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Builders & Real Estate Bulls Theory Proved Wrong

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Builders & Real Estate Bulls Theory Proved Wrong

Last updated: November 1 2016
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  • Re : Builders & Real Estate Bulls Theory Proved Wrong

    Originally posted by Que Sera View Post
    My post is not meant to be a invitation to buy. Only that reinvest is not as challenged as made out by certain posters in the forum.

    In practically all asset classes, appreciation is spasmodic.. Never linear.

    Over leverage is a crime.. Against one own self. But idiotic comments accusing people of tax chori to get returns are not expected in the forum.

    And financially challenged comments like "pay more interest than principal". If this were so, no business would resort to borrowing. It is not the interest you pay that matters but the income you earn on it.

    To put a different view.. I have a rented out property purchased 5 years ago on a 50% own funds basis. Left it empty for one year since tenant was giving a 5% lower rent than my expectation and I had the financial muscle to pay emi out of my pocket. The xirr is 19% despite no price increase in the last 2 years. Today 80% of the emi is being financed by the rent and tax break.

    Eventually I expect at least 30% loan of the original cost will be paid by my FD man tenants.

    I will not prepay the loan though I could have done it two years ago. And if I see a financially stressed multiple property owner selling property at attractive prices.. Yes I am in the market as long as

    1 my asset allocation is within my limits
    2 debt ratios/emi ratios are manageable

    Till then I am in debt mutual funds (9% post tax return over last three years.

    So using specific disaster cases to pull down any asset class is fear mongering, whether it be equity or debt or re.

    Follow financial tenets and things will be OK. Do not hunger over the larger 3 bhk house .. Go for one you can afford.
    ---- And financially challenged comments like "pay more interest than principal". ---

    Learn some manners. I have often noticed you are rude with many posters on this forum.
    Yes, in the earlier years of the home loan tenure, you pay more interest than principal as part of your EMIs. Read again, what is it you dont understand?
    Also, you give an example of 5 years ago. I have agreed that five years ago was a good time to buy (read the chain, dont jump in just by seeing my ID on the post). I was talking about now. About today.

    ---- I had the financial muscle to pay emi out of my pocket.

    All your examples and calculations are on the basis of your personal experience and your financial muscle and some assumptions you make which may not be true. You are an investor, your perspective may be different. But I will post my point of view here, for average end user buyers. Forum does not belong to you. Anything that does not agree with your view does not become "financially challenged". Yes, I may be financially challenged because I am not a finance or CA grad. Maybe you have more financial knowledge. If you think any member is wrong, point it out rather than being abusive. You may be having a finance degree but it seems your education has been incomplete.

    ---- But idiotic comments accusing people of tax chori to get returns are not expected in the forum.

    Read again, I did not accuse you. Read the sentence again. It starts with Unless.

    Again learn some manners. At least soarer; had a wicked sense of humour. You dont.

    I recall I once posted a link which said Mumbai has the highest ratio of RE price to income in the world. You went all ballistic and rude. But use your brain. If you have a problem with that article, please go and talk to the author of the article and the magazine/newspaper editor. NO point abusing me for something which I merely posted the link to. Dont be what you are accusing me of being

    I am younger than many on these forums. I have a long way to go. I would rather concentrate on more interesting stuff than spend my hour searching which investment gives a few pennies more than the other. You may be old and wise and have the time to count pennies. I dont have it.
    Last edited by BaagadBilla; February 11 2016, 05:40 PM.

    Comment


    • Re : Builders & Real Estate Bulls Theory Proved Wrong

      Originally posted by suryawork View Post
      I find all asset classes necessary , not just RE and FD .

      The point I was making is in line with what you're saying - you need to have financial muscle to invest into todays RE ticket size and stay invested for long given the current state of RE . This is not easy . People hardly have 20% downpayment for end use , forget investment - so I talked numbers rather than percentage .

      If interest rate does not increase dramatically over the loan tenure then in most cases running a home loan for entire duration is more beneficial than prepaying even though you'll pay more interest than principal as you are paying in installments the present value of money over time for an appreciating asset .
      Actually i saved for a long time ( 8 yrs )to get the down payment of 50% lined up. Chose to use debt funds which are more tax efficient and can add upto 1-2% over fd. This took care of the mandatory 25 %. The balance was from stocks which in hindsight was a good decision. The particular " blue chip " widely held stock has not seen the same price again. I had a sip of x no of stocks month. Thanks to the sip, the total "return" varied from 200% to 100%.. Sold at twice/thrice the acquisition price. Rather than look down upon spending time on finance sites, it helps your financial health to see the available investment choices.

      The reason i could leave the house vacant was since i chose to buy a smaller house than financial health permitted. We need to have cushions for bouncers life throws at us.

      Actually with all this hoopla, i am trying to find a RTM property which has given more than 11-12% pa return on total price over the last 4-5 years. Do let me know if you have a confirmed case.

      The worrisome fallout is that properties, even in the last 4-5 years have kept up with inflation. A drastic fall in prices will have to do more with economy burnout and may not be the manna that people think it will be. Think of property prices in texas/Arizona/parts of Australia in free fall and you get the idea.
      Life is what happens when you are making other plans. Enjoy it

      Comment


      • Re : Builders & Real Estate Bulls Theory Proved Wrong

        Originally posted by Que Sera View Post
        Actually i saved for a long time ( 8 yrs )to get the down payment of 50% lined up. Chose to use debt funds which are more tax efficient and can add upto 1-2% over fd. This took care of the mandatory 25 %. The balance was from stocks which in hindsight was a good decision. The particular " blue chip " widely held stock has not seen the same price again. I had a sip of x no of stocks month. Thanks to the sip, the total "return" varied from 200% to 100%.. Sold at twice/thrice the acquisition price. Rather than look down upon spending time on finance sites, it helps your financial health to see the available investment choices.

        The reason i could leave the house vacant was since i chose to buy a smaller house than financial health permitted. We need to have cushions for bouncers life throws at us.

        Actually with all this hoopla, i am trying to find a RTM property which has given more than 11-12% pa return on total price over the last 4-5 years. Do let me know if you have a confirmed case.

        The worrisome fallout is that properties, even in the last 4-5 years have kept up with inflation. A drastic fall in prices will have to do more with economy burnout and may not be the manna that people think it will be. Think of property prices in texas/Arizona/parts of Australia in free fall and you get the idea.
        Building to a plan over long term indeed gives great satisfaction . Good going ...

        Incidentally just got to know thru a RE source
        abt a person trying to sell his second property and clear loan on both his properties . Sure shot distress sale .

        I am positive that even if prices come down majority of ppl won't be able to take advantage - either they will try to bottom fish or worried about jobs to take any action.

        Comment


        • Re : Builders & Real Estate Bulls Theory Proved Wrong

          Originally posted by suryawork View Post

          Incidentally just got to know thru a RE source
          abt a person trying to sell his second property and clear loan on both his properties . Sure shot distress sale .
          There will be more cases like that. Today, it may not be properties you really want (people have picked up great prices rather than great value.. Equivalent of penny stocks) so need to wait till the full blown panic sets in.

          Originally posted by suryawork View Post
          I am positive that even if prices come down majority of ppl won't be able to take advantage - either they will try to bottom fish or worried about jobs to take any action.
          And then have the guts to buy. With guys quoting job cuts... It is the most difficult decision.

          BTDI.. been there done it. Post Lehman properties were a steal.. But I was scared and picked up in the same area but worse "PLC" at 50% more one year later.
          Life is what happens when you are making other plans. Enjoy it

          Comment


          • Re : Builders & Real Estate Bulls Theory Proved Wrong

            Originally posted by BaagadBilla View Post
            ---- And financially challenged comments like "pay more interest than principal". ---

            Learn some manners. I have often noticed you are rude with many posters on this forum.
            Yes, in the earlier years of the home loan tenure, you pay more interest than principal as part of your EMIs. Read again, what is it you dont understand?
            Also, you give an example of 5 years ago. I have agreed that five years ago was a good time to buy (read the chain, dont jump in just by seeing my ID on the post). I was talking about now. About today.

            ---- I had the financial muscle to pay emi out of my pocket.

            All your examples and calculations are on the basis of your personal experience and your financial muscle and some assumptions you make which may not be true. You are an investor, your perspective may be different. But I will post my point of view here, for average end user buyers. Forum does not belong to you. Anything that does not agree with your view does not become "financially challenged". Yes, I may be financially challenged because I am not a finance or CA grad. Maybe you have more financial knowledge. If you think any member is wrong, point it out rather than being abusive. You may be having a finance degree but it seems your education has been incomplete.

            ---- But idiotic comments accusing people of tax chori to get returns are not expected in the forum.

            Read again, I did not accuse you. Read the sentence again. It starts with Unless.

            Again learn some manners. At least soarer; had a wicked sense of humour. You dont.

            I recall I once posted a link which said Mumbai has the highest ratio of RE price to income in the world. You went all ballistic and rude. But use your brain. If you have a problem with that article, please go and talk to the author of the article and the magazine/newspaper editor. NO point abusing me for something which I merely posted the link to. Dont be what you are accusing me of being

            I am younger than many on these forums. I have a long way to go. I would rather concentrate on more interesting stuff than spend my hour searching which investment gives a few pennies more than the other. You may be old and wise and have the time to count pennies. I dont have it.
            Superrrr!

            I used to think arrogance is a trait of the people from the RE industry but now I realize some of it rubs on to the investors also.

            Comment


            • Re : Builders & Real Estate Bulls Theory Proved Wrong

              Originally posted by Que Sera View Post
              There will be more cases like that. Today, it may not be properties you really want (people have picked up great prices rather than great value.. Equivalent of penny stocks) so need to wait till the full blown panic sets in.



              And then have the guts to buy. With guys quoting job cuts... It is the most difficult decision.

              BTDI.. been there done it. Post Lehman properties were a steal.. But I was scared and picked up in the same area but worse "PLC" at 50% more one year later.
              What has worked for me for 15 years is the proverbial tortoise SIP into different asset classes . With notional tax implications residential RE is a no buy for me unless it falls to dire straits .

              Comment


              • Re : Builders & Real Estate Bulls Theory Proved Wrong

                Originally posted by suryawork View Post
                Wrong...here is the profit percentage for 40k to 40L in 35 years :

                FV(14%,35,0,40000,1) = 3924007

                So profit is abt 14% per year not 280% per year . See the diff. in actual vs your assumptions .

                You are in supervisory position but do not know that your job does not depend only on your performance but also the company performance .

                Hats off to your genius , Sir !!!
                This is how brokers and developers also take unsuspecting RE investors for a ride. They do not speak about CAGR.

                Also the person would have spent some money in constructing the house. I know in the 80s one of my uncles bought half an acre plot for 3L and built a house for 3L.

                So in this case the house would have actually depreciated but then it is a wash because it is the cost of living in the house.

                14% CAGR for 35 years is very good. I think the real returns will be lower when you consider the maintenance, property taxes etc.

                Comment


                • Re : Builders & Real Estate Bulls Theory Proved Wrong

                  Originally posted by suryawork View Post
                  Wrong...here is the profit percentage for 40k to 40L in 35 years :

                  FV(14%,35,0,40000,1) = 3924007

                  So profit is abt 14% per year not 280% per year . See the diff. in actual vs your assumptions .

                  You are in supervisory position but do not know that your job does not depend only on your performance but also the company performance .

                  Hats off to your genius , Sir !!!
                  This is how brokers and developers also take unsuspecting RE investors for a ride. They do not speak about CAGR.

                  Also the person would have spent some money in constructing the house. I know in the 80s one of my uncles bought half an acre plot for 3L and built a house for 3L.

                  So in this case the house would have actually depreciated but then it is a wash because it is the cost of living in the house.

                  14% CAGR for 35 years is very good. I think the real returns will be lower when you consider the maintenance, property taxes etc.

                  Comment


                  • Re : Builders & Real Estate Bulls Theory Proved Wrong

                    Originally posted by suryawork View Post
                    What has worked for me for 15 years is the proverbial tortoise SIP into different asset classes . With notional tax implications residential RE is a no buy for me unless it falls to dire straits .
                    The notional tax implication is the best gift you can get.

                    If deemed let out, then you can get the benefit of entire interest deduction rather than having it restricted to rs 2 lac or some arbitrary figure.

                    The end result is a tax loss in most cases.
                    Life is what happens when you are making other plans. Enjoy it

                    Comment


                    • Re : Builders & Real Estate Bulls Theory Proved Wrong

                      Originally posted by Que Sera View Post
                      The notional tax implication is the best gift you can get.

                      If deemed let out, then you can get the benefit of entire interest deduction rather than having it restricted to rs 2 lac or some arbitrary figure.

                      The end result is a tax loss in most cases.
                      That is good for leverage . I'm zero debt and will rather accumulate gradually the old way .

                      Comment

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