Financing a real estate purchase requires a lot of effort and structuring. Individuals spend a lot of time trying to get the right mix of finance for their purchase and the method to sort out the cash flow after the purchase. However, there is one financial aspect that is often forgotten in this exercise. This is the monthly maintenance payment that a person has to pay and in many cases this is often a very significant part of the total cost.
Simple but imperative
Most people would say that the monthly maintenance cost is a very logical concept. There are various services that are present in the residential building or complex and this requires a running cost. Expenses include electricity expenditure, salary of staff employed, and other expenses and these have to be paid by the various members living in the premises. This is a natural outcome of purchasing a flat, but it is surprising that several people miss out on factoring this in into their planning on a regular basis.
The expenses are either computed on a cost-per-square-feet basis or in several cases consist of a simple division of the total expense among the members. For example, if the rate fixed is Rs 4 per square feet and a person has a 1,000 square feet house then the maintenance cost will come to Rs 4,000 per month. This is actually the way in which several places make their calculation thought the rate that is fixed depends upon a lot of factors. Once the basis of the calculation is established it would be easier to estimate the expenses.
When one buys a house one must bring this maintenance cost within the ambit of total cost. For example, one might have planned for the repayment of a housing loan equated monthly installment (EMI) but the total working should not stop just there. It should include the maintenance expense and hence become a part of the mainstream planning that the individual makes with respect to the home. This part is significant because the maintenance expense often is a significant proportion of the loan EMI, which raises the total amount to be paid each month.
One of the best ways to tackle this is to set aside a specific corpus or amount that will deal with the payout on a regular basis. One can set aside a specific figure each month from various other provisions, while another way, which is slightly more difficult, would be to set aside some lumpsum and then ensure that the earnings from the figure here are used to pay off the cost each month. The cash flow from the investment must match the nature of the payout so that shortfalls do not occur.
(The author is a certified financial planner)