October 29, 2012

Property Investment-Delaying may imbalance your finance

First of all sorry for not active since a week due to my travel. But this travel gave me an inspiration to write this post. Usually people think about property investment when they start to accumulate the good amount of cash. But I will show you few examples where even with small amount you can start your investment and earn the decent returns.

As I said above, when one start to earn, his/her first priority will be to fulfill the basic needs. Then slowly when he/she get confidence about financial stability then they start to think of investing in property. Reasons for that are two 1) Property investment need huge amount and 2) Liquidity is the problem attached with it.

But will start with an example. Before my father get retired from his government job in 1999-00, he purchased one site in Taluka level town called Badami (famous historical place of India) for Rs.17,500. Now the cost of the site is around Rs.3,25,000. Return on investment is a staggering 27% CAGR.

One more example from my home town Guledgudd (around 10 years back Marwadi community’s best choice to run the textile business and at that time this town had the highest tax payers in the whole Bijapur district) have currently population of around 35,000 to 40,000. It is neither a taluka nor the MLA constituency. Now the whole textile business is under the collapse and lot of families left the town. Eventhough it is nearer to Alamatti dam but still we get water once in a 15 days. Recently an agriculture land of 6 acres which is very near to town was sold at Rs.1,50,00,000. Few years back sites which were costing you Rs.30,000 to Rs.40,000 are now costing you in lakhs. This is not the situation of only these two towns but you may notice such huge changes in all most all areas.

I gave these two examples to show you that you may miss the bus if you thought of having property investment when you accumulate the good amount. If you have few lakhs then look for the smaller cities, towns or villages. You will definitely find the opportunities which are within your budget. Thinking to have property in the big cities is good idea but missing the investment opportunity is also a big financial drawback.

Even you can divert your major amount of your portfolio to this investment then I predict you will get good return than equity, debt or gold. But only the big caution in property investment is, you need to plan well in advance to liquidate it to meet your financial goals. Otherwise you may end in a big trouble.

Historical equity investment shown you good returns and recent gold price hike lured a lot of people to invest in gold too. But what I suggest is, with accumulating few lakhs then choosing the property which is within your budget, you can easily earn more than what other asset classes did in past. Reason for the boost is-Area of earth is always constant but population and our demands are increasing which ultimately bring this high returns on property investment.

I have return this post purely thinking about investment opportunities but not about have property for your residential purpose.

19 Comments

  1. Hello Mr. Basu,

    a plot of 3L is registered on my mother’s name. If the plot’s registry is transferred on my name then would it cost much?

    Thanks,
    Rakesh

    Reply
  2. Hello Mr.Basavaraj,

    I reside in Bangalore and I am looking at purchasing a site for self. I am right now looking at a 30X50 site at RR Layout.
    At the moment I do not have plans of building a house there. However in the future I might build a house or just resell the site depending on my financial situation at that time.

    Is it a wise decision to invest all my life’s savings into a site?

    I am confused here. One side, looking at the sky-rocketing property prices in Bangalore I feel if I delay I might regret later.

    Other side, I feel scared to think that I have locked up all my life savings by purchasing the site in question and I need to start saving again. Also, we are a single income family and live in a rented house.

    Please guide me on what would be a sensible thing to do.

    We do not want to invest in apartments as we do not prefer the apartment style of living since we own a pet dog at home and no apartment in Bangalore allows dogs.

    Awaiting your quick response.

    Thanks,
    Deepa

    Reply
    • Deepa-How your other investments are set? Like Insurance (health, life, accidental and critical), emergency fund, retirement goal, if kids then how you planned for those goals? Can you elaborate more?

      Reply
      • My husband has all the above said insurance covered through his company and by default it covers spouse and kids.

        I have one kid and we have a PPF account in his name as of now. Also, we have invested some money in mutual funds and stocks. We have left them untouched and that serves as the emergency fund.

        Reply
        • Deepa-What if your husband changes employer and new employer not have such facility for you? Is your life insurance is ideally covered (15-20 times of yearly income)? PPF alone can’t beat the education inflation, you need to consider equity investment also. Mutual Funds and Stocks for emergency fund? Too dangerous kind of decision. What if you need cash and market crashes? Better to keep the emergency fund in FD kind of products.

          Reply
          • Basavaraj – Since my husband is in the IT sector, there will always be full insurance coverage even if he changes companies as almost every major company has that as one of the perks.

            We have put some funds in the FD but for the sake of investing in this plot, we will have to break it.

            So, with the monthly single income that will come in the form of salary, all personal expenses have to be met and the remaining money will be going in as savings, which like I mentioned before, will have to built from scratch.

            Reply
            • Deepa-I understand the situation that you need built from scratch. But at the same time may I know how much your husband’s employer provide life insurance, health insurance or accidental insurance coverage? Do you feel they are very much enough for the responsibilities your husband have? Do you know the ideal insurance coverage? It is 15-20 times of yearly income+any loan+current values of all future goals. If your husband is a sole earner in your family then first set the basics things at right. The basic things are insurance, emergency fund, start funding to your retirement and for your kids future. Once all such basic necessaries are fulfilled then look for real estate. I know few who stay in rent house but still afford to buy a expensive car. The problem is not understanding what is asset and what is liability. At the same time I am not forcing you to buy any product from me. It is simple advice to think before you enter into long term bad debt called HOME LOAN. Rest is left with you.

              Reply
              • Thanks I think you have a very interesting and knowledgable website. I agree with your comments on investing in property but everytime I plan for it the house I want seems to be out of reach and I postpone for 1 year. Do you have any thoughts on property investment in Mumbai suburb? Many Thanks Ajay

                Reply
  3. Hello Sir,

    I came across a land near Budigere, Bangalore. We had the documents from developer and consulted a lawyer. The Lawyer said except DC conversion everything else looks fine. I mean to say there is no DC conversion certificate.
    What are the risk associated if there is no DC conversion ?
    Can I purchase the land and later convert my 30×40 site to DC conversion?
    What are the other documents I can ask with developer, if any?

    Thanks,
    Jay

    Reply
      • Thanks for replying Sir,

        Can you please let know me know what are the risk associated.?

        Right now the site is gram panchayat approved (That is what the developer said). And the developers have around 100 + plots in a layout and they say it is gated community.? Kindly let know the risk non DC conversion have.?

        Thanks,
        Jay

        Reply
        • Jaykanth-The property in question is still agriculture land then how can you construct building? Please understand that he is forcing you and blindly following me be wrong.

          Reply
  4. Hi,
    This is Andrew Jackson, a financial writer. Today I came across your site (basunivesh.com ) and enjoyed reading some of your articles.
    I just want to know do you allow guest posts? I would like to write for your blog on some relevant topics that is still to cover on your blog.
    I will make sure that my articles will be completely original to serve the quality. I do believe your readers will enjoy reading it.
    It will be a thrilling experience for me if my article finds a place in your blog.
    Please let me know about your decision.

    With best regards,
    Andrew Jackson

    Reply
    • Andrew-Thanks for your appreciation. But as of now I am not thought about the idea you shared. If I have a plan in future then definitely I will inform you.

      Reply
  5. I have lost so many opportunities in fast days. in future days i will en-cash your suggestions.

    Reply
    • Amaresh-You are welcome 🙂

      Reply

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