How I bought my first Real estate property

By 2019, I am a software engineer with 4+ experience earning 6 Lakhs and I am married. My father was about to retire in 10 months and my mother is a housewife. My parents had 15 Lakhs in savings. We own a family property around 1800 Sq ft, 2 storey building with 10+ tenants giving 40,000 + rent every month.

Seller Background:
My neighbor also has a similar property with the almost same size and generates similar income. He is not working and he needs monthly payments from the property to run his family. He started being greedy and tried to loan 20 Lakhs at 14% interest to renovate the building to double his rental income. Do not ever get a loan for more than 8% for real estate property. He needs to pay 30,000 as EMI and he destroyed part of his property and started building. He is not getting regular rental income as he started increasing the rental t the tenants to pay EMI and run his family. He could not complete the buildings and he is getting only 20,000 income on an average from existing tenants. He started getting loans outside to pay the loans and run his family at 2-3% interest per month. He had a daughter earning 15,000 per month in an MNC and his wife is a housewife.

Problems for the seller:
The seller got sick and he has no insurance as he is unemployed for 10+ years now and all his daughter’s income and rental income is not enough to run the family. Due to high sugar and some issues he passed away in 6 months. We had to pay for his last rituals as his family is not having pennies to spend. We aid 50,000 for his treatment and last rituals. He inherited the house from his ancestors and now his wife and daughter own the place. They had around 30 lakh loan and interest to be paid is around 30-40 thousand per month. Real estate revenue is making only 20,000 per month and they need to lease some house to fix the loan problem for time being or sell the property to fix all the issue and get a settlement out of it.

Narrow home like Structure – Image from Unsplash

Looking for the buyer:
The seller tried for a lease and similar to the husband they quoted a higher price. No deal got closed and they are deep into loan problems. They decide to sell the place and started looking for a buyer. We also tried to find a suitable buyer because a better neighbor will make our life better. They tried finding the right party for 3 months and no one is suitable as the house width is 16.5 feet and length is 110 feet (Cant build an apartment with this structure). They somehow brought some buyers for 1.6 Crores and the deal never went anywhere for a month. The seller wants to sell in a hurry as 10 L they got from private person insisted for quicker payment and seller came to us to buy the property for 1.5 Crores. All of us felt the price is very high and we don’t have that kind of money to get the property.

Struggle for money:
My mom insisted to get this property as it will be nice for me and my brother to have a separate house of 1800 sq ft instead of splitting 1800 Sq ft house. As I have mentioned that my father is retiring in the introduction, he will get 35-40 Lakhs from his retirement benefits and they had around 15 Lakhs already as savings. So all they had is around 55 Lakhs. My parents also have some plots which they bought as an investment in the past. If they sell all of the property they might get 40-45 Lakhs at the maximum. So it is around 1 crore. My parents have a 50 Lakhs deficit to agree to the deal. I had 20 Lakhs with me from my failure to complete a previous real estate deal (To know that story). So it was 1.2 Crores and we planned to 30 Lakhs loan to get to 1,5 Crore. After all that though, we agreed to the price and asked for 1 year time with 50 Lakhs payment upfront (For them to relieve the sellers from their loan problem).

Selling the property:
We expected property A of 1800 sq ft to go for 21 Lakhs and another property B of 3000 Sq ft for 28-30 Lakhs. We also had another property C 1000 Sq ft worth nearly 8-9 Lakhs which we will keep for the final hurdle. We started looking for a suitable buyer. We got a buyer for Properly A for 14 Lakhs. In real estate, you always lose money while selling. We will never get the expected market price as the retail seller. You need political influence or you should be a broker to sell for the best price. We tried for more buyers and we never got any suitable buyer and we agreed to sell for 14 Lakhs. My father has 70 Lakhs now, I contributed 20 Lakhs to make 90 lakhs. We need 60 more lakhs to complete the deal.

Struggle for remaining amount:
The property value is 1.1. Crore as per guideline and we can get up to 50 Lakhs loan but our banking system is so tough on people who wants the money even they can pay them back. They asked for documentation and many more signature. Seller doesn’t have some documents since it is the ancestral property and they are not willing to cooperate to get all those documents as they are afraid of us I guess (Not sure, This property is the only life line for them and I can’t blame them). So we need to get a home loan for our existing home for reconstruction. Only one bank agreed to provide a loan of 30 Lakhs at an 11.5 % interest rate. I know it is high but do we have any other option? The latter bank gave a loan for 12%, banks always try to get more from us. We got a 30 Lakhs loan at 8% interest from my in-laws(A big thanks to them) after struggling from a different place. We could not sell property B or C even at half the price we quoted and we proceeded with completing the deal.

Completing the deal:
After my family’s every last penny and 60 Lakhs loan we have completed the deal with 1.5 Crores and we needed 12 L for registration. Seriously getting those 12 Lakhs is so difficult than getting 1.5 Crores. We somehow sold some Gold and got some amount from my wife to get the 12 Lakhs required to complete the deal. Deal went smooth without any issues from the seller side this time. Sellers were not happy either and we are not happy either. I will repeat my self her “In a real estate deal, no part will be 100% satisfied”.
We completed the deal by end of March 2020. We get 6% interest on the property’s worth, which is good for our future but we will struggle for another 3-4 years to repay the loan.

Here comes our Luck:
By the end of March 2020, Covid hits the world and there is no rental revenue to return the loan amount quickly.

Loan details:
Even though our bank loan is 30 Lakhs at 12%, it does not have a pre-payment penalty and the interest rate is calculated as a Simple interest rate rather than getting all the interest upfront(Public sector banks were nice here). We still have a 15 Lakh loan and we are still searching for suitable buyers for property B and C to get off the loans.

Emotion in a real estate deal can increase the rate or make you lose.
Even though my parents feel this deal will be good for our future, we missed an investing opportunity during the covid market fall.
Getting loans from a bank might not be as easy as you think.
Rental revenue should at least by 5-6% of the property.

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