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How good is real estate as an investment?

Dhirendra Kumar cautions using real estate as an investment avenue

How good is real estate as an investment? How does it compare with other products?
- Shivam Kamdi

I don't think of real estate as an investment. I think of it as a home or perhaps a farm from which I can generate some returns. The latter involves estimating the cost involved like investment in land, recurring expenses, working capital and then analysing if there would be an adequate return on the investment. Even if the returns seem inadequate, one might still think of going ahead simply because of the possibility of land prices going up over a period. Likewise, a home is a shelter for the family; one should not look at it as an investment. So, once you buy a house, it doesn't matter much whether it goes up or down in value.

As an investment avenue, real estate has certain drawbacks. It requires a big-ticket size and lacks enough liquidity compared to other products. So, you may not be able to sell when you want to. Holding real estate can sometimes be a nuisance as it takes some serious effort. If you put it to work, i.e., rent the property, you have to be lucky to get a tenant who keeps the house well maintained. Having said that, it can be a good investment for many people because rent is expected to go up with inflation. However, that may not always be true because there are a lot of variables today in real estate and a house in particular, and it is often prone to lifestyle issues. Even if there is a great house but if it's 20 years old, people may prefer a modern one which is better organised and better planned. So even if the real estate value goes up, you may not always have a decent rental yield. So, look at all these things. My suggestion would be to think of real estate just as a home and not an investment. The bonus is that you get tax benefits and save on rent. Otherwise, I don't see a great case for real estate.

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