I have some reasonable experience in Real Estate Investing. I am looking at Real Estate as my Primary Cash Flow (inflation hedged) during retirement. Here are the basics -
a) RE Investment is always Cash Flow NEGATIVE. After considering rent that you will get and EMI that you will pay, it is NEGATIVE. I make it positive by prepaying loan as fast as possible. That requires some surplus from other sources
b) I have identified only 3 builders with whom I will buy at project conception stage. Otherwise I buy at ready possession or near-ready possession stage.
c) When you buy at 20% deposit upfront., it is like an OPTION, and has leverage. If price is 100, you pay 20. When price goes to 120, your booking value is 40. So 20% increase in price yields 100% return!!! I know people who buy several properties by paying a token and make a fortune. However, I have never done that. Reason? - I want to be in it for LONG term and eat rentals. But others have done it very well.
d) Real Estate where you go to register and all that, has a transaction cost of 8%. If you are a trader, the transaction cost could KILL you, unless you transact at the allotment letter stage itself.
e) Another thing people do is buy land in a far off place and encash when it develops. I have not done that. Reason? I want to get my retirement passive, inflation hedged cash flows in place first. Then, maybe......
f) Just like there are midcaps, small caps and largecaps, there are issues in real estate. There are areas where markets are pretty liquid, and you can dispose off property in 3 months. In other cases, the lock-in time required to dispose off property can be 1-2 years!! In still other cases, there are properties where the bid-ask rate is 30-100!!! I'll explain by taking an example of Mumbai.
A property in Mumbai, or its suburbs or some areas around it are quite liquid. In case you want to raise funds in a hurry, a 5% discount can get you a good buyer.
In places like Alibaug, where NO ONE wants to stay, but is ONLY USED AS HOLIDAY HOME, the liquidity is terrible. If you want to sell, you may have to wait for 1/2 years!!!
Then there are "ghost towns in middle of nowhere". Entire blocks of buildings (say 200 buildings) have been sold by unscrupulous people at fancy rates in the boom to unsuspecting buyers who have taken a loan against them. Buyers who wanted to invest in real estate but could not, bought these "low ticket" flats. Though all flats are sold, everyone is an investor! Everyone is selling but no one is buying!! A 15 lac flat is worth 15 lac to the owner (because of loan) but buyers are ready to pay between 5-6 lacs only, as it is "nowhere" The bid ask spread is 15-6!!!
Just my 2 pence
