Mark Twain is thought to have remarked, “Buy land, they’re not any more making it. ” He simply put words to the thoughts of real estate investors. There are several stories of flats/plots from the ’50s that have been bought for a couple thousand rupees for sale for some crores today. That is the type of stuff that keeps the legend of real estate investment alive and kicking. Is real estate the best investment vehicle in comparison to gold or equity shares or the perennial favourite, fixed deposits? For starters, it’s important to first define “real estate investment”. Buying an under-construction flat is not real estate investment.
You are actually lending money to a creator with the hope that he will deliver a set to you in the not-so-distant future. You better make a good come back when you get an under-construction smooth. Return follows risk, and in the Indian context, the risks of buying an under-construction flat are so high that developers have to give a price that gives you good returns. There is certainly nothing wrong in buying an under-construction level in the quest for higher returns as long as you understand the dangers involved. A lot of people don’t. And those who are in any other case “safety” seeking traders make this investment under the idea they are buying “real estate”.
Very few traders know that the largest amount of pending instances in consumer courts is with respect to programmers not delivering on guaranteed flats. The other mistake people make is the assumption that buying a house to stay in is real estate investment. I would place it more in the group of a consumption item like gold jewellery. You know they have decent resale value but you are unlikely to sell it unless your life is at stake. As an apart, there is a very vocal minority that advocates that it makes no sense to buy a flat for your own home.
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They have a lot of charts, rent-versus-buy and furniture calculators to verify their point. These rent-versus-buy is thought by me calculators miss a very significant cost which is that of defying interpersonal convention. Buying your own house (even with a fat loan) is definitely the sign of having achieved financial stability. The cost of public pressure is tremendous and the sense of security you manage conforming to the cultural norm (of buying your own home) is much too high to be overlooked. This brings me to why a real estate investment that incurs “thousands” turns into “crores” in just two generations.
Real estate investments tend to be lumpy-the hundreds invested in the ’50s were pretty big amounts then. Plus, it isn’t always easy to liquidate a real estate investment unless you are a very active trader. Most investors aren’t active which lack of easy liquidity, which is a drawback actually, turns into its biggest benefit as the asset is constantly on the accrue and compound returns.
The most crucial bit about these investments are the results. Let’s presume you have spent Rs 1 crore in a flat in Mumbai in 2015. If you could happen to be 2065 and discover your grandchild offering it for Rs 117 crore, will you believe that you’ve made a great investment? If you’re delirious with the effect, it typifies the legend of real estate investing. The real return with this investment is just 10 percent per annum, and that is before the payment of capital increases taxes even. The post-tax return will maintain single digits.