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FINANCIAL WISDOM - 2 Investing in Residential properties.....

I know it is very difficult to accept new ideas especially when we have grown up listening to some old established beliefs. 

One of them is - Buying properties.  
The most common reason people give for buying properties is 
(i) Look how much my MIG flat has appreciated. I bought it for 25,00,000 and now its worth 85,00,000 after 15 years. 

Suppose Mr. A bought a flat for Rs. 25,00,000  in the year 2007 when the property market was in boom. 
However, on paper the value of the flat is only Rs. 10,00,000. He paid Rs. 14,00,000 in cash to the seller and Rs. 1,00,000 to the broker. 
Assuming that Mr. A is a salaried individual and all his earnings are in white. So, the Rs. 14,00,000 in cash was arranged by converting white money to black. 

Also, remember if Mr. A took a home loan - he also paid interest on the loan he took.

Mr. A is very happy that in the year 2022, the market value of the flat is 85,00,000.
Mr. A wants to send his child abroad for further studies and thinks that selling the flat will be a good idea to finance the studies abroad. 
Now there can be few scenarios:
(i) Although Mr. A needs money in next 1 - 2 months, there is no suitable buyer and if there is a buyer he is only willing to pay a sum much lower than Mr. A's expectation. 

(ii) Mr. A needs money in next 1 - 2 months but the broker told him the real estate market is down these days and  also due to the setting up of Industrial area near the flats, the prices have gone down and its possible to only get Rs 70,00,000. 

Mr. A has very limited options and he agrees to sell the flat at say Rs. 75,00,000. Now there is another problem:
The buyer is willing to pay only Rs. 20,00,000 by cheque and the balance in cash. 
The broker is asking for Rs. 1,00,000 brokerage. 
The cash component can't be put in bank A/C and if its not in bank A/C, it can't be used for paying the fee of the University. 

As a law abiding citizen, you are willing to pay tax on the amount received in cash... but we have a problem here - the buyer of the property does not agree to showing it because of his own dubious financial records. 
Also read this article here 
This problem will remain same even if you want to sell the property and put the money in your Bank A/C for your post retirement life or you want to settle abroad. 

Yes, the cash can be splurged during your child's wedding, or on other unproductive items like buying a huge LCD TV or you can buy your groceries with this cash for next 10 years but then its not an investment.  

Off course, keeping all this cash at home is another headache. So, putting money in property actually led to so many headaches for Mr. A.

to be contd.... 








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