How I wasted my money by taking a personal loan for Real estate?

Being a newbie Investor, I faced early loss in my investing when I was young.

This is 960 Square feet 3 story building with 9 houses. Each house is built with a 280 Square single-bedroom apartment-like structure. It also has a good view as it is on the outskirts of Chennai city.
I got a great deal in real estate property with 36 Lakhs generating 45,000 per month in rental revenue. The place is near the IT hub and it has some issues concerning approval of land. When you look at the deal, you can see 12% rental income which is rare. In general, you can expect 3-6% rental income in real estate deals considered as a good deal as real estate prices tend to increase making us more money in the future.
This deal is so tempting due to a 12% return per annum and I need to pay 20 Lakhs upfront to complete the deal as 5 of the house in the property is in lease. The rest of the 4 houses will generate 20,000 in monthly revenue. So 12% return with the initial capital and I can rent the house with lease once I pay their initial lease amount. It was a lucrative deal that I could not reject completely.

I have checked the place and area around the place. Almost all the houses in that area are approved but due to some reason, this place was not approved. Getting approval in this kind of place is not so difficult as the area is not in any kind of government plan. So I thought that I could apply for approval later once the deal is complete. With approval for this place, the price of the property will at least increase by 15-20 Lakhs.

Here comes the problem:
I saw the place and we finalized 36 Lakhs for the real estate deal with 21 Lakhs upfront and 15 Lakhs that should be paid for the lease (5 House each with 3 Lakhs per house). The seller already had agreed on a deal with another buyer for 31 Lakhs a year ago and that another buyer paid 4 Lakhs in advance. Due to some personal reason, he could not pay back the price and he is willing to move out of the deal too expecting his advance to be paid.
In all these kinds of un-approved land deals, there will be political problems, there comes a person with political influence(ex-counselor, Name him as X her) being in some kind of distant relative of the seller of the property. He is getting involved to close out all the problems and close the deal for the seller.

Part 2 of the deal:
We had a meeting with all three parties involved with X heading the meeting. I had 6 Lakhs rupees in hand to pay some advances.
We thought to close the deal for 33 Lakhs and they need 40 Lakhs. The initial buyer deal was agreed to for 31 Lakhs(Just to keep in mind). So after all the talking in a restaurant, both parties agreed for 36 Lakhs (Seller mostly disappointed). The seller needs the cash as he needs to pay back the initial buyer as he already spent the amount for his daughter’s wedding and he needs to pay the lease people back once they want their money back. He agreed to the deal.
So excluding all the lease amounts I need to pay 21 Lakhs to the seller. The seller needs to pay 4 Lakhs to the initial buyer from that amount. I paid my 6 Lakhs advance to the seller and the initial buyer took 1 Lakhs from it and the seller took 5 Lakh out of it. We are happy that all involved party was happy and I am really happy that the deal will be close.

Taking Loan:
6 Lakhs is all I had as savings. I paid my entire savings and I need to pay 15 more lakhs to complete the deal. I had 2 months to close the deal. My parents agreed to pay whatever amount I need above the loan I am taking. Even though our ego will not allow taking money from the parents, I am happy to take the money from my parents as I already contacted the bank for the loan. I know that I will be facing a cash crunch to complete the deal, still, I was happy that 20,000 per month revenue will fix the problem in 3-6 months and I could pay back my parents as soon as possible. I contacted the bank for a loan and the only loan I am eligible to get is a personal loan(More interest rate) as this property is not approved, I could not get a housing loan (Less interest rate). My salary is 6 Lakhs per annum and I was eligible for an 8 Lakh loan only and I pushed 2 banks to get 11 Lakhs per month (This is a separate story I will tell you later). I got an 11 Lakhs personal loan with some difficultly and I need 4 Lakhs from my parents to close the deal.

Part 3 of the deal:
I was ready with the entire capital and it took 30 days to get the money and contacted the seller. He is picking the call and spoke multiple times asking for 10,000 and 20,000 rupees immediately and I paid him. Seller’s daughter is pregnant staying at his home expecting a child in a month (I am not 100% sure if it’s true but that is what I was told). He wanted to be in the house till the child’s birth and he needs the remaining cash now. You might think I should be having some humanity to accept this request. I was so soft that time and I consulted with my parents on the same but they insisted to pay on he is leaving the house. Since it is unapproved property, it is a lot complicated and the deal is slowly getting complicated. I waited for one month and still the seller is not ready to move out and says that he will be a tenant in the same house he is staying. He is not ready to move out and willing to take the money.

Political problems:
I had to contact all three parties involved with X heading the meeting again. The seller needs at least 3 months stay in that place and money can wait. The initial buyer is so unhappy and needs his advance back. Things started getting ugly and X gave me one more month to vacate and close the deal. I didn’t pay a penny more but was paying 25000 EMI per month. I and my parents contacted X for making this deal final to close the deal. As usual X neds amount to complete this deal. I said 2-3% will be paid brokerage charges (Nearly 1 Lakh is offered), X started playing games and never quoted the price to help complete the deal. I had all the documents of the house. We started feeling some kind of serious problem closing this deal. The initial buyer calling me daily to get his money back and the seller is asking more time than a month to vacate. X is supporting the seller in some kind (I am not sure). Later after a month, nothing happened and I wanted my money back or to close the deal as I feel suspicious action from Mr. X. Mr. X has brought another buyer to this deal (Not sure about the price speculated at 40-42 Lakhs). Mr. X never told me about this new deal and wanted me to pay the full amount to the seller knowing that I won’t pay unless the seller moves out of the property. All came to a halt as the only person happy is the seller holding my advance and the Initial buyer’s advance and enjoying the property as well. Seller will always have his reasons and he bugs for pennies every time I call him but never moves out.

Last part of the deal:
I and my family is frustrated with this deal and I am happy to get my advance back. Contact X for the final time and he was not picking my call and his assistant called me instead and asked me to come to this place. I did go, did I have choices? I went to his place and he took me to 2 more places where the seller took a loan from this property of 60,000 and 50,000 from two different people. He wants me to pay them to close the deal. I said I will pay all of them from the initial deal once the seller is moving out. But they wanted me to pay them upfront making to say that I want to move out of the deal. If I say that I will not get any extra money and take only my advance back. As they planned, I fought everyone and asked for my money back (I don’t regret the decision because I had to).
X’s brought a new buyer after a month of the fight and paid me back with my advance and the seller was sorry about the collapse of the deal(I want to scold him and I could not as he is 50+ and came with few rowdies). Got my money back from the new buyer and the new buyer paid the amount to the initial buyer in my home. That the closure of the deal. I moved off the deal after 4 months of struggle and pain without any loss from your perspective, right?

You are wrong:
I got a personal loan of 11 Lakhs and I need to pay the bank with 16 Lakhs including interest for 5 years. I could not pay the money back in the first 1 year where most of the amount is collected as interest and I also need to pay a 5% penalty for pre-payment. At the end of the one year, if I have repaid, I had to pay 13.4 Lakhs to the bank instead of 16 Lakhs. So I kept my money and I am still paying interest every month.

Moral of the deal:

  • Never take a personal loan for a House loan (Which also means that do not buy unapproved property).
  • Do not handle property with political influencers.
  • Deal with the seller directly and never believe your broker or his broker.
  • Brokers also want extra and cheats.
  • In real estate, you can never end up 100% happy. Real estate deals are always tough and handle your life savings with more care.

This deal was my first deal and it gave me a lot of lessons and I never bought any property after that but I contributed my loan amount to something better helping myself and my family greater good.
I heard that seller didn’t move out 6 months after I got paid back. I stopped thinking about the deal and stopped my pain. I wanted to share my experience about my failure so that you will not face it. Many people like me faced them and never shared caused me to fail.

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