Sunday, 21 April 2019

Why You Should Have At Least One Home Under Your Name


A friend exclaimed how he just doesn't believe in investing in real estate. He then went on to explain how his ROI on his equity investments, was far superior than ROI he would have got had he invested the amount in real estate. He also mentioned how a big fat home loan would end up hampering his lifestyle. By investing a small amount in stocks, he is able to lead a comfortable lifestyle & earn good ROI. The fact that he doesn't own a home doesn't scare him one bit. After all his parents have two houses, one for him & another for his sibling.



I asked him "What if there is a recession, you lose your job & one of your parents suffers a life threatening disease, the costs for which won't be covered by their insurance?" To which he responded "we will have to sell one of our houses & some of my stock holdings". To which I reminded him , that since it was recession time, he would have to sell his stocks probably at a loss or at a highly reduced profit margin. He would then have to share the 1 home with his sibling's family. Not a rosy picture!

While stocks may offer high returns, we would recommend people to invest in property, preferably a flat, before investing heavily in stocks. While one can invest in stocks, one should sell some of their stock holding once they have enough money to buy a house for themselves. Here are some of the reasons why

 Best Form Of Insurance

 Once you have a house under your name, even under the worst circumstances be it a bad marriage, bad economy or your parents leaving you with no money, you need not worry beyond a point. You can always give your house on rent & live off that income till your situation improves.

Real estate is relatively recession proof. When the economy tanks, stock are the first to go down. While real estate prices will get affected & you will find it difficult to sell your house, you will continue to make a neat sum from the rent money. While gold too is recession proof(in fact gold prices go up when the economy is shaky).

Leaving Money For Your Dependents

While your dependents will need a good understanding of the stock markets in order to continue to grow your portfolio, one doesn't need to have in depth knowledge of real estate once they inherit a property.

Gold on the other hand appreciates very slowly & is not a good investment in the long run. One shouldn't have more than 5%-10% of their wealth in gold as gold gives barely 5% returns Y-O-Y.

Staying On Rent V Buying Property

Many millenials do not believe in buying property. They think that the monthly EMI will eat into their salary & leave barely anything for them to enjoy a good lifestyle. While it is true that buying property might make you alter you lifestyle in order to be able to pay the sky high EMI's, it will be worth it in the future. The longer you delay buying a home, the more will be the price you will end up paying to buy property. In the long run if expenses go up, due to inflation, an addition in your family etc you might find it difficult to even pay your monthly rent.

We suggest you buy property on the outskirts of the city, where real estate prices are affordable instead of splurging money on a project which is close to the posh localities. We suggest you stay in your own house. Once your income goes up & you have saved enough, you can always sell your existing home & buy a better house in a better locality.

It doesn't matter whether it is a 1BHK or 3BHK, what is important is to own some real estate. Do not follow the foot steps of Warren Buffett, whose bulk of his wealth is in stocks. He is the exception, not the norm!

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