In real estate investing, financial planning is the process of assessing all aspects of your property’s finance. It is an essential step for your investment, and it can make your investment succeed or fail. From obtaining a mortgage that suits your investment to calculating the expenses and cash flow of your rental property, financial planning should be a priority. 

The benefits of financial planning

Obtaining financial objectives

Everyone has monetary objectives. Even if you save money each month towards these goals without a financial plan, the savings may be erroneous.

Be ready in case of an emergency.

Accidents, business failures, and sickness are unforeseeable. It can be difficult, if not impossible, to acquire essential support without a stable financial situation. People may be forced to take out loans or borrow money.

Improved financial knowledge

Whether you’re looking for an investment opportunity or want to start your own business, unexpected chances may demand you to come up with money quickly. The key to a sensible financial strategy is knowing where your money is invested.

Improved living conditions

If properly constructed and implemented, a financial plan can also help you expand your money. With correct financial planning, you may invest your money in the right investment tools.

Monetary stability

Self-employed or business owners do not have the financial security that a wage provides. Their monthly income is totally reliant on the profits from their firm. Providing financial security for your family in such a situation might be tough at times.

Expenses in Financial Planning

Depending on the property, its location, and the investor’s strategy for investing in the property, the exact expenses that should be included in a real estate finance plan might vary greatly. All expenses associated to the investment should be included in a financial plan; whether these expenses are assured or not, an estimate of these expenses should be created to evaluate how they will effect your investment in the future.

The following are some of the most common Key metrics that will almost certainly be included in any real estate financial planning:

• Taxes
• Payments on a mortgage
• Bills for electricity
• Bills for water
• Repairs
• Maintenance
• Management of real estate

Steps for financial planning

Monthly Household Expenses:

Buying a house in India is a major financial commitment for any middle-class family. After purchasing a home with a Home Loan, you should expect to reduce your household expenses by at least 25% to 40%. It’s vital to save away at least 6 months’ worth of household costs as a reserve in case of a future financial shortfall. The reason for this is that you and your family will require some time to acclimate to your new lifestyle.

Loan Amount:

Currently, banks offer loans of up to 80% of the property value. If you take out a loan, you must be willing to contribute 20% of the property’s value. This sum should not be financed with a loan or debt. To lessen loan burden, it is ideal to put down at least 40% of the purchase price from savings. Aside from that, remember to factor in other charges such as Stamp Duty and Registration, which account for 5% to 10% of the total cost.

Liabilities for the Next Six Months towards financial planning:

It is critical to establish a list of liabilities for the next six months, such as children’s tuition fees or insurance premiums. This sum should be set aside in order to meet these obligations on time.

Existing Loans/Debts:

Before taking out a Home Loan, you should pay off any existing loans or debts you may have, such as a vehicle loan or a personal loan. Given the enormous liability of a home loan, serving two loans at the same time is nearly difficult. Second, by paying off these unsecured debts, you will raise your CIBIL score, which will help you qualify for a home loan.

EMI for three months as a reserve for financial planning:

It’s critical to set aside three months’ worth of EMI as a reserve. This fund will come in useful if you are unable to pay your EMI on time due to unforeseen circumstances. Any EMI failure can jeopardise your creditworthiness in the future.

Emergency Fund:

Financial planning isn’t complete until you have enough money in your emergency fund to cover six months of living expenses. You can put this money into short-term financial products that are easy to liquidate, such as bank FDs and mutual fund