risk: delays, disputes and missing approvals, especially with plots and under-construction homes.
• Location risk: an area's rents and demand can change as jobs and transport change.

Questions to ask before you buy

1. Could I carry the costs if the property stayed empty for several months?
2. Is this area one where people actually want to rent or buy, and why?
3. What would I do if I needed my money back in a hurry?
4. Have I compared this with simply renting and investing the difference?

Try the rent vs buy calculator and the EMI calculator with your own figures. When you are ready to look, browse apartments for sale, and read our guide on flat viewing.