Real Estate is on everyone’s mind. Food, Clothing and Shelter are the basic necessities for a human being. Real Estate helps you cover the third point. However, from a shelter concept, Real Estate has moved into the investment category and features prominently among the must have asset class for investors.
Keeping this background, I wanted to bring forth certain myths built into Real Estate as an investment class
a) Myth 1: Older generation invested in Real Estate.
Before I answer, I have a question, where do you think people generally invested during the 70’s and 80’s? If you answer Real Estate, the answer is incorrect. Real Estate boom started in (from) 2000. Real Estate as an investment class was never in the agenda for individuals. During the 70’s and 80’s, the interest rates were high and people were comfortable with investing in Banks. There are numerous stories of lost opportunity you will hear from these people. These stories have driven us mad in thinking that investing in Real Estate now will make our future bright.
b) Myth 2: Money gets doubled in few years.
To believe Real Estate kings have made money in few years is folly. There are very few instances of Real Estate dealers who have become rich within a short span. If they have, they would have had political connections to help their cause. Individuals or families who made money by selling real estate made so by selling ancestral property. This means, this property was bought by their father or grandparents. And these grandparents bought these lands in those days not as an investment, but for agriculture or personal purpose. Hence, real estate has a long gestation period.
c) Myth 3: I can sell when the price goes up and make huge money
Well, that’s the trap we all fall into. When the prices go up, we for further upward movement and one final day, everything comes down and we mourn about the lost opportunity. One can never time the market, if so; there would have been real estate millionaires everywhere.
d) Myth 4: Real Estate business is the best.
Tell that to (a) real estate businessmen and they will share sad stories. Real Estate business is like any other business, there are only few people who make money out of it. The majority gets a miniscule share. Then what keeps them going? There is only one answer, greed.
e) Myth 5: That person bought the land and made so much money and this person…
These stories of millionaires made in real estate have driven people mad. People have made money in Real Estate, but there are hundred reasons why they succeeded. Most people who have sold their property would have bought another one for their personal use, thereby minimizing the gains. Others would have spent the money on (in) expensive gadgets. Very few would have used the gains to invest further in sensible manner.
f) That person bought the land few years ago and it is now worth millions.
You are right. It may be worth millions, but is that person able to sell the property easily? Are there any legal hassles? Is he/she waiting for the worth to go further north? Do they want to sell? If they sell, do they have money to reinvest in a similar capacity? It’s easy for us to conclude, but difficult for the seller.
So should you not invest?
You should, but not for immediate or short term returns. As mentioned above, Real Estate has a long gestation period, probably 10 years or more. You should have adequate money to support your family needs to lock the money for such long period. You should also not expect to sell property in short term. A real estate sale happens over a long period. You should be patient.
Don’t buy for returns, buy for your future.