Honest Acres

This is sixth and last article in series of main article “Fundamentals in Real Estate”.
If given choice then prefer property on main road or which is easily approachable from main road. Apart from better returns there are other reasons also, which are:
1. More safe to travel in night. If your house is situated in interiors of a colony far away from main road, then in night it is risky to travel, especially for ladies and girls.
2. Better transportation facility. Houses near main road have better transport options like bus stop, taxi stand etc. Many such options are not available in interiors of colony. Every time we have to take taxi.
3. Properties near to main road have also better to access to markets, banks and other facilities.
4. Option of using property for commercial use is also there. Many times we see that people open shops in their houses on main road. Some times we can construct complex on it and give it on rent also.

One drawback of property on main road is noise and air pollution. Take this is also in mind if you are purchasing for your own residence and not for investment.

No Investment in real estate is perfect and nothing is guaranteed.

Readers should keep in mind that it is very difficult to find a property which satisfies the all fundamentals of real estate. Some times we may have to choose property on less wide roads and some times we have to choose property in newly launch colonies depending upon the situation at that time.

It is like finding a bride for your son having looks like Aishwarya Rai, mind like Indra Nooyi, voice like Lata Mangeshkar, having Father like Bill Gates and so on. Practically it is not possible.
So try to check things in totality and take your decision on the basis of investment choices available to you at a given time. Also compare the expected return in Real Estate with Bank FD, Post office schemes and SIP in a good five star rated Mutual fund.

Further no one can take guarantee of good returns in Real Estate. Do not at any given point of time believe that hiring a good consultant guarantees you safe and good returns. Americans never thought that Real estate prices in America go down to such a extent. So for a ordinary person having total net worth not more than one crore we suggest that never keep more than 70 percent of their total investment in Real Estate.  Always invest some amount in PPF, Bank FD, Post office schemes, LIC term policy, mediclaim policy, SIP in a good fund etc.

Warren Buffet once asked by a journalist- “Why did not you try real estate, he says- when things are so simple here then why to take extra headache”.

My view is little broader- “Things are so simple everywhere then why we take extra headache”. But we have been taught right from the childhood to be “special”, no body teaches us to be “simple”. No body teaches us simple ways of living. We all can become Warren Buffet in our life but we did not have that much patience and values in our character.

Many readers asked a common question “what are fundamental things we should check before investing in real estate”. Although there is no perfect answer to the question but we list a few things which can be taken as fundamentals in real estate. These are general points and you all may know this, but I am just summarizing it for you. These points look simple but big fortunes has been made in real estate by many investors by just following these rules.

If you did not have so much time to check the fundamentals then you do one of the two options:
a. Hire a good consultant who can do this for you. Or,
b. Stick to bank FD etc and keep yourself away from real estate. Your future would be much better.

The size of article is big and hence I will mail you the same article in series.

1. Colony should be developed by reputed person or it should be a government colony. This is first and most important thing to be checked before investing in real estate. If a colony is developed by a notorious builder, then it is almost certain that colony is not worthy for investment. Why? They have habit to become tata-birla in short span, which pushes them to go for unethical ways to make money, they may use land set aside for park, doli land(temple), school etc. Further these type of person did not go for perfection. Hence infrastructure of their colony e.g. road etc is also very poor. They might show it nicely in brochure but in reality it can be worse. I have recently seen a map showing a particular road as 40 feet but in reality when I check it is 35 feet only.

Further they sell some of the plots to notorious persons, which degrade the value of whole colony. Even sometimes they sell the same plot to more than one person. These types of persons are very familiar to jail; it did not make any pain for them if they have to go one time more. Some time back I heard that a particular builder sell plots on land which was initially set aside for school in the map.

My friend has a investment in a particular colony on pal-barmer road. He takes plot in the initial state when construction of dammar road was in progress. At that time property market was at it peak, hence all the plots of scheme sold out. Now as builder gets the total payment he stops the road work in between and starts a new colony. Now till today that colony has filled with the remains of mud and dammar which was left years ago. Colony is very good and approach to main road is also very fine but looking to the garbage no body wants to invest in such colony, hence less then expected return.

Never forget- plots in quality scheme are always costly then plots in local schemes. Development of good infrastructure requires heavy investment. But in future return in quality scheme is always higher than return in local scheme.  

To be continued………

This is fourth article in series of main article “Fundamentals in real estate”.  This is related to the existing residents in a colony or nearby colonies. Valuation of a colony also depends on type of residents presently living in.
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 In small cities like ours people are much more interested in neighbour’s affair then their own! Before taking any decision regarding purchase of new house, majority of investors look about exiting neighbours in the colony.
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Some times we see two adjoining colonies with almost same infrastructure but have great difference in their rates. In my city I found Govt housing board colony and a private colony adjoining, infrastructure wise government colony are better as they have wide roads, parks, space for school and market etc, but still rates are higher in private colony by 25 percent.
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One main reason is government allot plot on concessional rates and also on lottery basis. Majority of allotment is given to people from lower income group. Investor from every community and every class apply for government plots. Now after actual allotment in a particular road you may find different people like hindu, muslim, lower caste, upper caste and also from every profession like barber, carpenter, painter, businessmen, shopowner, street vendor etc. In such a colony no upperclass family wants to shift, they may even shift in a colony with only 22 feet wide roads but they avoid shifting in such government colonies. Hence sometimes (not always) return in such colonies is lower than we can get in same other private colony.
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Sometimes we see that if a extraordinary good looking house is built on a road, then that road itself become a “brand” in particular area and command higher rates than other roads of colony. For e.g. famous houses of Jodhpur in particular road in shastrinagar makes that road a brand and every other top class family wants to shift on that particular road. Other e.g is now a Famous gutka baron is making a house worth 35 crore(as per market rumour) in umaid heritage than this house is itself a brand in Jodhpur and will increase value of whole colony.
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Above example is true vice versa also. If a particular wrong house is constructed on a road than it decreases the value of whole colony. For e.g. There is a hostel in a particular road in Sardarpura(posh colony of Jodhpur). Sometimes we may not be able to sell plot on that particular road for a year as no body wants to shift in front  of a boys hostel. Same problem is when there is a marriage place in a road.
Hence before investing in a colony first check the type of residents already living in the colony and if possible ask them about current scenario.

As a human being we should always keep in mind that we are not perfect. We all make efforts for perfection but still nobody is perfect. In cricket even at this level sometimes Sachin also out on zero. Most of us are surely not better than Sachin.
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I recently check a real estate portfolio of a client. His family has investment in five residential plot, all investments are done only on the basis of recommendation of broker.  Three out of five plots are situated at very poor location. Their past returns are also very poor and I did not have any hope for future also. I suggested them to sell these three plots, I also told them you should not wait for market price as purchaser for these type of plot are very few and you should sell these plot at 20% lower then present market price. Invest the same amount anywhere else, and your final position would be much better. For e.g. if they sell these plots for one lakh, and invest these one lakh in a good location then after ten year new investment could be four lakh but I am sure that the existing investment would not be more than two lakhs.
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I know that even after my suggestion they will not sell these plots and continue to wait for boom and thinks that after waiting they would be able to sell these plots at some high rates.
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Above action is result of human tendency. Right from childhood our parents cultivate too much value of money in our mind. We are so much attached with money that sometimes we are ready to compromise on core values also. Family of my client also develops attachment with their investment. Their attachment did not allow their mind to take decision to sell property at less than market price. They find it loss of profit (notional).
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My suggestions to readers is if at any point you find that you have chosen a wrong place for investment, sell it as early as possible. More you delay this decision more the losses will be. Don’t take life seriously, take lessons seriously. Rectify the mistake and go ahead, life is full of opportunities. Do not live life with regret, our life is too short to regret.
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I find above principle useful in every part of life. This is applicable in share market also, many times I have seen persons holding a particular share in the hope of better prices in future, whereas it is almost sure that company is not worthy for holding. In our day to day life if we find any friend, office colleague, supplier, customer or any other person creating nuisance in our life, then get rid of person as early as possible( except wife !!). You may find it painful initially but write my words your life would be much better afterwards.

You all have read this line in many advertisements, especially in government advt for different diseases. This line has significance in our day to day life.

 Majority of us have tendency to delay some important decisions of our life. Simplest example I have seen is of WILL. How many person beyond fifty have written their WILL? I think very few.

 You can see this tendency in every area of our life. In relation to real estate this tendency is easier to found.

 One of my close relative( say Mr. X ) living outside Rajasthan, have invested some money in residential plots in Jodhpur. On my advise they paint their name and mobile number on their plot, on the very next day they get a call from their neighbour that their plot is disputed. Actually person who sell this plot to Mr X  also sell this plot to a dummy purchaser and take loan on it from a government bank using a fraud power of attorney.  After getting news Mr X tooks a immidiete flight to Jodhpur and remains here for three days, goes bank office and check details of fraud and also take a copy of

FIR by bank. Mr X was fortunate as bank is not making any claim on this plot and admits that this is a fraud transaction and hence  void ab initio. He then construct boundary wall over the plot and put his name plate and mobile number.

 Now same Mr X has two more plots, but he still did not construct any boundary wall over the remaining two plots.

 My point is- Why we wait for these type of fraud? Why did not we construct boundary wall in time? Mr X is not alone, even my family members has same tendency and I have seen the same habit in majority of investors.

 Construction of Boundary wall is one example, even more dangerous thing is investors holding power of attorney for years and not going for registry in their name. Recent case I seen in my office, a investor purchase a plot in 1994 and comes for registry now. In between what happens to plot god knows!

 Majority of frauds in real estate can be avoided if investor follows simple rules. Again “ Its simple to be a difficult person but very difficult to be a simple person”.

These simple mistakes could put us in great tension. Sometime we could not get the proper title over the property and sometimes we could not able to sell the property we are using. Any thing can happen.

 For a consultancy business these disputes are good in some way, as now client is ready to pay high fees for our advice. But why all such nonsense!

Always remember “ Prevention is better then cure”.