Real Estate: Creating asset for generations.

Real estate is a concept that has not been yet tapped by Millennials in India. It takes generation to understand how real estate helps us to beat inflation, create wealth and asset for generations.

To make you understand this I will take 3 book references.

Intelligent Investor by Benjamin Graham (Helped me to understand what investment really means)

Factfullness by Dr. Hans Rosling (Helped me to understand how a country grows from an underdeveloped nation to a developing nation to a developed nation).

Rich Dad Poor Dad by Robert Kiyosaki (Helped me to understand the real asset and liabilities).

Mr. Grahm in his book suggests "the best investment is the investment which guarantees you the protection of your principal money". I think its very difficult to understand anything in this world which guarantees you the protection of principal money. But let me explain how real estate is different. Lets take an example of house made up of iron, steel and cement. It also include years of manufacturing by engineers, labours and architect creating a hidden value for house. Not to mention all the clearance from the fire department, forest department, and aviation department you have to take in oder to create a house. As the year passes, iron prices increase, steel price increases, engineering prices increases. Everything including land prices increases. Now after 10 years if you want to create a house is it going to cost you the same. No, now creating that house will cost you more money and more clearances. Hence people decide to rent or buy an old house even at 4-5% less to any newly launched project. A newly launched project will cost more as the prices of raw material has gone up. This is how real estate never let your principal money devaluate. Not to forget the rented income you earned over the time.

My next knowledge comes from book Factfullness. In this book, author starts his story by saying his childhood story. He was once playing near the riverside in his small village. While playing he unknowingly falls into the river, but fortunately his grandparents were able to save him. His chances of surviving during that period of 1930 was very less as sometime children die due to animal attack or due to medical reasons or falling into river. But as he grew up animal where in jungle or zoo, river where fenced and lot of medical cure was found and as a result children surviving rate increased. This is a small example of how a country develops and you can notice that by seeing a small examples around you everyday. All parent now want their children to grow in a safe environment. Thats why we see people in India migrating from small town to big cities in search of good facilities and livelihood.

Indian is a very diverse country. Some places in India have grown with an immense pace. If you see the metro city in India and a remote village of Bihar, there is a lot of difference. When you go and buy real estate in the metro there is a story that will play in the coming future. There is the plan of government that the first step is land acquisition, then allotment of plot, then giving basic needs like electricity water and other needs. Then private builders develop properties. People come from different places buy properties. Then commercial comes, then the metro and public transport come. These things take 10-15 years to happen. In India, it is a slow process. But if you go to a remote areas of India this story may take a generation to complete.

Buying real estate is all about playing the story of development, which is going to take place in the coming future. I have seen people saying Chandigarh property is in the boom and then the other person says no no Mumbai property is on a boom, someone says Delhi is on a boom. But it is very important to understand the story of growth. If you invest in Mumbai without understanding the story of growth you will end up devaluating your money. If you understand the story of even remote location of Bihar you will invest with the best decision. 

For example, the land as an asset has a tremendous return in states like Bihar. So every place, every city has a different story of development. You have to understand the story and then play that story. Your return totally depends on how well you understand the story. You will understand the best story of the place you have grown up. So as Mr Buffet say "Invest in bussiness you understand". I say invest in real estate whose development story you understand.

Sometimes, people make mistakes even when they buy property at the place where they have grown up. It's because they have not worked on the development story and verified the story from different government sources. 

People debate stock gives you the best return and real estate gives you a bad return. It's our understanding which creates differences, not the property. If you buy a bad stock you will end up losing money. If you buy good real estate you will make money. As I say it is about understanding the story of development. If you understand the business of an company then you will make money. The stock can perform bad if demand of that companies product goes out of market and hence business can end. But everyone will require roof on their head and as the population grow the demand for house will increase.

Mr Kiyosaki helped me to understand what is asset and what is liability. If you buy a home on loan and you stay in that home then it is not an asset, its a liability as it is taking money out of your pocket. If you buy a real estate with earned money and then you earn rented income over that, then it is an asset. People generally get confused that if they buy house that is an asset. But what they don't understand is the important of location. People think they buy house in so and so remote area, that is an asset. But that is not an asset. Who will take your property on rent if you put it in remote area. As a result you will only end up giving maintenance cost. Location is very important. When you buy property in prime area even in covid period when there was reverse migration, the property at prime location was on demand. If you are buying property buy at the best location. Think like that, if someone comes to take rent in your locality your house should be the first on demand. Now you will find number of reasons to choose right property like market is near, metro is near, easily assesible to main road, police facility, hospital facility near by and school facility near by. These requirement can vary in different areas according to different development story.

With time in India people will migrate to metro city, as metro city is the place where jobs are available. Everyone wants to work a white collar job. Everyone wants to give their children best education, best medical facility and they need best people to socialise with. People want a place with best social security where they can go anywhere without thinking of their home security. Place having these things will always keep on pulling the demand. When demand is good the price will be good. 

So to become a best chooser of real asset you must understand the story of development. Its all about understanding the story of development. I would request you to read these books mentioned above. 

Thanks for reading. For more knowledge and update follow me on my Instagram. Paisaconsultant.