{"id":4734,"date":"2016-10-26T18:19:22","date_gmt":"2016-10-26T12:49:22","guid":{"rendered":"https:\/\/teekhapan.wordpress.com\/?p=4734"},"modified":"2016-10-26T18:19:22","modified_gmt":"2016-10-26T12:49:22","slug":"the-luck-of-investing-in-real-estate","status":"publish","type":"post","link":"https:\/\/vivekkaul.com\/2016\/10\/26\/the-luck-of-investing-in-real-estate\/","title":{"rendered":"The Luck of Investing in Real Estate"},"content":{"rendered":"

\"India-Real-Estate-Market\"<\/a><\/p>\n

When flying out of the terminal 2 at the Chatrapati\u00a0Shivaji International Airport in Mumbai, I like to follow a certain routine.<\/p>\n

This includes eating a sandwich along with a cup of coffee and watching airplanes take off and land. The entire routine lasts for around 15 minutes. And this is precisely what I was doing two days back, when I saw a person walking towards me. I wouldn\u2019t call him a long-lost friend but he was someone I had come to know during my course of work.<\/p>\n

Don\u2019t we all know a bunch of people we know, but we really don\u2019t know? So, he was one of those.<\/p>\n

\u201cAnd who have we run into,\u201d he said, sitting down in front of me. After the mandatory hello, this gentleman got to the issue straight away. \u201cSo why are you so against investing in real estate?\u201d he asked.<\/p>\n

\u201cWell, I am not against anything. I am only against things which don\u2019t make sense to me at a certain point of time. And as of now it doesn\u2019t make sense to invest in real estate, in my humble opinion. But if you want to buy a home to live-in, that is a different issue altogether,\u201d I explained, extremely irritated at having been disturbed.<\/p>\n

\u201cOh, you know but the value of the home I bought has gone up four times,\u201d he said with great confidence.<\/p>\n

This is the oldest argument made by those still confident about investing in real estate. It comes in two forms. One form was just cited above. The other form is to talk about a third person who seems to have made money by investing in real estate. This can include Sharma ji, Verma ji, Gupta ji, Mr Banerji or Mr Subramanian, one of whom lives down the road.<\/p>\n

This argument deals in absolutes. \u201cI bought for Rs. 10 lakh and I sold it for Rs. 50 lakh,\u201d is how you go about selling this point. The trouble is that it doesn\u2019t take into account any expenses incurred in between.<\/p>\n

This includes the maintenance cost that needs to be paid to the society every month. Or the property tax that needs to be paid to the municipality every year. Or the cost of insuring the home. Or the interest on the home loan. Or the cost of buying an insurance on the home loan. On the positive side, it does not include any rent that comes in and any tax deductions that are made.<\/p>\n

The point being that no one calculates the return on investment on investing in property. In fact, there is no such number going around. If you want to know the past returns of a stock or a mutual fund, it is very easy to find that. But if you want to know about the past returns on real estate, there are only absolute numbers going around.<\/p>\n

There are only stories. And people like to believe in stories, not numbers.<\/p>\n

\u201cSo when did you buy this home?\u201d I asked the gentleman.<\/p>\n

\u201cAround 2005,\u201d he replied.<\/p>\n

\u201cYou were lucky,\u201d I blurted out.<\/p>\n

\u201cWhat do you mean?\u201d he asked.<\/p>\n

I had made the proverbial mistake of attributing the success of a person to his luck. And given that I would have to explain what I meant.<\/p>\n

\u201cWell, if you had invested in real estate any time post 2009, there is a reasonably good chance that your investment would have ended up in a mess,\u201d I explained.<\/p>\n

\u201cWhat do you mean?\u201d he asked again.<\/p>\n

\u201cMany people who invested in real estate post 2009, still haven\u2019t got the homes they had invested in. The builders have either run out of money or in some cases simply disappeared.\u201d<\/p>\n

\u201cOh,\u201d he replied, rather nonchalantly.<\/p>\n

\u201cSo, in many cases people who thought they are buying a home to live in, have had to continue paying the rent on the home that they live in, along with the EMIs.\u201d<\/p>\n

\u201cOh,\u201d he said again.<\/p>\n

\u201cThey are basically screwed.\u201d<\/p>\n

\u201cBut what are you trying to say?\u201d<\/p>\n

\u201cSuccess in real estate investing like many other things in life is also a matter of timing. You think you have made money because you invested in 2005. Many others who invested in 2009 or after, are stuck. And unlike other forms of investing there is no exit route. Also, given that the amount involved in this case is large, there is no getting back from it,\u201d I explained.<\/p>\n

\u201cOh, but all that doesn\u2019t apply to me,\u201d he said rather confidently.<\/p>\n

\u201cReally? So, this home you bought and which has gone up four times in value, have you ever tried selling it?\u201d I asked.<\/p>\n

\u201cYes.\u201d<\/p>\n

\u201cAnd for how long have you been trying to sell it?\u201d<\/p>\n

\u201cFor the last six months.\u201d<\/p>\n

\u201cAnd you still haven\u2019t managed to find a buyer for it?\u201d<\/p>\n

\u201cNo. I think it is worth a certain price. But the stupid buyers haven\u2019t been willing to pay.\u201d<\/p>\n

\u201cAh!\u201d<\/p>\n

\u201cMy broker also thinks it is worth the price that I think it\u2019s worth.\u201d<\/p>\n

\u201cOh, really. The price you and your broker have, is in your head. That is certainly not the market price, because if it was, your home would have been sold by now.\u201d<\/p>\n

\u201cThat is not the case,\u201d he responded very aggressively.<\/p>\n

\u201cYou are anchored on to a price and are not willing to sell for anything less than that price. But in the time to come, as your home continues to remain unsold, you will revise your expectations and be ready to sell at a lower price,\u201d I said, gulped my cup of coffee, and started walking towards gate number 87 to catch my flight.<\/p>\n

To conclude, if you are unable to sell a house that you had bought as an investment, that doesn\u2019t make the buyer stupid.<\/p>\n

The column originally appeared in Vivek Kaul’s Diary <\/a>on October 26, 2016<\/p>\n","protected":false},"excerpt":{"rendered":"

When flying out of the terminal 2 at the Chatrapati\u00a0Shivaji International Airport in Mumbai, I like to follow a certain routine. This includes eating a sandwich along with a cup of coffee and watching airplanes take off and land. The entire routine lasts for around 15 minutes. And this is precisely what I was doing … <\/p>\n

Read more<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"qubely_global_settings":"","qubely_interactions":"","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30,77],"tags":[1127,1591,2146,2994,2998],"qubely_featured_image_url":null,"qubely_author":{"display_name":"Vivek Kaul","author_link":"https:\/\/vivekkaul.com\/author\/vivekkaul\/"},"qubely_comment":2,"qubely_category":"Equitymaster<\/a> Vivek Kaul's Diary<\/a>","qubely_excerpt":"When flying out of the terminal 2 at the Chatrapati\u00a0Shivaji International Airport in Mumbai, I like to follow a certain routine. This includes eating a sandwich along with a cup of coffee and watching airplanes take off and land. The entire routine lasts for around 15 minutes. And this is precisely what I was doing…","jetpack_sharing_enabled":true,"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/posts\/4734"}],"collection":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/comments?post=4734"}],"version-history":[{"count":0,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/posts\/4734\/revisions"}],"wp:attachment":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/media?parent=4734"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/categories?post=4734"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/tags?post=4734"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}