FINANCIAL WISDOM - 1 IS BUYING REAL ESTATE A GOOD IDEA?

  

When we talk of investment, what we mean is putting away our hard earned money today -  for that distant future, when we actually need that money - May be for higher education abroad for our children, wedding of our children or for our retirement. Now, let us think of an investment idea with the following characteristics:

(1)This investment idea requires a huge initial payment and its not the only payment you have to manage. You need recurring payments for next few years.

(2) It is an illiquid investment - means if you need to dispose it off , you may need weeks or months and lot of energy for both buying and selling this investment. 

(3)Not only does this investment require lot of initial money but buying and selling it also incurs a heavy transaction fee.  Mostly 5% to 7% of the cost of your investment.

 (4)As if the points mentioned were already not enough, the investment requires lot of COMPLICATED paper work for both buying and selling. The paper work also costs money. 

(5)The investment is restricted to one specific country - no only one specific city -- No just one neighborhood so you have very limited buyers.

     If a violent person moves         in, the value  of your                investment goes south. 

(6)Its not possible to move your investment when you move out of that area. 

 (7)The investment requires an endless loop of maintenance. It can be damaged by fire, water, weather.  There are always some fixed expenses.

(8)Even when you are simply holding the investment waiting for it to appreciate you need to pay a tax to the local authorities. 

(9) Its very difficult to split the investment. Causes lot of disputes.

(10)The investment has low returns. The returns are also not uniform and vary from one area to another in the same city.

 

(11)Buying and Selling this investment always generates lot of black money - i.e. cash  which can only be reinvested in another similar investment and the person is caught in the vicious trap.

By now you must have realized that I am talking of investments in property - real estate - residential. The major reason people  buy house is

(a) Emotional 

(b) Sense of pride in owning

(c) because everybody else is doing it

Buying a residential property for your personal use is alright provided you are going to stay in the same city for next 20 - 30 years. But if your job entails lot of movement, buying  a property does not make any sense.

Generally, we all think of buying properties for our children but the future job scenario will not be as static as it was in our youth. The new generation may need to move from one city to another or from one nation to other in search of better opportunities. So, if you really need to leave for them something which they can thank you for and can utilize it as per their needs, Don't buy properties for them.

There are better investment opportunities than locking your money in a property.

DHIRENDER SHARMA