Anti real estate

Many people who read my blog ask me one question. Am I against real estate investing? The answer is NO. It is a capital NO font size 72 dark, bold, …what ever else you want.

However the common man – or most of the people whom I meet are so poorly equipped to deal with the real estate market that they are just shooting in the dark. Most of them do no research, have no idea about the builder, leverage themselves like ‘good times are permanently mine by right’ , – this combination is scary.

If you are a ordinary common person it is only mutual funds that let you invest on a monthly basis with amounts as small as Rs. 1k or even lesser. So an index fund (if you are not sure how to select a fund) is perhaps the best risk reward ratio for most of these investors. If you are inclined to take lesser volatility than an index fund, a balanced fund with about 65% in equity is a better bet (cap gains are still tax free).

I have friends who bought a property in prime Mumbai at the bottom of the real estate market – 1999 -2000 at a price of X. One of them who gave it on rent to a multinational is getting about X/2 as rent! Imagine a 2 year payback for a south mumbai flat! Now the price of the flat even conservatively is about 10X – not bad even in a so called ‘low’ market!

So to make money in the equity markets you need the following:

  • learn about money
  • find a good fund house
  • choose a good portfolio
  • invest regularly (invest, not trade)
  • over a long period of time.

if you do all this you will make money in equities.

To make money in real estate you need to do the following:

  • find a good guy with real estate knowledge (my advisor knows the real estate market very well)
  • take bets in multiples of 15 lakhs
  • leverage cautiously – instalment buying is a form of leveraging
  • trade (every 4-5 years my advisor shuffles our portfolio, some times in 2 years)
  • do not invest in real estate if you want rental income (commercial is far superior)
  • have a name like Deepak Parekh, Hiranandani, Raheja…if you cannot do that Pray!

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