Down payment for property varies as per your age

While finalising a property, the most essential thing that one needs to be sure of is having the adequate liquidity to pay the down payment. Once this is tackled, everything else falls automatically in place. And arranging finances is a big deal requiring huge planning, execution and sacrifices so that the dream home can be bought.

Age plays a crucial role in financial planning for investing in a house. Let's take a look on how one can plan.

Age between 25-40 years

Assuming the buyer is in the age bracket of 25-40 years, wherein he is expected to take a larger component of the value of the property in the form of a home loan, he would still need to find 20-30% of the investment. In this circumstance, the buyer needs to be prepared at least a year in advance before making the big decision of purchasing a property. Since, a sizable chunk of a typical investor's assets are likely invested in volatile asset classes like equities, gold, etc, one needs to exit them in a staggered manner over a period of one year.

Suresh Kumar (name changed), a resident of Chennai had a bulk of his investments in equity stocks before he took the decision to buy a property. Within equity stocks, his investments were mainly concentrated in mid- and small-cap stocks. Last year mid-and small-cap stocks fell 12 to 30% on an average. Kumar's savings kitty of Rs 20 lakh saw an erosion of about Rs 1.5 lakh during this period. Now he has delayed his property purchase and is in a dilemma as to whether to exit equities at a lower value.

Ideally, he should have diversified his portfolio among other asset classes like fixed deposits, gold, etc, and should have started to liquidate his stocks from a year ago, having clear knowledge of the imminent money requirement for buying a house. So, this brings us to the question of where to invest for a short time after having liquidated from volatile assets.

Many people make the mistake of keeping the money in savings bank accounts. One could park the money in liquid mutual funds during the interim period before the property purchase. As compared to bank savings account, liquid funds offer marginally higher returns, while also providing liquidity in the form of next day bank credit if the request for withdrawal is given today.

Age between 40-60 years

For people in the age bracket of 40-60 years, the loan component is likely to be lower while the requirement of down payment is higher. So, effective liquidation of the corpus required for buying a property needs to be even more prudent.

For instance, a home buyer aged 50 years is likely to have more than 50-60% coming from his own contribution. So, the planning needs to be done at least two to three years in advance with money lying in risky asset classes being shifted to more liquid ones in a systematic manner.

Ages 60 years and above

For ages 60 years and above, since there is no major income source and there are lower chances of securing a home loan, the funding needs to be done through one's own source of finance. These customers mostly sell their existing flats for a new one, basically opting for an upgrade or go in for redevelopment. In both cases, arranging for finances is not that difficult.

However, people who are upgrading from a smaller flat to a bigger one, need to go through the process carefully. Just like buying a house could take up to six months, selling a house is also a time consuming process. It is always better to find a buyer for your flat first before deciding to buy a flat for yourself. During the interim period they can decide to stay on rent in the same flat (which is very common these days) before they buy another one for themselves.

The writer is chairman and managing director of Million Sqft Realty