Real Estate Investment - Best way to multiply Net worth many fold

When it comes to multiplying Net worth at large level the only option I see in today’s Indian Economy is Investment in Real Estate. UPA talks about “Inclusive Growth” and I see that happening in Net worth of people who venture into Real Estate Investment. The prices of land are growing in almost every corner of India the only difference is that in some cases increase in prices is extremely high and in others relatively less.

Many people hesitate to invest money in Real Estate only because of the reason that it requires lot of initial work, efforts, time, research and good relations with people (brokers) dealing in it. This Industry works completely different from others and accordingly one need to be very vigilant and alert while taking decision to invest in Real Estate.

I have seen many people earning average salary (say INR 25,000 pm to INR 100,000 pm) and owns big properties and plots. Fact of the matter is that fixed monthly salary for them is like peanuts and major chunk of return for them is always Real Estate. Now how is it possible? The answer is not simple, because if answer was simple everyone would have ventured into it.

The Answer is that accumulate few lakhs from your savings and balance opt for Bank Loans. The phenomena is such that Bank Loans are available at 10%-13% per annum and Real Estate Investment provides you returns way higher than this, many a times 100% per annum. And this is the way you make more out of less. Now imagine if such phenomena continues for you for couple of years, needless to say that it will become difficult for you to count how many folds your Net worth has increased.

As this Industry works differently as a result there are so many things which are grey such as Black Money involvement. Imagine a situation that you have 20% of total investment which you are contributing from your own pocket and balance 80% is coming from Bank. But if Seller want you to pay 50% of total value “Off the record” ? Such questions will always remain unanswered.

Why Investment in Real Estate sure shot success

1. It’s an immovable property and appreciation in Land value is bound to happen
2. India as an Economy has very bright future hence demand for Industrial/commercial Land will continue to grow for decades
3. Cut throat competition among Real Estate Brokers, Builders, Financers will ensure to get you the best deal
4. Longer repayment period of Bank Loans (normally 15 years to 20 years) eases up the pressure on monthly fixed income
5. Our Banks provides loans at very reasonable rate of 10%-13% per annum
6. Increasing Per Capita Income of Average Youth will continue to raise Residential land demand
7. The land or property can be used for any other Business purpose such as Leasing, Own Business etc

Must watch things

1. Ensure that property is dispute free
2. Ensure that the “Real Owner” is selling you the property
3. Agree on mode of payments for every single penny
4. Go through renowned and well known broker. Please do not evaluate brokers basis their Commission.
5. Study the surroundings of the property and basic facilities around it. These things plays the most important role in determining the price.
6. Make plan for payments and possession etc in line with Bank Loan disbursement. Sometime many deals go off because of misunderstanding and there are places in India where prices change every day and broker to broker.
7. Do some research on future of the property and its surroundings, this will give you confidence in taking a call whether to invest or not.
8. Do keep in mind that Sale and Purchase of Real Estate attracts Income Tax (Capital Gains) and there are exemption ways given by Central Government to reduce Tax. You may consult the expert to avoid any kind of inquiries from Income Tax Office.
9. Make sure all original documents of property are in your name else you will lose money big time.

Here is the small example (with approximate figures) from one of my known who has big unrealized money in hand just after 2 years of investment :-

Monthly Fixed Salary                           INR 120,000/

Net worth at the time of Investment    INR  2.5 million

Cost of Plot                                          INR 9 million

Bank Loan (for 20 Years)                   INR 6.8 million (75% of Cost of Plot)

Own Contribution                                 INR 2.2 million (25% of Cost of Plot)

Monthly Installment                               INR 74,323/-

After two years he has paid INR 1.8 million (including Interest). The latest value of the plot is INR 19 million. The unrealized profit is INR 10 million which is approximately four times higher than his two year old Net worth. Also if the plot is put into use for any commercial or non commercial purpose it will add few more thousands to increase net worth. Of course there are other things involved in it such as Income Tax etc but the purpose of the example was that he utilized own net worth and Fixed monthly salary in such a manner that investment yields maximum possible return.

Your investment in Real Estate can start with few lakhs and go up to billions. However this investment need highest alertness and vigilance to protect your net worth.