Thursday, 3 February, 2011

Real Estate as an Investment - Part 2

Real Estate as an Investment - Part 2

Recently, I'd written a post on Real Estate as an investment.

The original link is given below for ready reference:

In that article, I'd asked you, dear reader, as to:

  • Why does Sensex outperform real estate consistently, but stock market investors underperform real estate investors?

Virtually ALL of you who bothered to think about it would have found most of the answers that I'm giving below:

  • Real Estate is illiquid, and hence, we can't buy and sell too frequently;
    • Result - The investment becomes a long-term one by default
  • Executing a transaction is complex. Involves, among others, expert assistance from legal advisors;
    • Result - The investment is thought out, and not driven by impulse.
  • There is no "Ticker-tape" on TV or "Real Estate Prices page" in financial newspapers.
    • Result - Price-discovery is a result of some degree of enquiry, followed by negotiation. Further result: Frequency of transactions is very limited vis-a-vis stocks
  • Value per transaction is much higher than stocks.
    • Result: Investment decisions are made after a great deal of thinking. Not because your broker told you so. Not because a "Financial whiz-kid" gave an interview. Not because you read an article about it. Not because there was a lot of buzz about it on the web. Result: Investment decisions are made after a great deal of analysis and thinking.

As a result of the above reasons, something magical happens:

  • All your real estate investments are well-researched, deeply thought-out, long-term investments, enabling the power of compounding and the power of value-based investment decision-making to work in your favour.

Naturally, in practice, Real Estate investments significantly outperform shares for virtually 90% of the population!



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