It hardly matters who is the real estate buyer – when they come out of the deal, they tell you how they got great returns. You are not keen to puncture their ego.
So here is the case of 2 people – I will give you the numbers of one person. He had bought a flat for Rs. 1.13 crores in 2013…and he now wants to sell. So he told me…”I am not making a loss”. I am able to sell it for Rs.1.13. Do you want to know the location? Well it is one of the far flung suburbs of Mumbai.
As a friend you are supposed to say “wow..at least you did not lose money”. I decided to dig a little deeper. He had taken a Rs. 45 lakh loan @9.6% p.a….and over a few years he had paid Rs. 13L as interest.
He did not take into account the brokerage, the society admission fees, the amount paid for the interiors, …etc. that was another Rs. 12 L – shocked? well this society had charged him Rs. 1L for admitting members…and that was a lifetime expense..but his tenant and the new incoming buyer had nothing to do with that amount..so that was another sunk cost. He had paid Rs. 4000 on an average as society charges over this period of time- that was Rs. 3L approximately.
There are 2 things to remember when you invest. You call it breakeven ONLY after you consider all costs. More importantly you need to consider the time value of money, not money in absolute terms. Rs. 5L invested in 2013 and Rs. 5L invested in 2019 are completely different animals and you have no business adding up these amounts.
In case of any investement the challenge is to include all costs, and the time value of return. If there is any income that has to be inclueded – this man had kept his house locked for the 3 years that he had got possession…so there was no other revenue to consider.
If he thought he was making profits, it was sheer innumeracy. Go tweet about such innumeracy!
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