No matter what your background or where you live, there are only four major ways of creating huge wealth: (1) Investment in stocks, bonds, and CDs, (2) Real estate business, (3) Business in marketing products and services, and (4) Internet and technology business.But among all these routes to wealth, the safest and easiest one is real estate. “Why real estate?” someone may ask. To answer that question, let’s look at why investing in real estate makes more sense compared to other major wealth-building alternatives.
Real estate prices in Nagaland, like everywhere else, have gone up on an uninterrupted basis since we became a State in 1963. Indeed, the trend in real estate has always been upward despite periods of financial inflation and recession. Of course, no one can say for sure that inflation rates can’t get to the double digits sometimes and negatively affect any market. Nevertheless, we could expect the growth of real estate value to consistently exceed the inflation rate---which means that, regardless of the inflation rate, real estate investment is safer than all other investment vehicles.
Generally speaking, real estate can offer a better potential for an enormous return on your investment than many other investments for the following reasons:
Asset Appreciation: For example, if you purchase a Rs.1,00,000 worth of real estate properties per year for 10 years with no money down (let’s say, you took a loan which charges you 8% interest to finance 100% for 30 years) and the properties grow in value at a rate of 5% per year, you could build an equity (asset value minus outstanding debts against it) of almost Rs.4,00,000 after 10 years. Yes, that’s by using only borrowed money, not your own capital. Or here’s an easy-to-understand example: In the late1990s, I took Rs.6000 from my elder brother to buy a property in Coimbatore, Tamil Nadu. Over the last 25 years, I would assume that the value of that property has gone up exponentially. My point is, buying real estate can offer you an enormous return on your investment.
Leveraging Advantage: Leverage in real estate is nothing but using Other People’s Money (OPM) to buy properties. For example, if you purchase a Rs.2,00,000 property by investing Rs.2,00,000 of your own cash and the property value goes up by Rs.20,000 a year, you have made a 10% return (Rs.20,000 divided by Rs.2,00,000) on your investment. If, however, you purchase the property using only Rs.2,000 of your own cash, and the property value goes up by Rs.20,000 a year, then the return on your investment is a whopping 1,000% (Rs.20,000 divided by Rs.2,000)!
No other investment will permit as much leverage as real estate does. Remember, you don’t need money---at least not your own money---to buy real estate. This is not so with other types of investments. For example, you need money to buy stocks, bonds, or supplies to run a business.
Mortgage Amortization: When you purchase an income property using leverage, you are assuming a loan payment (debt) that can be paid off with an income already coming from the property. Usually, the payments on the debt are made monthly, and the amount borrowed is reduced with every payment. Over time, more and more of your monthly payment goes toward reducing (amortizing) the principal amount of the loan, and less and less goes towards paying interest on that loan. This process increases your equity in the property.
Commissions and Fees: If you invest with partners in real estate, you provide yourself with an opportunity to earn income in the form of commissions or fees. For example, if you bring together partners to invest in real estate, you might be able to take an acquisition fee at the time you buy the property, a management fee for managing the property, and a selling fee at the time the property is sold. Also, you can collect a commission (say, 5%) from time to time on properties that you help other people buy or sell.
Control Over the Investment: The success of real estate investment is less subject to the whims of a market. With real estate, you can control your investment in every way: the financial terms at the time of your purchase. Or if it is a purchase of a building, you can decide whether to fix-up the property or leave it in its present condition. You can also decide your management policies, the amount of rent you want to charge, and so on. But with most other investments, you cannot do any of these. For instance, if you are a stockholder in a manufacturing corporation, you have no control in the decisions regarding the company’s product or the pricing of that product, or any other aspect of the company’s operations.
Pride of Ownership: When you e purchase a new automobile, you can take great pride in the ownership of that brand new vehicle. But gradually that pride of ownership diminishes over time as the car ages and becomes a part of your life’s routine. This is not so with real estate. By having your property value goes up each year, you only add to the amount of your satisfaction.
For all of these reasons, and more, most people who are financially successful recognize that real estate is the best option of all possible investments.
