Rebuttal to "Investment in Real Estate - Liability in Old Age"

Hare Krishna! I came across an article which said some crazy and irrational things about investment in Real Estate. The original article can be seen at  http://bit.ly/dqo862

The article, on the face of it, appears very good. But in reality it is highly exaggerated!

Let us take the example of the family in the article that cannot afford some liquid cash to tide over their emergency but have six properties! And it is being touted as the principal argument for not falling in LOVE with realty!

Let us consider the family in question:

First, only one of them appears to be a retiree. And certainly there is a son in the family who is definitely not as old as the father to be helpless! So, he can chip in.  Actually, the SON appears to be disinterested in actually taking care of his parents! Why? Because, any decent job nowadays will certainly provide some medical care for the parents. So, certainly the parents can be covered for many ailments, surgeries etc.,
The retiree in question, the father also happens to be a person with a DECENT pension! So, what is the problem with this man!  If he is suffering then it is out of his foolishness that he is suffering.  Therefore, do not blame the real estate for that!

Second, the article says that it is really difficult to sell off the assets and presents it as a liability. In my humble opinion, that is the beauty of the investment and that is the primary reason of actually investing in real estate.  You can call it the USP of the investment itself that it requires good amount of endeavour to sell the asset off and it cannot be done whimsically! Any asset selling has to be a very considered decision. And this is actually very good. So, the asset remains with the investor for a long time and produces real big returns. 

But, if the family requires funds, why in hell should they not sell it off?  And why can't the son help the parents in selling it off?  

Of course, if they dont have faith in the son, then it is a real problem. 

In which case, the (now) old gentleman in question appears to be a real fool!! 

Why?

Any sane person at the time of retirement should actually assess his requirement for the rest of his life. Compound the inflation.  And come up with a proper figure.  Let us say that the man earned about 30,000 INR per month. To even think that he now requires (as a retiree) more than that is non sense.  So, if he can generate the same 30K per month PLUS take care of inflation then there should be absolutely no reason why they should be found wanting to take care of either their normal expenses or emergency expenditure. The Post Retirement earnings which he is going to have is actually for very basic things PLUS emergency.  He cannot now say that he wants a lifestyle that is even better than what he had while he was in the peak of his career!  This post retirement earning will certainly keep the person and his wife covered for all  expenditure including medical emergencies.

And let us find how much cash he should have to generate this 30,000:

Let us assume that he will have 15L in his name in senior citizen's Post Office Scheme. This will produce Rs 11250 per month (at the rate of 9% per annum). He should invest further 15L in his wife's name. Now, the combined earning of the couple will be Rs 22500 per month. Next he should keep 6 Lakhs each in his and his wife's name in Post office Monthly Income Scheme. This will produce 8000 per month (at the rate of 8% per annum). This brings the total to 30,500.

For getting this income post retirement, he should have a corpus of 15+15+12 = 42 Lakhs.

Now take care of the inflation. Say, he requires 50% more. That is an extra income of 15,000 per month.
Now, to produce 15,000 per month @ the lowest 5% pa, the corpus required is 30 Lakhs.  But actually, for the next few years, he can manage with the figure of last salary drawn (30,000 per month!).  So, this 15,000 which he is getting should be invested in a Recurring Deposit account - which will further grow!

But the total required corpus is 42+30 = 72 lakhs.

Now, this crazy gentleman should have actually thought about these things (when he retired) and then he should have disposed just one property. This would have given him this 72 L (even after taking into consideration the capital gains tax).   So, he need not go to anyone with a begging bowl or face a situation where he has the CAKE but cant eat it!

So, my dear brothers, do not be swayed by all this bunkum talk. Save. Invest. Invest somewhere. Doesnt matter where. And RELEASE and REALISE part of your total savings/investment/property as liquid CASH, enough to take care of your self - WITHOUT actually compromising on your normal life style!

Next, consider the man again. 

He has six properties.  Let him sell.  Let him get cheated too - it still doesnt matter!!  Cheating means the buyer gives him less money.  Let him get, say, only 50% of the actual market value.  So, let him get the required money by selling two assets instead of one.  Still he has 4 more properties left!!!!

So, do not believe this non sense that having properties is no good in old age and that it will become a liability!!

Of course, make proper arrangements.  And take good care of your spouse - post your death - by completely educating her when you are here with her!  She should know WHAT is WHERE and in WHAT FORM.  She MUST be your NOMINEE for everything.  More preferably, she should be JOINT holder of all your assets, bank balances, deposits etc.,

And always be peaceful and do devotional service by chanting the names of the Lord.

Enjoy life to the fullest.
And pass away.
Peaceful and Happy.
Period.

Hope this helps!

Vaishnava dasanudasa,
Sheetalanga Gauranga Dasa.