Is buying land on loan a good idea ??
Pretty much the title only.... I've been told that loan interest price will pretty much offset any capital appreciation.
I want to explore real estate; Given that I don't want to do any lump sum investment, Emi is the only option left. What are the pros and cons of buying a land vs a house/apartment ?? (On loan)
PS: any views on reit (s) ?
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Do the maths properly.
- If that land has potential to grow 5x or 10x within 5-10y. Then go for it.
2.If u r planning to build a house or shop in it then go for it.
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If not 1 or 2 , then buy stocks only.
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If 1,2 or 3 doesn't work, buy a flat
5x or 10x
Is that kinda growth possible ?
Prices in my own colony have only become 3x in past 10 years
2 to 3x is very much possible in newly developed areas that can be hit or miss also
Huge cash flow mismatch in this transaction so be very careful - evaluate everything in detail and how you plan to fund the EMIs, then jump in
What do you mean by cash flow mismatch ??
You will have to shell out lot of money in the beginning, including interest. Then based on when you can liquidate, you will receive the funds much later
You will need to take an expensive loan like a personal loan to cover the real market value cost. The loan given out by banks/financial institutions will be on the government decided rate in that area. There will be a 3-4% interest rate delta in both these loans. Generation of 13% ROI in real estate is difficult if you don't select the location correctly. Also it is highly illiquid with a lot of red tape (layout, authority, handover date, classification of land etc) and a lot of legality unknowns It needs to grow > 5X to make sense. I would say you are better off with stocks which are liquid and can generate an ROI of 10-13%
5X over 10 years
So my view is if you are 100% sure that the land is going to see appreciation (maybe near some upcoming metro or flyover etc) then it's not a bad idea. However interest rates have mostly peaked so either u wait for better rates in a few quarters or opt for floating rate from a psu with good reputation. Never do floating from hdfc or icici or hsbc. Personal experience - they are worse than cancer
Why is floating rate bad?? I've heard everyone criticize it a lot.
Two cents from my side —
Let’s assume you are looking for a land in urban/semi urban areas Do some survey - is the road infrastructure good, nearby residential area, does the area witness lot of traffic (even by road), do you see dominos/Mcdonald setting up the outlets!? If you find all of these points in check, 95% of the case the area is going to get developed in next 5 years. Buying a land comes with alot on uncertainty and chances of fraud, so be cautious.
Calculate land value by adding the interest on the loan.. try to complete loan ASAP. Use it as an investment not for your own purpose. Try to hold it for at least 10 years. And give the land on lease to the locals for agriculture. .. I have done same
It is a residential land
as long as you generate surplus cash flow to meet the EMi its fine. If you have to make a fire sale, your land will not fetch the right price.
Real Estate and Stocks are the investments which give returns above inflation, when invested correctly.
Real Estate is an illiquid investment compared to Stocks.
Hence, tread carefully.