12 Common Mistakes Made By Indians & NRIs while
Investing in Real Estate
When it comes to investing in real estate, we tend to make a lot of classic mistakes, either due to lack of time and awareness, or lack of access to better investment alternatives.
Learn about what, how and why we make these common mistakes, how you can avoid making them again in your future investments and our recommendations on what you can do alternatively, in such scenarios.
While a brief summary of each point is displayed by default, you can click on the Read More Toggle at the end of each point to read a more elaborate description of the same.
Do share this with your family, friends and colleagues and feel free to get in touch with us to know more on this topic and explore the latest opportunities available to you in Indian real estate.
I already have a site or flat in my hometown and hence not interested to invest further.
This is the most common mistake done by NRIs. They tend to buy a flat or site in their hometown and then construct a big house or villa, only to struggle in finding a tenant to rent it out or in getting good rental returns. You are better off by investing that money in a city in India where you can make a killing as long as you have a reliable advisor to guide and assist you through the entire process. Since India is going to boom for the next 10+ years, you cannot afford to neglect investing in India.
This is again a common statement that we hear. The question is – Will you be able to LIVE in that home when you relocate back to India? Or lets put it the other way – Will that home suit the lifestyle that you are accustomed to in the US? 9 out of 10 cases it’s a clear NO. And if that is your answer too, then why do you want to keep that property anymore? Why not free that precious capital and multiply it by investing into high growth potential assets?
What is Wrong Here : NRIs don’t realize that the properties they own in their home town will most likely not suit their standard of living once they relocate to India. And considering that most of us come from Tier 2 and Tier 3 cities and towns, the general standard of living and quality of social infrastructure in such cities is nowhere comparable to those that NRIs are accustomed to in the US. This aspect is seldom thought of and in the end, those who relocate to India and to such properties in their hometown, neither enjoy the living experience and nor do they have enough time or resources left at that point of time, to look at investing in properties that suit their standards.
What Can Be Done Better : If you are sure that you or your parents will never live in this property (which is true for 9 out of 10 NRIs as most of them who relocate to India, do so only to major cities and not smaller towns or villages), you should simply sell of the property at current market price and reinvest the money in assets in major metro cities where your money can double in 2.5 to 3 years. This is better than letting your money lie idle in the hometown property that will barely appreciate beyond a point. Even renting the property for monthly income is a crime as such returns will be barely 2% to 3% a year, which is not enough to even beat inflation and taxes.
I already own a flat or villa that is earning rental income.
8 out of 10 NRIs round the world are in this situation and they don’t realize that they are earning only a miniscule 2% to 3% per annum through such rental income whereas they can make upwards of 30% per annum by investing their money in smart alternative investments.
Although it is good that you have an asset that is generating income, what most don’t realize is that such properties are actually losing value and depleting your wealth gradually as on average, they give you annual return of 2% to 3% per annum. Post tax at 30%, such returns are a miniscule 1.5% to 2% per annum. With average inflation at 6% to 7%, you are actually losing money equivalent to 4% to 5% of your property’s value every year. Therefore while most of us are happy thinking that our property is earning money, we are blissfully ignorant of the fact that we are actually losing money every year by renting it out.
What Can Be Done Better : You can be much better off by selling off such property and then investing the money into assets that can either multiply your money in 2 to 3 years or investing in high monthly income assets that generate a much healthier 12% to 24% per annum in the form of monthly income. To put it in perspective, by investing in a Rs.30 lakh studio apartment and leasing it out to a hospitality operator, you can earn Rs.30,000/- a MONTH whereas a property worth Rs.30 lakhs if rented out traditionally, would earn just Rs.5,000 to 7,500 a month.
I want to invest in my hometown.
This is another universal mistake done unknowingly due to emotional decision making. But the truth is that you can make greater wealth SAFELY in most metro & capital cities of India and hence as an NRI, you should invest where greater returns can be made.
Food For Thought : As NRIs, all of you have fought it out by coming from villages and districts of India all the way to USA and have made your fortunes in an unknown place. Then why invest in your hometown when it comes to multiplication of wealth instead of going to cities where your money can be multiplied much faster and to a much greater magnitude?
What Is Wrong : Similar to one of my opening points, a lot of NRIs decide to invest in their home towns and purchase an apartment or a site with the vision of building their own home when they relocate. The problem again is, that by the time you relocate, the property will almost definitely not suit the standard of living that your family is accustomed to in the US. And in cases of those NRIs hailing from rural areas and Tier 3 cities and towns, the hometown itself may not have enough social fabric and infrastructure to keep them happy. And in most cases, they end up investing in highly illiquid assets that are either very difficult to sell or do not hold any value in the market etc.
What Can Be Done Better : It is a proven fact that investments in major metropolitan cities will appreciate faster and are much more liquid than investments in Tier 2 or Tier 3 cities. When we ask above investors as to what their objective of investment is, whether it is a) to make money or ii) because they love their hometown, 8 out of 10 would say it is for making money rather than their love for hometown. Hence, it makes better sense to invest in bigger cities where appreciation and liquidity of investment is much higher than smaller cities. While it is true that Tier 2 cities are “the next big thing”, it will be a while before they become a true investment hotbed and until then, you are better off by focussing your investments in major cities.
I did not have a good experience with my 1st investment in India and hence I am no longer interested as Indian investment is risky and not worth it.
This is a very genuine reason and we can say that most of the NRIs have had such experience. But if you have access to professional agencies in India, you can reverse all those earlier losses. Also India being a big and one-way growth story for the next 10+ years, you should not miss the new wave of wealth that can be made in the coming years.
Once bitten – Twice shy. We have come across quite a few NRIs who have had bitter experience in real estate investments that have made them skeptical or completely averse to any future investments. Typically, they are ones who made investments in average or sub-standard projects that eventually got shelved, delayed or end up commanding a low price in the market – as a result of which such investors end up either not making any money at all or worst still, end up losing most of their initial capital. Such experiences cause them to shut off their mind to any future investments in real estate as they assume that ANY and EVERY investment in Indian real estate will turn out a bad decision, which in turn makes them lose out on some of the best opportunities of wealth creation for their families.
Also many NRIs have been cheated or misled in India because of which the entire NRI community has ended up concluding that investment in Indian real estate is risky, cumbersome, riddled with corruption and black money and hence is not worth risking their life savings and the time and effort required to make such investments.
What Is Wrong : There is a shortage of 40 million homes in India (out of which 22 million is in Urban areas) which at the current pace of output will take atleast 20 years to satisfy. The real estate market in India is set to grow from $60 Billion to $180 billion in 6 to 8 years. Hence the potential of wealth that you can generate through Indian real estate is immense and guaranteed. You should not let a one-time bad experience dictate all your future decisions in life, and the same goes with real estate as well. Most of us have gone through an unpleasant experience at one point of time or the other. But with the right guidance from experts who live and breathe real estate, you can be assured of a stress-free, mutually fruitful and long term relationship with real estate investments.
What Can Be Done Better : If you invest only with the top brands of each city or state and in their signature projects, your money will always be safe and minimum returns are virtually guaranteed. Most important is to use the ADVICE and services of a reputed, credible and well networked consultant in India as doing so has multiple advantages :
- they have the insider information on current & future market potential and trends;
- they work closely with reputed builders and are able to get you special price offers which give you a price advantage over other investors in the market;
- and most importantly, they can help you resell your property at a time and price that is in your best interests.
Top consultants can also act as a one-stop-shop for all your real estate needs, from short listing of investments and managing your portfolio, to filing taxes and repatriation of your capital and much more – basically acting as your wealth managers in real estate in India.
I am not sure when I will relocate and hence will decide after 5 years.
Due to complete liberalizations of NRI repatriation rules (upto $1 Million can be repatriated every year including principal and profits and without any lock-in period) and since you can also leverage your salary to avail home loans in India, you should start investing right away to multiply your money to make alteast 200% to 400% gains in 5 years.
Another example that people quote when asked why they are not keen on investing in real estate is that they are not sure of when they will relocate and hence do not want to commit any investments until their relocation is very clear.
What is Wrong : The problem with this thinking is that if you wait until your plans are clear AND THEN decide to look for and invest in a property, you would either not have anything left to buy or have to pay a premium to acquire such properties of your choice which you could have got at much lower price had you invested in advance. It’s a simple logic – if you purchase an asset at the ground breaking stage or while it is under construction, you can do so at much lower price and end up saving atleast 20% to 40% of the total cost when compared to purchasing the property after it is completed.
Also, if for some reason after few years you decide to relocate after a very long time or decide not to relocate at all, you would have lost out on valuable time in which you could have multiplied your investments atleast 2 to 3 times.
What Can Be Done Better : You may not have plans to relocate for the next few years, maybe even for a decade. But this does not mean that you have to wait until you decide to go back and then start scouting for a suitable property. For all you know, property prices may spiral and you may end up finding that the budget you allocated is no longer sufficient. And if that were to happen, you would have no choice but to compromise and purchase something that is absolutely ill-suited to your family’s lifestyle. Hence, the right way of doing it is to start investing right now – buy assets only to sell them when they have appreciated in 2 to 3 years – and this way slowly build up a corpus that would empower you to purchase your dream property when you decide to head back home.
I might relocate in 2 years and hence want a place for stay on return.
Many NRIs dump their life savings just to acquire an asset in India one or two years ahead of their relocation back to the country, only to discover upon their arrival that what they bought is no longer suitable to their current standard of living. A better approach is to purchase a home only one or two years after relocating to India and in the meantime, double your money by investing it in smart assets with the sole purposes of selling them off in 2 to 3 years time and with your doubled corpus, you can buy a much bigger and better asset for your family.
What is Wrong : In continuation to the previous point, some NRIs say that they want to invest in a property for their family’s self occupation as they plan to relocate in 2 to 4 years time. This way they end up blocking their entire life savings in an asset that generates no income for the family in those 2 to 4 years and worst still, it could also end up not matching the improved standards of living by the time the NRI relocates to India. As a result, the NRI ends up being stuck with a property that his or her family does not enjoy or find comfortable and they are left looking for expensive alternatives and a buyer to sell of this property – both of which are time consuming and with unpredictable outcomes.
What Can Be Done Better : Although it is sensible to acquire property in advance to enjoy price advantage, you may be better off by using your existing funds to make an investment with a vision to sell off the same after 2 years and then purchase a MUCH BETTER and more upmarket or premium apartment than what you could have purchased with your funds at this point of time.
For example, if you had Rs.40 lakhs in hand, you could have purchased a property worth only Rs.40 lakhs at this point of time (which may not live upto your standards by the time it is completed in 2 years). But the same Rs.40 lakhs invested today could grow to atleast Rs.60 to Rs.70 lakhs in 2 years time and hence at the end of 2 years, you would be able to purchase a much higher-end property.
I already have my parent’s house and hence not interested in investing in any other property in India.
Unless you are allergic to money, you can always buy a property, only to sell it in 2 to 3 years for 50% to 200% capital gains and keep repeating this cycle to build up a massive corpus over time.
One reason for not investing in Indian real estate that NRIs give us is that their parents or in-laws already own property in India, which they will inherit and use when the NRI relocates to India.
What is Wrong Here : What NRIs don’t realize is that the property that their parents or in-laws own would most definitely not match the standards of living that the NRIs are accustomed to and also, the property will most likely NOT BE situated in the better or best part of the city or have the best infrastructure or amenities that are required to provide a comfortable and upscale living experience.
What Can Be Done Better : If such a property can be sold off, the sale proceeds from that property can be invested in assets that can double their investment every 2.5 to 3 years, resulting in the build-up of a massive corpus for the NRI in a few years time. With this corpus, the NRI can then purchase the very best of the properties in the market that have the best of amenities and social fabric in his city of choice, AS AND WHEN he decides to relocate to India, instead of compromising to whatever is owned by his parents or in-laws.
I am not aware that I can take a bank loan in India while living in US.
Did you know that by having Rs.20 lakhs, you can invest in a property worth Rs.1 crore? Or with Rs.40 lakhs, you can invest in a property worth Rs.2 crores? This way, you can make atleast 200% to 400% gains on your investment in 3 to 5 years.
Did you know that by having Rs.20 lakhs, you can invest in a property worth Rs.1 crore? Or with Rs.40 lakhs, you can invest in a property worth Rs.2 crores? By leveraging your salary slip (or balance sheet if you are a business owner or self-employed), you can use borrowed money to increase your returns – as what you are borrowing at 11% to 12% is being invested in an asset that is growing at 25% to 30% per annum, which means the differential of 15% to 20% is money that you are generating for yourself, literally out of thin air!
What Is Wrong : As most of us are not aware of the benefits or availability of home loan, we restrict our investments based on funds that are available with us – and this severely restricts the profits that you can earn by going in for a larger property.
What Can Be Done Better : Investing using a home loan is a smarter way to invest as explained above. And since you are buying the property only to sell it just before registration (only after which your loan repayment will begin), you do not have to restrict yourself to a smaller budget or worry about EMIs being a burden on your financial planning (as EMIs are payable only after registration which you will anyways avoid by selling off the property before registration).
Did You Know : NRIs are allowed to take home loans in India and it’s a simple process today which can be completed entirely through emails and a couple of couriers to India. You can complete the entire process in 3 to 4 weeks and without having to travel to India or burden your relatives or friends in India. You can even get to know your approximate loan eligibility for FREE without actually having to apply for one and this can help you in planning your investments better.
I do not want to bother my old parents or take obligation from my relatives & hence will not invest although I may be missing out on good opportunities.
If you can find a dependable real estate advisor who can act as your One Stop Shop in India, investing in India will be a cakewalk, without having to bother your parents, relatives or friends.
What Is Wrong : Until sometime ago, investing in India while residing in USA was a stressful and time consuming affair. You had to obligate your parents, or cousins or in-laws to go scout for properties, evaluate them and then handle and coordinate all the documentation and procedures required to conclude the investment. Hence most of the NRIs decided to not invest at all as they did not want to trouble or burden their relatives with their investment plans, thus missing out on opportunities to multiply their wealth.
What Can Be Done Better : By working with a reputed and professionally run real estate consultancy firm, you no longer need to depend on favours by your relatives, friends or colleagues in India to help you carry out real estate transactions. A top consultancy firm is capable of being your one-stop shop for all real estate needs in India, from helping you buy and sell property, to filing taxes, providing local logistical support and services and repatriation of money back to USA and more. All you need to do is to appoint a relative or friend as GPA (who is only authorised to sign and accept agreements on your behalf but has no right to sell your property) and the rest can be taken care of by the consultant, giving you an end-to-end solution at your doorstep.
Consulting colleagues / friends / neighbours / relatives etc., etc., even after listening to the best experts in the industry (like G&C or any such experts) & finally NOT taking any decision in time & as a result, losing out on best opportunities of life at their own cost.
Given that real estate is a major investment for all of us and involves a significant amount of resources both to invest, manage and exit, we go to great lengths in searching for and shortlisting the best possible options.
We always seek the opinion / advice / referral of our relatives, colleagues and friends while shortlisting and finalizing our options and while this may seem like the most prudent and logical way of investing, it often leads to decisions and conclusions that are based on incomplete, outdated and often biased info – which is as harmful and dangerous as investing in the wrong project itself.
What Is Wrong : Your family, friends and colleagues themselves have very limited knowledge and insight into the real estate industry, current & future prices and changing market scenarios. Most of what they know is based on what they read in newspapers or watch on TV – most of which is highly subjective or sensationalised and is designed more to entertain and less to educate viewers.
Therefore, when you make decisions based on inputs from / advice of family and friends who themselves have limited knowledge of the sector and are NOT subject matter experts, you are not making the best possible decisions and infact could end up investing in the wrong project / city / time – which is more dangerous than NOT investing at all in the first place.
Worst still, is when you take well researched inputs & recommendations from expert advisors and wealth managers like G&C and THEN try to discuss the same or seek the advice of family and friends on our recommendations, only to be discouraged or misguided by them – as they themselves have very little idea as explained above – and who ultimately end up convincing you to invest in a very routine asset category or worst still, discourage you entirely from investing at all – you end up losing tremendously in the long run.
What Can Be Done Better :
- While it is natural to try and discuss your investment options with family and friends, you should ultimately base your decisions on the guidance, inputs and recommendations of topic matter experts like G&C
- DO NOT let your family, friends and colleagues discourage you from investing or investing in the right kind of asset as they are not aware of such opportunities or may not be able to understand them completely.
- Most of the time, people will discourage you from investing in real estate due to their own bad experiences in the past or because they feel its better to invest in traditional assets such as apartments, villas etc instead of looking at better alternatives like high monthly income generating hotel apartments, etc.
- Consult your friends & colleagues but ALWAYS GO WITH WHAT AN EXPERT SUGGESTS.
- By working with such consultants, you can be rest assured that your money is in safe hands and in the best possible projects of the country.
My money is invested in FDs and I don’t want to break them because I may have to pay a penalty or lose interest benefit.
Many NRIs have invested heavily in FDs since they are a safe and obvious choice of investment for Indian’s so far.
But FDs give you a paltry 7% to 8%, block your funds for 10 to 15 years and have NO TAX benefits at all – making them highly inefficient in the long run.
You today have a number of more lucrative and equally safe opportunities where you can earn atleast 15% to 20% per annum, in some cases even guaranteed returns of 30% in 1.5 years or 60% in 3 years.
What Can Be Done Better : When you come across a more lucrative investment option, instead of waiting until your FDs mature, it is more profitable to break them – even if it means paying a small penalty in terms of lower interest rate – and reinvest those proceeds into more lucrative investments where you can earn 15% to 30% per annum.
This way, even if you loose 1% or 2% of interest as penalty for breaking the FD, you will earn atleast 8% to 22% greater / additional returns than FDs by investing that money elsewhere and hence, in the long run, you actually gain and have nothing to lose.
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I do not know how to get started.
With the massive number of builders and projects on offer these days, it is easy to get misled and invest in a wrong project. As an NRI, you are hard pressed for time and hence your decisions are mostly based on the advice of your relatives and friends in India, who themselves have limited knowledge of the market. Hence you are always better off by working with a reliable real estate investment advisor who has access to the top builders of India and can provide the best projects across all key cities of India on a single platter and under one roof.
What Is Wrong : We come across a lot people who have the money and are keen to invest but don’t know how or where to start. With such a large number of builders who are developing a massive number of projects across a basket of key markets in India, it can be quite daunting to know and compare each and every project and know which one to finally put your money in. A massive number of small-time and unprofessionally run roadside brokers who can easily misguide you or hard-sell unsuitable projects only adds to the challenge.
What Can Be Done Better : This is when it helps tremendously to have the guidance and services of a credible consultant who can :
- give you unbiased advice and recommendations on where and when to invest, at what price to invest and at what time and price you should exit the investment;
- provide you with privileged access to signature projects of top builders of India;
- provide you with a bouquet of asset classes suited to your investment objective – whether you are investing for monthly income or for capital appreciation and based on your loan eligibility and desired investment horizon and more;
- can act as a one-stop shop for all your real estate needs under one roof;
- most importantly, work for you as your wealth manager and not for the builder as his sales agent – and in this way protect your interests and help you create safe and long term wealth.
By working with such consultants, you can be rest assured that your money is in safe hands and in the best possible projects of the country.