Most of us dream of building our dream home and living it up with the family. Most often the dream remains just that –a dream. Why? The answer is simple. Dream homes are driven by dreams and reality is something very different. Investing in real estate, needs to be a “real” activity that is well planned and executed as per plan.
If you have come across people who have made it big by investing in real estate, pause a while; study what they did vs what you did. They too began with a dream. However, the dream was founded on a sound understanding of how to finance investment in real estate.
Primarily, they were very clear about their motives for investing in real estate. They want to make money standing up and sitting down. They were desirous of generating a passive income to supplement their income from salary or other sources. They were out to acquire property that puts money into their pockets all the time. They were hell bent to ensure that the property fetches them a decent rent that pays any expenses on acquisition and puts some money into the pocket after taxes. They made sure the property value would appreciate and the sale of the property would come with capital gains that can be reinvested in other high value properties while defering taxes.
Most people “invest” in dream home mid career. They buy property, because they want to live in the property, ultimately after retirement. They may be a long way away form retiring and settling down, yet they build their homes in localities they would like to settle down instead of in localities that show a distinct growth potential. They are willing to pay higher prices for the property, though they could have got a better property at a lower price elsewhere and more rent in the bargain. They take huge loans from the bank and spend their lives repaying the loans using up all the rent and slicing off a chunk from out of their salary income. Additionally, repairs to the property, taxes on property and a score of other corrosives eat into their income and leave them wondering about the wisdom of their investment.
What should they have done? If they have several years to retirement, they should develop a real estate investment plan rather than jump into investing in real estate for retired living. It is like going to the Doctor today for an ailment you may have in the future.
Real estate investment plans begin small. The shoe must not pinch. The rent from the property must take care of loan repayments, taxes and all other charges arising from property ownership. Capital appreciation on property must be reinvested in newer and larger properties that generate a passive income for the owner and enable him defer capital gains tax on the sale. This will gradually result in a valuable real estate portfolio that can be used to buy the dream home and also remain invested in properties that you have no intention of living in!
So, it is time to come down from the clouds and get real so that you can build up your estate!
