Investing in Gold via SGB

 SGB (Sovering Gold Fund) is the best way to invest in Gold. 

1. It is better than Physical possession of Gold since it is in electronic format and can be held in DMAT account. So more safety and no handling charges

2. It gives 2.5% additional interest paid by the government

3. It is backed by Govt of India so reasonably high level of safety

4. It can be traded in secondary market for buying/selling. Although the secondary market is not fully developed (the trading volume is low so spread is wide)

5. Its price will be similar to price of gold in the real world so you will get full benefit of any increase in Gold Price

Only disadvantage I can see if you might have to hold on to full maturity if secondary market is not paying a good price but that is low probability and there is exit path for the same. 

Hence it is better than ETF, Physical possession of Gold etc. 

Is it right to invest in Index funds

 What are Index funds:

 Index funds are essentially a basket of stocks (shared) which mimic the behavior 

It is not easy to beat the market. Most actively managed MF does not beat the market. Index funds in some sense is the market itself so you are safe to invest in Index funds itself. 

Advantages of Index funds

1. The expense ratio for index funds is low (2-5 X lower then an actively managed MF)

2. You are basically investing in Top companies if you choose SENSEX or NIFTY index. That comprises of top companies of the nation which itself is good enough credence

3. Choices are less and hence amount of time needed to do research is also less

Disadvantages of Index funds

1. You give up chances of beating the market given Index funds is the market in itself. But that is ok since beating the market is <50% probability anyways over the long term

Most MF do not beat the market. That is truth. Index funds are market itself in some sense so for most passive investors, Index funds are good enough way to invest. This is not to say that investing in MF is big no no.. Some MFs do good and can be invested in. They are better in risk adaption and also in returns but finding/selecting and tracking such MFs is not easy. Therefore, I will usually suggest to stick to Index funds.. You are investing in Top companies of the country so you can trust them on an average. 

8 Best Investments to get Monthly Income

8 Best Investments to get Monthly Income

There are range of investments options available for an investor if he/she is looking for fixed monthly income. The exact type of investment will depend on return/risk tolerance for the investor. 

Listing down some of the most widely available investments options. and their pros and cons.

My own recommendations are provided below:

1. Are you looking for very safe short to medium term investment with flexibility: Opt for Bank FDs but avoid Cooperative banks. You can play even more safer by having 5L deposit per account

2. Are you looking for very safe investment with medium term horizon but ok with lock in: Opt for Govt plans like SCSS, POMIS etc

3. Are you looking for reasonable safe investment but slightly higher returns: Opt for Private companies FDs but invest small amounts and diversify

4. Are you looking for higher return but has some level of risk appetite: Check out Private bonds but from AAA rated companies and diversify

5. Are you looking for safe investment plan but are in high tax bracket: Opt for Tax free bonds

6. Avoid annuities since they provide largely low returns. Even with added insurance benefit, the returns are lower than FDs

7. Avoid real estate (Rental or Reverse Mortgage) unless you expect high appreciation and are ok with large amount of paper-work.

Is it better to Buy vs Rent

Buying vs Renting is a perennial debate.. 

Strictly speaking from Financial perspective, renting is better than buying in most cases. Exception is only if we are buying in a bull run where appreciation is typically more than historical average. 

Why Buying is good

1. It gives a sense of ownership

2. Family (Spouse, Parents, relatives) are usually happy 

3. It leads to automatic saving

4. You can do custom work (interiors etc)

5. Can stay long term so no need to move frequently 

Why Renting is good

1. For lesser money, can take a better place in terms of location, size etc

2. Can move around frequently including changing city as per the job need

3. Typically works better financially if you invest the savings at the right place (It might be counter intuitive, but it is true in most cases)

4. No need to worry about maintenance and other buig expenses like exterior painting etc

5. Majority of your capital does not need to be locked in the house you own.

Now, Let's take an example for renting and buying and see which works better financially

A person can usually buy an apartment for 1.2 cr for a 2 BHK. The same will rent for 30K per month. For buying the same, let's assume person paid down 20% down which comes to 24 Lacks. On top of it, the person will pay EMI for 96 Lacks which at 8% interest for 15 yrs works out to be 91K per month. Now keen eyes will notice immediately that EMI is 91K while rent is measly 30K. But of course the question of appreciation will come. Let's assume appreciation is 8% a yr. The apartment will be worth 3.8 cr.

let's assume we invest the different of EMI and rent we pay into a MF returning 12% return for the same 15 yrs. In that case, the investment we did in MF will be will be worth 3 Cr (60K, 12% appreciation over 15 yrs). On top of it, in the case of rent, lets assume, we invest the down payment (aka 24 Lacks) also returning 12% a yr for next 15 yrs. That down payment will grow to 1.3 cr over 15 yrs. So total of 4.3 Cr you will have in your MF account. 

Compared to buying the apartment of 3.8 cr so you will be better off by 50 L..

Ofcourse this is simplistic view. Ideally, we should add taxes, maintenance etc and also the rental will increase over time. And the returns are on the high end of 8% to account for that. 

but this calculation should be an eye opener in terms of we should not blindly assume that we are throwing the money down the drain if we are renting. Renting actually makes more sense financially speaking. 

Should I invest in Prelaunch in real estate

Investing in Prelaunch is quite risky but at the same time quite rewarding. 

Typically, this is not recommended for people who are risk averse or this is their first transaction in real estate.. This is typically a risk type of investment and partly it is border line illegal given that RERA law does not allow builders to make such sales.

1. What is Prelaunch:  Builder selling before all the permissions are in place by giving discount if you make “larger” down-payment (up to 100% payment)

2. Why Prelaunch:

·         For Builder: Needs tons of money for construction (and pre-construction) for land, and other permissions

·         For Investors: Chance to buy low and sell high. They enter early in the cycle of construction (actually long time before construction even starts)

 3. When does Prelaunch happens: Typically, sells at the time of land contract, sometimes during Municipality approval, and sometimes (but rarely) right before RERA approval

 4. How much money to invest: Typically, 100% payment upfront but sometimes loan option is available (20%-50% down payment)

 5. Builder Profile: Typically, Tier 2 or Tier 3 builder. However, can sometimes be top notch builders too or via land owners. Land owners are the people with whom builder has tied a contract to build an apartment complex

 6. Location: Top locations as well as outskirts. Apartments as well as Villas

Differences with normal purchase

·         Part of the process is very similar to normal purchase of real estate

·         Once we get to know offer, we have a meeting(s) with the builder

·         We pay to builder directly

 Key Differences

·         Most offers will be no loan option (aka full 100% payment) but ~25% of the deal will have loan option

·         Sometimes builder can request cash payment too

·         Full payment option will have lower purchase price compared to loan option

·         Not everything is set in stone so you can negotiate but reasonable transparency will be there

Some more tips

·         1. If all goes well, one can easily double the money in ~3 yrs time which is >25% YoY return

·         2. Even if things go slowly and we add one more year of delay, then also profit sis >15% YoY.

·         3. Risky is if it takes long time to complete (think permissions take forever like >4 yrs to complete or builder goes down). In such cases, the loss is significant and very limited recourse available for getting back the money. and this is real risk. It has happened especially in down turn when market is not as hot or also when builder is not doing good.

 

 

Things to mention in agreement of sale document

 

Agreement of sale

1. Ensure that names in agreement of sale match exactly as the registration (sale deed). If there is any mistake in the name, the agreement of sale will not be legal. no spelling mistake or name change should be there in the agreement of sale. 

2. Two Witness: Any agreement of sale should be signed by not just the buyer and seller but 2 witness. This is legally necessary for the agreement of sale to be valid.

3. Revise rental agreement to reflect the sale: If the property is with a tenant, make sure that you have a condition on the agreement of sale to have a freshly drafted rental agreement to reflect the new ownership. Otherwise, the previous rental agreement would not be valid while you will have the registration and ownership of the property. It will be a problem to have a tenet who has agreement with previous owner while no agreement with the new owner. 

4. Put in writing for any shortcoming of the property: This is mostly applicable to the land purchases. Ensure that any short comings in the property is noted in the agreement of sale. Example of those can be, mutation pending in revenue, zoning of a land. Even for Apartment or houses, if there is a loan on the house, it should be noted that there is a lien on the property. In such cases, original sale deed will be with the bank which seller must get for registration. 

5. Bank loan condition should be only if the property has any issue rather than buyer's ability to pay: Lot of times, buyer will take a loan to buy the property. In such cases, there is a chance that the loan application is rejected. In such cases, the entire transaction can be at risk. To avoid this, better thing is to say, this transaction is only canceled if loan is rejected due to a shortcoming in property (like property valuation not good enough or property is not approved by the bank etc). However if the loan is not approved due to borrowers' ability to repay, then the agreement of sale is still valid. 

Things to keep in mind while buying

Precautions to take while buying

1. Get original property chain for the property papers. This includes Sale Deed, Encumbrance certificate aka chain of documents. This ensures multiple things including property is indeed registered to the original seller, property dimensions and if buying the land, its zoning and sub-division etc.

2. Get all owners to sign the agreement: Getting signature from just one or some of the owners is not legally valid for registration purposes. Given the property belongs to multiple owners, just one or some owners signing the agreement is not legally valid. If 1 or more owners did not sign the agreement, then they can easily file a case and stop the registration or even registration may not happen when you go to registration office. Ideally, payment should also be made to all the owners individually and in the same proportion as their ownership. Though this might be difficult sometimes since some of the owners may not have a bank account or may not be operating one. 

3. Check who has the possession and check lease agreement from tenant if applicable: Lot of times, while registration does happen, and payment is also made in full but it is possible that somebody else like Tenant is in possession and his lease agreement might be longer term or you might not be ok with those terms. Best is, the place is empty and you can take it. 

4. If there is a loan on the property. If there is loan, seller would need to get NOC. Get a loan statement so that you can ensure seller has paid the EMIs regularly and will pay off the loan as well

5. Check who has the mutations: Especially true in case of Land, make sure that revenue department notes who has the mutation and there is no issue on the mutation for the same. Get the property mutated from the past owner. 

6. Illegal construction on the property: Check if the all the built-up construction is approved by the statutory authorities otherwise it can be a problem later on. 

7. Any court cases on the property from owners', family or even RWA association

8. Property tax paid or not: Make sure that all taxes including electricity bill, water bill and property taxes are paid by the owner as per the registration date. 

9. NOC from resident's union: In case of apartment or colony, do check if their is any due from the resident's owner association and make sure that owner clears all past payments. Ideally get a NOC from the same before making full payment.

10. Brand plays a big role into buying/selling decision. Usually a brand will command 10-20% of total valuation.

11. Location plays another big role in property valuation

12. Layouts (Site layout, neighborhood, Unit Layout): All of this is very important. Usable space etc plays an important role on the same. 

13. Density of the complex: More dense the apartment, lesser the value since it means less common space, more crowd, less greenery, less amenities.

14. Payment plan: Some builder offers pre-EMI, no EMI option, cash option, which banks have loan approved, construction linked payment plan vs time line wise payment plan

15. Gentry of the buyers: End users vs Investors, Renters, Social status, youngsters, old age people etc. It is though hard to find out these things at times.

Things to keep in mind while selling

 Things to take care while selling

1. Avoid giving or sharing original property papers: Also avoid, sharing color photo-copies since that looks almost like original. You can share in person (but do not hand over), Share only Black n White copy. If you have to give to the buyer, mark in the photo-copies that it is given for so and so purpose. The biggest problem in giving such papers is that it can misused, copied as original and registration of the property can happen with those copied papers. 

2. If selling to multiple people (or family), have everyone's name in the agreement of sale. That way, everyone will be accountable for completing the transaction. If you only put one name but others are making the transaction from their own account, then it can be a problem if the transaction owner comes and says that the transaction was done as a loan to the person rather than selling for the property. 

3. Whoever is buying the property, take money only from that person. Do not take money from 3rd party since that can land into trouble as he /she might say, the money was given for loan (rather than for property purchase). Therefore, having everyone's name on the agreement of sale and registration of the property is good. 

4. Mention bank loan if any: If you have taken a loan on the property, do mention that there is a bank loan on the property. And original sale deed is with the bank. that way buyer can not complain that you did not tell them about the same. 

5. Make sure any additional terms and conditions agreed upon is done in writing. Lot of times, we see that verbally we agree on something but it is not put in writing. In such cases, either buyer or seller can disagree with the terms agreed upon. There is no way for seller to prove these. Hence, it is best to ensure that all agreed upon terms are written and mentioned explicitly in the agreement of sale. 

6. Final payment before the registration should be via DD: Avoid check since it can be bounced for any reason including non-sufficient funds). The cost of DD is not big compared to property transaction. Online transactions are fine too. If the check is bounced but registration happens, you might find it hard to get hold of the owner or to get the remaining payment from the owner. Therefore it is important that all payments are done and complete before the registration. It can happen on the same day as registration but before registration. and not after.

7. Avoid giving keys or give the property for rent before the registration. This can lead to trouble if the transaction does not complete. A small percentage of transaction does not complete despite signing agreement of sale. The owner might make modifications or might not vacate the property. This is especially true if the transaction is not amicably settled. 

8. If buying an apartment or house or office like space, get the mention of furniture and any other fixture like lights, AC, Fans etc: Mention clearly what is included and what is not included for sale along with the property and whose responsibility is to dispose of the same.

9. If property is rented out to another person, do mention the same in the agreement. Sometimes tenants might may play foul role in vacating the property. Sometimes, they mention bad things about the property like price is low or too many problems like leakage etc in the property. It is good practice to have tenants on our side for the same.. 

10. Give the list of papers which you have given to the buyer and get it signed from the buyer at the time of handover: This is to ensure that buyer does not bother you after selling that I dont have xyz document. This is a good practice to have.

12. If buyer is taking loan, then clause for loan rejection. This should be only if loan is rejected only due to property valuation or some other property reason. But for person's income (or CIBIL issue or related to person's capacity), transaction can not be canceled. 

13. Buyer should take TDS: Remind the buyer if he has not deposited TDS under your name. This is a good practice and save you and buyer some hassle in case IT people come back. 

14. Do pay taxes as appropriate: Ensure that you pay the Capital gain (short/long term). There is no point in saving taxes or doing cash transaction. You likely made profit on the transaction and good to pay appropriate taxes for the same. 

 

Should I pay off the loan for apartment

 Whether or not to pay down the loan for the apartment depends on several factors..

Lets assume a person has 50 Lacks Loan and he/she has some money by which he can pay down the loan or pay it off completely. Lets also assume the interest rate for the loan is 8%. Now, say the person has 50 Lacks. Should he pay off the loan or let the EMI continue?

lets discuss

1. What will you do with the money if you dont have payoff: If the money will be sitting in Fixed Deposit or any such investment and earning less than 8%, it is financially better to pay off the loan. The reason being, the person is paying 8% interest while earning less then that. So Verdict: If you will put the money in Fixed deposit or bank where it will earn less then 8% (10% for tax adjustment), it is better to pay off the loan

2. Some people prefer to pay off the loan well because it is headache, extra work to manage/maintain the loan, EMIs (what is EMI is forgotten to be paid on time and so on). In that case, if Auto pay is also not working, then it is best to pay off the loan and live a tension free life.

3. You will zero (or limited) emergency funds available: If you are going to use all your savings for the loan and might not be left with decent amount of Savings left, then it is better to keep some Emergency funds and pay only part of the loan while keeping some money for a rainy day. 

4. You are going to take spend/invest in risky assets: Some people don't like money lying around and prefer that they spend it away or invest in risky assets. In that case also, its best to pay off the loan for the lack of discipline/control one may have

Other options include, having SBI Max Gain, Advantage loan account where in you can pay off the loan but can take back the money in the future if you need it. That is a mix of these options and can also work for some folks. These account work in the manner of a checking/savings account where you can put in or take the money anytime you want. At times linked to your saving account. Do note that interest rates for such loans is slightly higher then regular loan.

So net net, if you don't have an avenue to earn more than your interest rate, its best to pay off the loan. If you can reliably earn more than interest rate of the loan, it's better to hold off and not pay the loan (Just keep paying of EMI)

Carpet Area, Built up and Super Built up area

 What does carpet area, built up and super built up area means

When you go for purchase of an apartment, there are several terms which a builder uses to denote size of the apartment. These commonly are called, carpet area, built up area and super build up area. Lets look into what these terms means

1. Carpet area: This is the area between the walls of the apartment. Think of it, as if you want to have a carpet for the complete floor of the apartment, this is what counts for the size of the carpet including in every room, bathroom, living room, kitchen, usable balcony etc. No common area like corridors, lift area etc will be included and the area occupied by the external walls will not be counted (Internal Wall area will be included). Non usable balcony like one for AC Vent is not included. As per RERA, Carpet area is "The net usable floor area of an apartment".

2. Built up area: This will include everything in the carpet area plus, Wall thickness and Balcony. No common area will be included. non usable Balcony like AC Vent is included in the same. 

3. Super Built up area: This includes everything in Built up area and a share of common areas like corridors, lift, stair case, Club house, swimming pool etc. Typically, it is 30% more than carpet area but sometimes can be as high as 40% more. This 30% (or 40%) is also called Loading (or Load) factor. 

Previously, before RERA, builders used to use Super Built up area while selling by saying this (super built up area) is the size of the apartment. Now, after RERA, builder has to clarify the same. in some states, they sell preferably on carpet area while in some, they sell as super built up area. but either ways, they now need to clearly call our in the agreement of sale and sale deed. 

There is psychological price advantage builder or seller has when they sell the apartment quoting Super built up area. That is the price looks lesser. As an example, take an apartment which is 1000 sq ft carpet area selling for 50 Lacks. Say super built up area comes to 1400 sq ft. So quoted by carpet area, price per sq ft comes to 5K while quoted via Super Built up, price per sq ft comes to ~3.5K.  So buyer will have mindset that 3.5K is lesser then 5K so an apartment with area 1400 sq ft is cheaper than apartment with area of 1000 sq ft. Thats why it is good to have apples vs oranges comparison and know which area is being quoted and what it means,

Is buying a flat a good long term investment.

#RealEstateInvesting #flat #apartment

Why buying a flat for long term investment is not so profitable.

Lot of people believe that buying an apartment for long term investment is good. However, it is not as great a return as we want to believe.  

On an average, real estate is a long term investment considered by many. 

Now, lets look at the downside of buying an apartment

1. Apartment building will depreciate over time. While the land on which it is built will appreciate but apartment building will depreciate in value. This is mainly because as the time goes, the construction wear and tear will happen, the paint will get old despite it being painted once in few years so, the tiles will get broken and hard to replace since those tiles will no longer be available in the market, the chips will come off from walls etc.

2. Apartments will have small share of land compared to the land it is built on. An apartment will usually have low share of land (UDS: Undivided Land Share) compared to the sq ft it has built on. 

3. Up to 30% of apartment share will in common areas depending on the apartment building. Carpet area will typically be much smaller. 

4. Newer apartments will have more facilities compared to older apartments. Like these days, apartments are coming up with Car chargers sockets, better environment and green norms etc, Sheer wall technology vs brick walls etc

These are the top reasons why apartment usually appreciates lesser than the land surrounding it or even newer apartments nearby.