Real estate investment is only for the involved

this article has been written by a friend who is a little shy of writing so he writes nuggets and sends it to me for asking whether it is good. Since he does not use it, i am using it in my blog….

Leveraging Real Estate –to your benefit

With the Equity markets touching new highs, then new mids, then new lows, the Real Estate markets are also rising in tandem.

There used to be a belief till recently that when Equity Markets rise, Real Estate marketsfall (like a See-Saw). Events of the last 2 years in India have however turned this belief onon its head. Even as experts opined that a correction was around the corner, the road to RealEstate has turned into a freeway paved with riches. But obviously look for the caveats.

How can we or most of us benefit from this? As with all forms of investment, there are easy ways and there is the road less traveled. The easy way would be that of investing in a Real Estate Fund.

These avenues would open up very soon. The pedigree of the Sponsors would be a very good way of deciding on the investment.Investors would get good returns especially as funds would be eager to establish “Performance “.

Evidence from the performance of these funds in the United States of America suggests that good Real Estate funds have outperformed Equity Funds over certain periods of time. This would seem to have more to do with the intrinsic strength of the Real Estate market than with Fund Management skills. Without getting into the semantics of Equity Vs Real Estate, it could be said that an investment in a good Real Estate fund is definitely recommended as an instrument to provide diversity and depth to an individual’s investment portfolio. The other advantage would be that we can invest smaller sums of money.

Moving on:

Just as the big screen makes for the best viewing, investments in Real Estate pay off when we begin to play for bigger stakes. Notwithstanding the huge media hype surrounding Real Estate; it is only a miniscule fraction of the population that benefits from Real Estate.

People who have the time do not have the money and those who have the money, claim not to have the time. In comparison to equity, Real Estate is a high involvement activity.On the highway of property investments, there is a need to study projects, understand the dynamics, know ideal entry and exit points and then be clinical about executing the action plan. A good plan executed well can propel an individual to phenomenal growth. Seeding of investments is a very important part of the strategy… A good strategy involves diversification to de-risk as well as to grow the real estate portfolio.

Just as equities have Penny Stocks, Midcaps, et al, Real Estate has enormous variety. We can list them for understanding the opportunities in each of these segments

  1. Commercial
  2. Residential

Leaving Commercial aside for the time being, Residential would have the following categories:

  1. Low Cost- Private
  2. Low Cost-constructed by development authorities like MHADA, CIDCO , DDA, JDA etc
  3. High Cost Private
  4. High Cost-Development authorities.

Whilst investment in Category 1 (Low Cost-Private) is risky because of Legal Problems, Investment in Category 2 has tremendous scope especially in the current environment.

For instance in Navi Mumbai there are apartments constructed by CIDCO, Many of these are in a condition that makes it inevitable that they will have to be reconstructed. What makes these a treasure trove is that they are located in places which are now considered to be prime locations. When you buy these apartments, you have to make a choice that flies in the face of congenital logic. The more dilapidated the structure, the more likely it is that it will be redeveloped faster, thus turning your investment around quickly.

For high cost investments, the returns are good. If lack of capital is a hurdle, availing of housing finance is a good alternative. As you become more adept in handling real estate investments, you could create your own pool of funds, i.e. pooling the funds of people in your circle with congruent investment goals.

This entire process can be considerably simplified if one avails of the services of a good estate agent. Estate Agents have considerable experience and knowledge. They can narrow down your search, once you provide the parameters.

Consider investments in Real Estate seriously. It truly can set you free.

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3 Responses to “Real estate investment is only for the involved”

  1. Dominic Mazzone on May 13th, 2008 at 12:29 am

    Great take on a long standing debate of equities v.s. real estate in the form of funds as a diversification from traditional investment vehicles. The key is to let the managers do the work as most real estate investments are not part-time. As fund mangers for a fund related to real estate, we discuss this on

  2. Investing Money Strategies on May 22nd, 2008 at 1:58 pm

    This blog is related to Investing Money Strategies that one must think about the future and invest it properly. I suggest that by doing so one can meet the unforeseen things.

  3. Is it not too much of a theoretical thing – of real estate vs. equities? Most people I meet surely have one house – and some of them have a second house, or a office property given on rent. Why is it made so much of an issue? Also is there some kind of a co-relation between movement of equities and movement of real estate prices?

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