Property, your ultimate gateway to wealth and prosperity, but ………with big IFs
While there are a large number of investment options available in the market, right investment in property is finally the Big Daddy of it all. Amongst all the options available to a retail investor, it is finally investment in property that makes serious money for us. Invested with due care and after a thorough research, returns from property have the ability to outclass any other investment avenue. However, as a general rule, an investment should go into the property only after one has purchased / built / got allotted a house/flat for himself for personal residential purposes. Thus, what we talk about in the text to follow is investment in property for the sake of generating rental and/or capital appreciation, and not for your own home where you plan to stay yourself.
Drawbacks of Investing in property
The biggest drawback of investing in property is that the requirement of lump-sum money is far higher than in any other form of investment. However, that can be overcome with some planning wherein home loans can be taken and/or investment can be made in property under construction so that the outflow of money is in small construction-linked steps which is much easier to handle. Another drawback is that, if due care is not exercised initially while choosing the property, the loss suffered may be very heavy – far heavier than in any other investment avenue.
Golden Rules of Property investment
There are three Golden rules to follow when investing in property:-
- Rule 1: Location!
- Rule 2: Location!
- Rule 3: Location!
If this most important rule is taken care of by a thorough research in the beginning, most of the later disappointments are already taken care of. Other minor rules to watch out for are:-
- Clear land title.
- Reasonable cost of acquisition as per the prevalent market price.
- Real (and not imaginary) reasons why rates should increase in future.
- Availability of buyers for your property in foreseeable future when you plan to sell it.
What Property Should I Go In For?
The very first thing, as already brought out, is to go in for a home for your own self. It should be a place where you can visualize yourself spending your old age – amongst your own kith and kin and/or friends. The size of the house, quality of construction, looks, size of rooms, facilities functional or likely to be functional around it, neighborhood and the final price to you are the important criterion to be considered. In case of armed forces officers, it may well be an AWHO/AFNHB house since, by the time you retire, your fauji friends may start mattering more to you than even relatives! After that comes the property for investment. It can well be a commercial property, but due to various issues involved with such properties, managing a commercial property well is not something everybody is able to do. But if you can or have people who can do it for you, a commercial property has the potential to generate much higher rental income and disposal value than is possible with residential property. However, correct identification of such a property which is reasonably priced today and will do well in future can be, at best, tricky. If you are not comfortable with commercial property, then go in for a residential property for investment purpose. Here, remember that it is for investment purposes and hence, size does not matter as much. E.g., a house on a 60 sq meter plot is also good enough if you are not over-stretched financially, it generates good rental income for you and there are fair chances of it getting disposed off easily at a good rate later. For a property under construction, you may not bother much about the final cost of the property if there are chances that the property will appreciate well while under construction itself and you will be able to dispose it off anytime even when it is not yet fully constructed. Of course, you should have the money for the installments till you plan to stick around with it.
Where do I get the money for these big-ticket purchases?
Start small initially, keep building up your appetite for risk and gain experience by selling and re-investing in steadily bigger-ticket purchases. Home loans is another good source – they can be pre-paid if you have been careful to take one that levies no or minimal pre-payment penalties. One can tap into his Provident Fund account if it has a large balance – there is no point in keeping a very big sum there since it earns merely 8% per annum. This rate normally either just about equals inflation or may even be below the inflation rate prevalent at that time, implying that your money is either not growing or losing its value steadily!! However, please remember that your money is relatively secure in avenues like Provident Funds and it is good for financial prudence sake to keep 10-20% of your overall wealth in such an asset class (Provident Fund, Debt Mutual Funds, FDs, RDs, Post-office deposits etc).
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