Real estate as investment opportunity
The sad part is one only thinks of real estate as an investment opportunity only after turning 26/27 types. I know multiple friends who did tons of research and were not able to conclude if this was the best option or not and have up… I know couples/individuals who researched more than 30-40 options across bangalore and Hyderabad. They read real estate trends, read the FY statements of top builders, read numerous number of consulting reports and were not able to arrive at if their option is a best option or not. Another reason being a real estate investment is likely to evil the order of 1-2.2 Cr in these cities and one is likely to keep 40-50% ( maybe more) of their savings as down payment and stick to loan for 10-20 years making it a huge thing. Due to this factor we want to be more reassured of returns potential. Does it make us want to be more reassured of the investment? Is there way too much impact of right time right place in our life? Is our generation not able to take long term decisions like our parents generation took? Is it even worth going through all this and getting a house? Any gyaans of real estate please help out here…
Imo, a home to stay vs a house to invest are two very different scenarios.
In stay, you’re alternatives are renting, maybe you have different aspirations or goals around say owning a place or something for your parents, very different goals.
In real estate as an investment, you’re money is competing with all the alternative investment opportunities. FDs at 9.15%, P2Plending at 10~12%, mutual funds at 9~15% and so on. You want to see rental yields, land appreciation rates and so on. Commercial vs land vs residential and location would matter a lot as well. Not to mention legal clarifications around ownership.
And in both options and all alternatives, we’ve not even considered tax implications. So think wisely, google stuff, you’ll find a bunch.
For the wanting to stay bit, the right time right place is both you and your partner are maybe late 20s/early 30s and see a steady 6-9year window coming in career for location and have enough saved up for a down payment.
As an investment, if you’re buying real estate as investment on a loan, then you have to also add cost of capital to that equation.
Good luck
SabChangaSi
Stealth
10 months ago
Yes it's worth it if you want to settle down and have your own place to live where your children will grow up. Yes it's worth it if you have a family net worth of 5x the value of the property and you can cover 50% of the property by yourself.
Wow so a house of 2 Cr is worth when family’s net worth is 10Cr?
Do you include the 2Cr house in that net worth or not?
Do you mean that one should pay/ be able to pay 50% I.e. 1 Cr for the payment of house?
SabChangaSi
Stealth
10 months ago
I mean that if you already have family wealth of 5x the value of the house you can add one more house. I also mean that if you're a first generation earner of the family you can think about it if you want to settle down with a family because peace of mind is priceless.
I would only buy a home to live in myself for the emotional reasons not as an investment.
The loan tenure is too long and too much of our networth is tied to a non-liquid asset
RE investing is very different from RE consumption.
For consumption, no variables matter because you're buying it to anchor yourself close to a social setting, school, office, whatever else. Appreciation doesn't matter because gains are notional. Buy whatever you can afford. You may never sell this RE.
For investment, you need to be crystal gazing a bit. It's a punt based on how you see socio-economic infrastructure evolve in the area. A lot depends on the pace of evolution and your propensity to hold / sell.
Finally RE as an asset class is mega painful and expensive to hold. It's not everyone's cup of tea, requires a significant capacity to ride cycles and also move the money around (both cash and legit). The folks who "play" in RE have a networth thats multiples of their RE holdings.
Though it started on a right note to have a rational discussion on real estate as investment option but the questions at the end gave me a hint of irrationality. Especially the point of comparison with prev generations.
*Right time, Right place (RTRP)* - This is very important in all aspects of life.
A widely accepted life success equation is = hard work + luck + direction (RTRP)
My inputs - Currently, we are at a local maxima of real estate cycle. Having said that if you want to buy RE as consumption, still a good time but if you want it for growth, sorry, you are late to the party. Good news is - All investment vehicles go through a cycle, so missing a bus this time won’t mean, you have missed it forever. Buy RE when you need it, don’t buy because you heard someone telling they made fortune out of real estate.
P.S. - My information sources work deep into real estate construction, consultations. Some suggestions might be suitable only for my style. You should do your research, maybe watch interview of S Naren of ICICI prudential. He made some strong points on RE investments.
Thanks for filtering out the irrationality and giving a clear answer. Wanted to seek opinions on RE but yeah it did end up like a rant.
On the point that we are at a local maxima - totally felt that when comparing tier-I city real estate trends of India with other high growth cities outside. Took certain aspects into consideration like Repo rates, alternate options, growth stage of country, per capita and so on and felt we are at a local maxima.
But not able to arrive at the conclusion that it is going to come down now. Felt like it might continue to go up.
Will check the recommended interview. Any help on how someone without connect with RE consultations can get the required knowledge? Would appreciate if you can direct to some starting points for the research.
Thanks again for understanding and filtering out irrationality.
If you understand time value of money, even if the prices aren’t coming down and remains same, it’s a loss of opportunity.
At micro level, I think you should start talking to brokers in the locality of potential investments. At macro level, start reading commentary of REITS, real estate funds. India has really long list of people those who burnt their life savings in RE.
Qwerty2398
Stealth
10 months ago
No Real estate is not an investment opportunity. Real state was never an investment opportunity. Not now, not ever. Housing is taxed at all levels- from buying to renting & selling. for investment there are other multiple avenues, real estate ranks at the bottom.
If you take a 80% loan at 12% interest, you practically pay twice the amount of the assest value over 15years. Do you honestly believe that house will be worth more than that in 15years time?
The reason why people made big bucks in real estate investment is because of a rare combined event of huge increase in working population, consuming population and a rapid expansion in economy that happened from 1995 to 2015. This is a rare singularity event that happens once in a generation.
If anybody here thinks that real estate prices never crash, ask people who experienced the housing crash in Mumbai in the 90's. Yes, in Mumbai. There was a housing price crash, where value of houses dropped to the extent of 40-50% in certain areas. when you evaluate a investment, you should check not just on money terms but on purchasing power terms.
My two cents: RE is an investment only if you are clear on cost of acquisition, strategy to sell and exit prices. This could be by advice or observation of market trends. Dont buy for living or buy blindly and expect a competitive gain on sale.
Wait and hold strategy might work with REITs as your invested capital and risk exposure would be significantly lower.
