Tried using Opium... (i.e. OPM = Other People's Money !!)

It’s a real tragedy that lots of airtime, print & pixels have been spent on analyzing stocks during the last 2-3 years of fairly depressed state of the stock market.

And there has not been much of an educational or analytical note on how people could have benefited from the boom in the real estate market around here in India, and that too with absolutely no/minimal risks.

If you want to experience the best kick ever on your investments, then gearing your investment through leverage (i.e. using other’s money to enhance your returns) is the best way to go about it. That’s common sense.

And the banks are falling over themselves to lend you money for property investment ! And all they need, if you are a working professional, is your last 3 months’ payslips ?

(Exercise : Try asking them for investing the same in Stocks :-)  )

I have to admit that I have never understood the stock market very well. And from the many experts that I see occasionally on the business channels on TV, looks like most of them are fairly clueless as well. Hear this absolutely gem of a prediction from an established so-called expert : “If the market moves up, it can see a 10-15% growth in the next 6 months. And if we see a downside, it could be about 5-10%”. Yes Sir!, Very helpful.  Thank you so much. And you get to hear such unadulterated bullshit on a daily basis when you try to seek help and advice via those channels.

Compare that to the fundamentals of investing in real estate and I am sure you will never ever think of stocks anymore. And you do not need to be a sophisticated and informed person to understand some basics of this game.

Let’s assume that you have come in some money and have about 5 Lakhs of cash to invest.

What would be the worth of the stocks that you could possibly buy with Rs. 5 Lakhs ?

No trick question here. The answer is exactly Rs. 5 Lakhs worth of stocks. Of course, we are not considering the investments being made on margin calls (which is anyway not a typical retail investor habit) and is considered highly risky anyway.

Now what would be the worth of property that you could possibly buy with Rs. 5 Lakhs ? ..

With banks lending upto 90%, with 5 Lakhs of your money, you could actually buy a 50 Lakh property. Though bank has lent 45 Lakhs of it, YOU are the owner and have the sole right to make decisions on that investment.

3 years hence ??

Assuming that the stock market has done well and you doubled your investment in 3 years.

How much do you get now ?  Rs. 10 Lakhs.

Growth of your investment = 100% (i.e. 5 Lakhs additional on an investment of 5 Lakhs)

Assuming that the property market has done well and you doubled your investment in 3 years.

How much is it worth? Rs. 1 crore.

Deduct interest paid to bank for 3 years (@ 11% p.a on 45lakhs, it’s about 15 Lakhs of interest).

Deduct the principal of 45 Lakhs due to the bank.

How much you got now ? ( 1 crore – 15 – 45 = 40 Lakhs).

Growth of your investment = 700% (i.e. 35 Lakhs additional on an investment of 5 Lakhs)

And guess what! Property is actually more tax-friendly given the many ways of avoiding/deferring such payments to governments.

Now just give close attention to the assumptions made above, and you would realize that the stock market assumptions are actually preposterous (in current scenario) and the property market assumptions in fact are closer to reality. That only magnifies the attractiveness of property. I would go as far as saying that, for an average class of an investor – read working professionals; property investments give at least 10 times more returns than stocks. And we have not even considered the additional rental income as yet! 

Of course these are trends based on the last 8-10 years of the property market behaviour in India. Nothing to suggest that the next 8-10 years is going to be any different.

Such investments mean different things to different people. Most of us attach material benefits and justifiably so. Once you transcend that thinking, the actual benefit is in achieving Freedom.

Freedom to have options ahead in life.

Real Estate & Freedom

Recently, was watching a TV serial where a family, undergoing serious financial stress, was contemplating about selling their flat in Mumbai and moving to Pune.  The protagonist in the serial listed the real-world possibilities of enchasing on the booming real estate prices in Mumbai, moving to a bigger house in Pune, and still having some money to spare that would have helped the family tide over some liquidity related problems.

Last evening, was watching the business news channel and got to know about a major corporate house moving their headquarters from the Nariman Point area to the suburban Goregaon area, in Mumbai. And the reasons included the attractive commercial rentals of 100 rs per sqft at Goregaon vis a vis the 200-300+ range in Nariman Point. Hence the ability to move to a double sized office premises, and also avail the associated advantage of a relatively easy commute for its employees.

The stark coincidences of both these moves, to something closer to my personal journey, were quite fascinating.

Also, investment in residential real estate is something that is very close to my style, and the last 6-8 years has been just mindboggling, to say the least, for anybody dealing in such investments in India.

Having moved from Mumbai to Pune for professional reasons some 8 years back, and then later settling down permanently in Pune, I did experience the benefits of the inter-city move. Of course, this was a completely unplanned move and it just happened because of a job-change motivation at that time.

And recently, looking at the future needs of our lives both personally and professionally, my wife and I decided to move from our current place within Pune to a place about 3 kms away, which actually afforded a better living and was available at almost half the rate as the market rate of our current place. In the process, it generated an ability for my wife and self to pursue some long desired career moves. We are also considering fulfilling some personal desires for the kids that was simply not affordable before. Net net the future looks not only more fun, but also more secure.

50-100% appreciation in 3-4 years is something that is unimaginably good by any yardstick in any part of the world. And most of us in India almost shrug this off as a “So What’s New” kinda thing.

The boom that started in mid-2000’s still continues, with not much of a regard for the macro or even the micro economic factors around. Mind you, this is not restricted to some specific parts of the country. You could have pretty much blindfolded yourself and picked any area of your choice in the India map, and there is a comparative case for real estate investment avenues there. Even today, the 30-40% in 2-3 years is much better than the alternative investment avenues !

To recap, the formula that existed in mid-2000’s still holds true today. A suburban flat of Mumbai can fetch you a flat double the size in a relatively upmarket area in Pune. And an up-market flat in Mumbai can fetch you a similar kinda deal in suburban Mumbai. And after all that, you will still have some money to spare !!!

Of course, whether inter-city or intra-city, these decisions cannot be made purely from a financial perspective. There are family considerations involved.  The kid’s education/school change is not an easy thing in today’s times. Elders (senior citizens), if involved in the move, may have their very valid reasons of not wanting to change their social environment at that age.  Support systems in the family have to be thought out deeply. And most importantly, the new place has to have equal/more appeal for your’s and your spouse’s professional interests as well.  Also, houses tend to have emotional connects too with many warm memories attached. All these views have to be respected, discussed and due decisions made.

At the end of the day, the real estate boom in India of the last 7-8 years has indeed been very useful in providing more options, both financially and personally.  At the same time, it should not be an easy way out to solve one problem ,and in the process ends up compromising the happiness quotient within the family.  The Happiness Quotient needs to always remain the supreme factor above everything.

Happy Investing !!!

Financially Free at 43

FREEDOM : An embellished choice behind every entrepreneurial initiative.
JOB : Do what is being asked of you.

On the face of it - Opposites.. Right ?
Are they really ?
OK, Assuming they are today, Do they have to be necessarily that way ?
OK, It could be - for many of us. If so, then Do they have to be eternally that way ?

This blog seeks to make sense of all the opportunities and possibilities that are available to us not only to encash but also to enjoy !

Encash & Enjoy. Two eminently sought after characteristics that each of us seek in our professional careers and personal investments. Seemingly utopian to even desire it in the same breath.

Now let me take this thinking a couple of notches higher,
i.e., Enjoyment without necessarily worrying about Encashment.

That would be the state of being Financially Free.
Where our choices in our professional and personal arena are guided more by what we want to do rather than what we need to do, and the returns generated are more of a nice byproduct rather than a desired outcome.

If all this appears to be going into some spiritual zone, you are absolutely right.
And I am not done yet !!!

Let me leave you with a simple formula that I have devised for myself :

RESPECT "TRIMP"

INVEST in "TRIMP"

where TRIMP is Time, Relationships, Ideas, Money and People.

I am increasingly convinced that following this formula diligently can inject a lot of happiness and prosperity, across our professional and personal decisions.

Btw, you have already taken the first step towards Financial Freedom.

Siva
Hope you enjoyed reading. Do let me know.