Part-I :Real Estate (Flats/home/Plot/Shops)
Saving is a good habit, investing it is even better. In India, most of people invest based on friend and family advice. Consulting investment advisor or investing based on your own research is very rare. In such scenario, most of people invest in real estate because it is one of the oldest investment class and chances of loss is negligible. Due to ever increasing population, real estate gives good return in long term. However, there are some disadvantages too. Firstly, there is a default risk. Many times it happens that same property is sold to two parties. Secondly, there is a risk of capturing of your land by some goon. In both cases you have to fight long legal battle which will waste lot of money and time. Thirdly, you have to buy property at market rate or below market rate to generate profit in short run. Also, you must have idea of location. If you buy property at wrong location, you have to wait for long time before you see any appreciation. Finally, all type of properties are not good investment. It depends on your goal and your requirements.
Suppose, you already have a home to live, and you buy a flat for rental income. This will be a bad investment because rental income of commercial property is more than rental income of residential property. Also, flat needs constant maintenance and you also have to pay society charges! Which will even further reduce your rental income.
Now, let’s take an example of a Plot or a land. If you buy a plot away from the city area, you have to wait for long time before any significant increment. Plots within the city are very expensive. If property market crashed or there is a slowdown, again you have to wait for long time before making money by selling it.
One bigger problem with property is that it is not liquid asset. i.e. It cannot be converted into money immediately. It takes more than one month to find a prospective costumer and transfer property on his/her name.
Thus, Even though investment in real estate is good and can be made risk free with proper research and investigation, it is not the best investment for every individual. There are several other asset classes which one should consider before investing in real estate. Different asset classes outperform in different time. For example, during COVID-19 Pandemic, Gold outperform most of asset classes. While rental income hit hard.
Hence, during investing make a diversified portfolio to mitigate risk. Learn about different asset class and take help of financial advisor before investing large sums of money. Your parents and friends definitely gives you right advise from their prospective but they may not be able to give best investment advice until and unless they themselves belongs to financial field. Which is not the case in most of the cases. Doing your own research is very important. Lot of information is available on internet. If you do not like reading, you can watch Youtube videos. Even all financial advisors are not updating their skills and in some cases there can be clash of interest. Suppose your financial advisor is selling insurance too. He might try to sell you life insurance for your whole family when you only need life insurance for earning members! So, the only option left is self-research. It is your hard earned money, so you are the one to take final decision after checking all the options available and your requirements.
In next part I will discuss another asset class – Stocks and Mutual funds. Please press the like button if you like this article.