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Thursday 10 September 2020

Real estate investments

 In India, our old people have only two options for investment. These are Real State (house or Plot) and Gold. We will talk about gold some other day. Lets talk about the investment in REAL ESTATE.

We as an Indian have great love with Real Estate. We can do anything for this. Real Estate has often been confused as an investment because it demands financial commitment. This first problem with real state is the minimum amount to invest in. Suppose if you have that amount, still you must pay stamp duty and registration at the time of purchase. It can be 5% to 6% depending about the location. So, we have the pay more than the market value. If you have taken help form any broker, then you have to pay his brokerage on top it. And If you have taken a home loan then it will cost you more, double in some cases. Somebody may argue the additional tax benefit comes with interest payment on Home Loan. The recurring costs are the maintenance and property tax which eats form profit month on month and year on year.

Now the final problem with real estate investment is liquidity. It can take months to find a buyer; and in a rush to sell the house as soon as possible, we often fail to sell the house at a fair price. Moreover, even if the money we need is smaller than the price of the house, we will have to sell the entire property to get the money. Suppose you have 80L worth of single 3BHK and you need 5L for an emergency. You can sell it in a part you have to sell whole asset. And condition will be worse if prospective buyer came to know about your emergency. He will quote well below the market rate.

Someone might think the rental income as a return. But If you calculate the rental income will be come around 2-3% per year before all then tax and maintenance. We can easily get more in any Bank’s FD with less tension and no cost and better liquidity. 

Real estate investments can be risky during economic slowdown like 2008 and COVID-19. The risk is so much so, the property price might depreciate instead of appreciating. One more thing I like to mention here that there was time when cities were expanding horizontally and all of us need our house at center location for better access to market and all. It you go extremely far then it will take time to come to that location. That is the time where it was appreciating. But now a days we have multi stories building. We can accommodate 10 times more family in same piece of land. So, supply form the builder side is also extremely high. Now with better infra people do not mind going 10 to 20 km inside. Due to this also supply is more than enough to restrict the appreciation. 

Here I would like to mention that I am not against the buying the house or plot. But it should not be the only investment in our life. We should have with the alignment of our financial goal.

Sunday 22 March 2020

How Pump and dump works in market

A friend just shared with me this stock market story

A lot of monkeys lives near a village.
One day a merchant came to the village to buy these monkeys!
He announced that he will buy the monkeys @ $100 each.
The villagers thought that this man is mad.
They thought how can somebody buy stray monkeys at $100 each?
Still, some people caught some monkeys and gave it to this merchant and he gave $100 for each monkey.

This news spread like wildfire and people caught monkeys and sold it to the merchant.
After a few days, the merchant announced that he will buy monkeys @ 200 each.
The lazy villagers also ran around to catch the remaining monkeys!
They sold the remaining monkeys @ 200 each.
Then the merchant announced that he will buy monkeys @ 500 each!

The villagers start to lose sleep! ... They caught six or seven monkeys, which was all that was left and got 500 each.

The villagers were waiting anxiously for the next announcement.
Then the merchant announced that he is going home for a week. And when he returns, he will buy monkeys @ 1000 each!

He asked his employee to take care of the monkeys he bought. He was alone taking care of all the monkeys in a cage.
The merchant went home.

The villagers were very sad as there were no more monkeys left for them to sell it at $1000 each.☹

Then the employee told them that he will sell some monkeys @ 700 each secretly.
This news spread like fire. Since the merchant buys monkey @ 1000 each, there is a 300 profit for each monkey.
The next day, villagers made a queue near the monkey cage.
The employee sold all the monkeys at 700 each. The rich bought monkeys in big lots. The poor borrowed money from money lenders and also bought monkeys!

The villagers took care of their monkeys & waited for the merchant to return.
But nobody came! ... Then they ran to the employee...
But he has already left too !
The villagers then realised that they have bought the useless stray monkeys @ 700 each and unable to sell them!

It made a lot of people bankrupt and a few people filthy rich in this monkey business.
That's how the pump and dump works. Be careful about what you are buying. This happen in many stocks in past.

Hope this will help...

Most Common Personal Finance Sins

Everybody has some weakness when it comes to personal finances. Personal finance did not found any space in our school education system. The most Common Personal Finance Sins are :-

1] Do not have term insurance and Buying insurance policies for investment:-

There is a general myth that buying a term plan is waste of money. We will not get anything if we survive. Having a term insurance protects your loved ones in absence of you. This is the first financial mistake which you should avoid and have a adequate term insurance. It is a cost not an investment. Never mix insurance and investment. If we mixed them then we will miss the better protection and better return on our investment too. Traditional plans, pension plans, unit link insurance plans (ULIPs) have very low return, even lower than FD

2] My Company is providing health cover:-

Now days, every company gives health cover to their employees. Many people told me that I have company’s heath cover, why should I buy separate health insurance policy? The simple answer is “if you lost your job or change your job in between something uncertain illness happens to you or your family members, you will need to pay from your savings and investments.It is better to have separate health insurance along with top-up plan and personal accident policies.

3] Not planning on monthly expenses:-

Expenses reduction should be a goal and everyone should try to achieve it in their own way.It is old saying "money saved is money earned" . Saving the money means reserving the earned money for the future use. Debt is to use money now that have to be earned somewhere in the future. Debt and alcohol have in common that if one enjoy to much of it or get addicted, one gets in big trouble one way or an other.

4] Lack of emergency funds:-

One of the very first and important step of financial planning is to create an Emergency Fund. It is required to take care any unforeseen risks or unexpected and unplanned scenarios. It should not be used for meeting our routine or planned expenses. Without this long-term planning may fail. There could be a temporary job loss or medical emergency which can disturb your routine expenses. In these days we have our others commitment too.

5] Investing without goals:-

Goal gives us clarity for our vision and mission. We just invest without having any time horizon or goals. We should have our goals and their time fame. without these pointer we can choose right investment vehicle.   Without this pointers it cause over exposing to the risk and sometime pre-matured withdrawals. Investing to just save your taxes should not be only goal.

6] Free advise form Friend and relative:-

when it comes to health we prefer to go to professional with MBBS or MD and not taking medicine recommended on google but for wealth we like free advise either for friend/relative or Google/YouTube. Most of the time it cause the huge loss. we have to under stand the each of us have different risk profile. we have to choose the product according to this only. for this we need professional. So, hire professional unbiased registered investment advisor and financial planner, and more important he or she must has some personal experience in this.

7]  Not reviewing investment periodically:-

Ideally our risk profile changes day by day so we need to keep eye on our investment. the financial world changes very frequently so factors to choose one investment may change after some time so we also need to change our plan. This is the main reason to stay on proper path to reach our goal.

8] Not talking to our child on this:-

Personal finance did not found any space in our school education system. most of the our families don't want to discuss the money matters in-front of out children. Most of us also don't bother to know how our kids expend their pocket money. 

Hope this will help.....

Real estate investments

 In India, our old people have only two options for investment. These are Real State (house or Plot) and Gold. We will talk about gold some ...