ARE YOU READY TO BUY YOUR FIRST HOME ?

ARE YOU READY TO BUY PROPERTY?

 

ARE YOU READY TO BUY YOUR 1ST HOME?

 

 

 

Gone are the days when Property used to bought only after getting WELL SETTLED (married and have kids)

Now…immediately post landing a job, and after the mandatory Apple iPhone and a Bike, the youngsters are ready to swoop in on the newest gadget (home) and show off!

Yes..its exciting when you start scouting for that DREAM FIRST HOME but before that there are some factors that should be compulsorily considered.

Buying a property is a SERIOUS Decision and needs SERIOUS INTROSPECTION. Not just financial but it has turned into even an emotional roller coaster when it comes to buying your first home.

 

 

Property typically increases in value over time and provides SECURITY IN RETIREMENT.

Not having to pay rent when you don’t have or steady income in indeed a blessing.

And of course, the status you get in society when you are living not on Rent but OWN HOUSE is something different.

Isn’t it?

 

But have you checked whether you truly are ready to buy property?

Are you ready to take such a huge financial decision?

Will you be able to digest such a big dent in your corpus?

 

ANSWER THE FOLLOWING QUESTIONS YOURSELD AND YOU CAN FIND YOURSELF WHETHER YOU ARE INDEED READY TO BUY THAT PROPERTY

 

1.  Do you have a Steady Income?

90% of Property buyers go for EMI which means a committed monthly expense.

If you are a salaried person, then its easier to plan for the house but if your income is variable and volatile, you may get stuck in financial mess when you may not be able to pay the EMI during lean periods of income. How will you overcome that?

Even when it comes to salary, you need to answer if the job is steady, and capable of giving you SIMILAR salary if you have to move out.

Let me reiterate that it’s not salary that makes for STEADY income. It could be even your Dividend income, Interest Income (or even Rent from other properties you may have)

Only thing for you to answer is WILL YOU BE ABLE TO PAY THE MONTHLY EMI WITHOUT FAIL MONTH AFTER MONTH

 

2.  Do you have Emergency Fund?

Of course, once you don’t steady income, the obvious next question would be whether you have at least the Emergency Fund.

Emergency fund ensures that you can tide over the temporary financial crises and pay any EMI and other expenses without an issue. Medical contingencies, job loss, salary cuts are some of the Emergencies that you MUST be prepared for.

Ideally, 6 months of expenses is a good enough buffer to have as an Emergency Fund. This Emergency Fund acts like a SHOCK ABSORBER and you can easily sail through the tough periods. It is not that you should keep 4-6 months of your Monthly Expenses in Contingency Fund at one go. Go about it slowly. Start with 15 days of expenses, then 1 month and gradually scale up.

 

3.  Is your Debt manageable?

If you have any existing Loans and committed interest outgo, you need to check whether you can manage the additional EMIs that may come up. It is inevitable that once the new Home EMI starts hitting you, the spending will invariably see a reduction but it should not result in NEED based spending cut.

Debt is pleasure today and pain tomorrow.

Be honest about what you can afford

If you spend too much on a high EMI, it could hurt your day to day expenses (especially in terms of cash crunch)

Needs are a must.

 

4.  Do you have a Lumpsum Corpus?

Prudent Financial Plan says that you should pay at least 50% of the Total Property as Lumpsum from your side

The value of the property you are buying should NOT be more than 3 times of your Annual Income.

Suppose your annual income is 50 lakhs, the value of property you are considering to purchase should NOT cross Rs.1.5 crores.

You cannot take a Rs.80 lakh loan for a Rs.1 crore property.

You should not even if the Loan Provider is ready to give you.

The Higher Lumpsum from your side, lower will be the EMI. Hence make sure you have sufficient Lumpsum for that Property

Home Loan EMI should not 30% of your take home pay.

 

5.  Ready to take care of your own maintenance?

When you are living in a rented home, the maintenance is taken care by the landlord or the Association. But when it come to your own property, you need to get your hands dirty be it fixing the Geyser, the Electric Switch, the Leaking Tap.

And actually, there is nothing wrong in it, right?

So, either you should be mentally ready to do all this (dirty) things or PAY someone to do this for you.

 

6.Have you answered the question whether it is Cheaper to Rent than Buy?

               Yes....sometimes it may well be cheaper to stay in Rent than buy a house depending on the Housing Market situation.

A house is an expensive investment.

Make sure that you have factored the cost of Interest Payments, maintenance of the property, the Taxes to be paid

Suppose the house you plan to purchase is Rs.1 crore and the annual rent you are paying is, say about Rs.3 lakhs…then the rent ratio works out to 33 which is very expensive.

Any Rent Ratio which is above 20% means, you are better off owning a house rather than paying rent.

 

 

 

BEFORE CLOSING…KNOW THIS….

Besides the above, things which are ignored by most buyers are small small things but which can add up to tidy sums

a) The closing costs
The registration of property, the brokerage, lawyer fees, the license fees to electricity board, Water board, Home Insurance,  etc all these add up to quite a sum.
Also, you need to understand that the property you purchase will be BARE without any furnishings and you need to provide for the same.
And of course, the Interiors cost depends on the taste you have and the cost could well end up for 10% to 15% of the property cost.  

 

b) Moving Expenses

Moving from your existing home to new home costs not just the 1 time shifting transporting of stuff but also the factor of your distance to office from the new house and also the distance for your kids to school/college

 

c) RESALE VALUE:
Not exactly a point which many consider but cannot be ignore at all is the RESALE VALUE.

Yes...you are indeed buying your first home to stay FOREVER but you never know...future is unpredictable.

Your job may change, your kids may move out....

and I am not just talking about moving to different city altogether but even within the city, you may be forced to relocate.

Thus, the resale value is an important factor

 

d) Even as you accumulate the HUGE corpus required for purchasing your first home, consider REITs. Owning a Real Estate is a challange both financially and legal hassles, REITS is an easy simplified asset class to own the same without owning it Physically.

c) Your future family size must be definitely considered before purchasing.

You may have kids in future or maybe your parents may join you. Consider all these things before zeroing on an property

 

 

And, before saying YES to going ahead with your purchase of your FIRST HOME, make sure your credit history is in good shape. Build up the score beforehand.

The Interest could go up or down steeply depending on your credit score. Make sure you have a good CIBIL score.

Your Cibil score is a measure of how trustworthy you are and hence higher the score, the better it is.

 

 

 

Remember unlike earlier days, your first property could well be your LAST property in life.

So, make sure that you are zeroing in on the right property in all aspects

Cost is only 1 factor.

Your need to look at the distance to work, the neighbours, the facilities nearby, etc

 

And without missing, also read our article on MAKING YOUR HOME LOAN INTEREST FREE!

https://srikavimoney.blogspot.com/2021/04/make-your-home-loan-interest-free-heres.html/ 

https://srikavimoney.blogspot.com/2021/04/make-your-home-loan-interest-free-heres.html

 

 

Finally, You don’t have to buy a house just for society sake. There is no rule that ONE MUST HAVE OWN HOUSE.

Buy only if YOU WANT to not because the society is asking you questions.

Ultimately what matters is WHETHER YOU ARE COMFORTABLE in where you are

Buying a property should result in satisfaction and not Tension!

Enjoy the experience of getting your First Home and all the very Best.

Wish you all the very best

Srikanth Matrubai

Author - DONT RETIRE RICH

 

All the best,
Regards,
Srikanth Matrubai

MUTUAL FUND DISTRIBUTOR

REBALANCE VOLATILITY CERTIFIED COACH

Srikanth Matrubai, Author of the Amazon Best Seller DON'T RETIRE RICH

You are strongly encouraged to consult your financial planner before making any decision regarding this investment. The views expressed here are the author's personal views and should not be interpreted as a recommendation to invest/avoid.

 

Srikanth Matrubai Author of the Amazon Best Seller DON'T RETIRE RICH

Do read the book and give your valuable feedback and request you to post positive comments on Amazon. https://amzn.to/3cHUM6M/ 

You can purchase the book on Amazon and Flipkart 

For the best of ideas on where to invest to create Mountains of Wealth 

join my TELEGRAM channel

WEALTH ARCHITECT
    https://t.me/joinchat/AAAAAELl4KUnaJzi-JJlDg/

PGIM INDIA GLOBAL REAL ESTATE SECUTIEIS FUND OF FUND

Looking to take exposure to Real Estate?

Then consider REITs !!

REITs offer part ownership of Rent Yielding Properties. 

PGIM India has come out with an Exotic fund named PGIM INDIA GLOBAL SELECT REAL ESTATE FUND OF FUNDS

The name *REAL ESTATE* will clearly catch a lot of investors attention and *GLOBAL* is quite fancy these days

With this heady cocktail, is the fund worth your hard-earned money?

Let's try to understand

WHAT IS REIT?

REIT is Real Estate Investment Trust, which is similar to Mutual Funds wherein the money is pooled and invested in Commercial Real Estate Assets. REITs earn rental income from their properties, which is distributed to the Unitholders.  So, while MF invests in Stocks, gold, bonds, etc, the underlying asset in REITs gets invested in actual physical Real Estate.

Exactly similar to a Mutual Fund, REIT too will have a Sponsor which establishes a Trust.

REIT thus is a company that owns, operates (finances in some cases) Real Estate producing Rental Income and possible Capital Appreciation. 

SO, HOW EXACTLY DOES A REIT WORK : 

1. A REIT (like a Mutual fund) collects money from Investors.

2. These monies are invested across Rent Generating Properties.

3. The REIT collects the Rent

4. The REIT distributes the Rent to Investors via periodical Dividends.

5. The Capital Value is reflected in the NAV

In India, there are 3 REITs listed on Stock Markets namely

Mindspace

Embassy

Brookfield

PGIM INDIA will invest in PGIM GLOBAL SELECT REAL ESTATE SCHEME (PGSRES) fund which in turn will invest in multiple REITs across the Globe including the USA, Europe, Japan, Australia,  etc giving exposure to high-quality rent-yielding properties across geographies. 

And since it's a FOF, unlike a typical Real estate, liquidity will not be an issue.

We have covered REITs and their methodology in our earlier article. (please read the same for a better understanding of REITs)

HOW WILL AN INVESTOR MAKE MONEY :

1. The money you invest in this fund will be invested in the parent fund which is called PGIM GLOBAL REAL ESTATE SECURITIES FUND (PGRESF) which is also a Mutual fund

Now, this parent PGRESF will then REITs wherein the underlying asset get returns in terms of RENT

2. Further these RENTs increase annually

3. The underlying assets of REIT being land could also see a rise in capital appreciation resulting in increased NAV 

(albeit over the long term)

4. REITs have to distribute 90% of the rent but PGIM GLOBAL REIT being a Mutual Fund does NOT have this obligation and thus the rent received keeps getting accumulated and reflected in the NAV. 

TAXATION : 

The fund will be treated like a Debt fund investment. 

Meaning, holding above 3 years will give Indexation Benefit

Holding below 3 years will mean taxation at your slab rates. 

WHAT'S GOOD : 

1.
Owning Real Estate is a challenge both financially and in legal hassles, REITS is an easy simplified asset class to own the same without owning it Physically.
Investing in REITs fund for long term is a good way to have an exposure to REAL ESTATE 

2. No Lock-In
You as an Investor can enter or exit the fund as per your wish and convenience, unlike an actual Real Estate which has its own problems thus making it very very liquid. 

3. the Best way to have exposure to Real Estate. Affordable as you can buy a fraction of the property by buying just a few units

4. Real Estate is one of the Most non-transparent asset classes and this fund being a Mutual Fund is the MOST TRANSPARENT way to have Real Estate Exposure.

5. PGIM REIT fund will be investing in Different Geographical locations and mostly in Rental generating assets, it offers Investors a Good Diversification Option. 

WHAT’S NOT GOOD :

 

1. Typical Real Estate Industry Issues like a Bear Market could affect Capital gains

2. The Average Rental Yield may become unattractive due to Covid effect of Work From Home resulting in low office demant

3. Since the fund will invest in REITs that are further listed in Stock Markets, the typical demand/supply mechanism could affect the price of the listed entity and it could be quite volatile. The returns WILL NOT BE IN 1 STRAIGHT SINGLE UPWARD LINE!

And Short-term performance could be awful.

In fact, in the US, Dow Jones REIT Index fell 17% in 2007 and 39% next year!

IN A NUTSHELL, 

Investing in REIT is like investing in a combo of Equity and Fixed income.

Though it has more or less a stable return in form of regular dividends, it also has price volatility in stock markets too.

In fact, in the US, the REITs have been MORE CONSISTENT in delivering top performance than even the S&P 500.

In fact, FTSE Nareit All Equity REITs have beaten Russell 1000 Large Cap Stocks by a good margin even over a 30 year period. 

SHOULD YOU INVEST?

1. The records show that in the US and other developed markets, investors invest in REITs not to beat the Stock Market but for regular income as by Law, REITs have to mandatorily payout at least 90% of their net earnings as Dividends.

2. REITs, although listed, do not always move in the same direction as the stock market as the underlying asset is Commercial Real Estate and thus provides Good Diversification.

3.  REITs in India invest in Commercial Real Estate but this particular fund PGRESF invests in across the category of Real Estate like Healthcare, Warehouses, Server Data Centres, Logistic Centres and thus truly diversified. 

4. The fund could also benefit from Rupee Depreciation as typically Rupee tends to get depreciated vis a vis Dollar

There were earlier offerings from Kotak MF and Mahindra Manulife MF in the same category but they were restricted to the Asia Pacific and this particular PGIM Reits fund invests across the United States (59%), Japan (12%), UK (6%), Australia (4.5%), etc

5. The parent fund PGSREF has given a CAGR of 7% in Dollar Terms since inception. 

6. REITs come in between Equities and Debt and must have a place in All Portfolios. 

Low Correlation with Equities, Diversification across Geographies, Visible Cash Flow to underlying investments make PGIM India Global Select Real Estate FoF worth considering 

7. Most important.......

Returns could fluctuate as the REITs are listed in Stock Markets and various factors including demand/supply of securities could affect prices resulting in a volatile NAV. 

so, Not to be co

nsidered as an alternative to FIXED INCOME. 

INVESTMENT EXPERTS ARE OF THE OPINION THAT INVESTORS LOOKING FOR A SAFER AVENUE TO PARK THEIR MONEY (COMPARED TO EQUITIES AND ACTUAL REAL ESTATE) CAN CONSIDER INVESTING IN THIS FUND

INVESTORS ARE ALSO ENCOURAGED TO LOOK AT THIS FUND MORE AS A DIVERSIFICATION TOOL THAN AS A WEALTH CREATION TOOL

BTW, the Fund has NOT invested in China 

REQUEST YOU TO PLEASE CONSULT YOUR ADVISOR BEFORE TAKING ANY DECISION ON INVESTMENT

THE DETAILS SHARED ARE OUR OPINION ONLY AND SHOULD IN NO WAY BE TAKEN AS A RECOMMENDATION 

All the best,
Regards,
Srikanth Matrubai

MUTUAL FUND DISTRIBUTOR

Srikanth Matrubai, Author of the Amazon Best Seller DON'T RETIRE RICH

You are strongly encouraged to consult your financial planner before making any decision regarding this investment. The views expressed here are the author's personal views and should not be interpreted as a recommendation to invest/avoid.

 

Srikanth Matrubai Author of the Amazon Best Seller DON'T RETIRE RICH

Do read the book and give your valuable feedback and request you to post positive comments on Amazon. https://amzn.to/3cHUM6M/ 

You can purchase the book on Amazon and Flipkart 

For the best of ideas on where to invest to create Mountains of Wealth 

join my TELEGRAM channel

WEALTH ARCHITECT
    https://t.me/joinchat/AAAAAELl4KUnaJzi-JJlDg/

ALL YOU WANTED TO KNOW ABOUT REITs

Namaste,

Real estate is something every Indian understands well and like Gold, that Attachment for AT LEAST 1 OWN HOUSE (EK GHAR TOH CHAHIYE)  is at the zenith of every Indian's heart.
And REITs seem to be a good alternative for those who cannot afford to invest big time in Real Estate.

Buying a REIT is the most transparent way to own Real Estate for a Lay Man.

 

 

 

 

 

WHAT IS REIT?

Real Estate Investment Trust, is more popularly known as REITs.
It is similar to Mutual Funds wherein the money is pooled and invested in Commercial Real Estate Assets with the intention to generate FIXED INCOME through monthly rent to be received from Tenants.

REITs earn rental income from their properties, which is distributed to the Unitholders.  So, while MF invests in Stocks, gold, bonds, etc, the underlying asset in REITs gets invested in actual physical Real Estate.

 

Exactly similar to a Mutual Fund, REIT too will have a Sponsor which establishes a Trust.

Since the earning is from RENT, which can be monthly, quarterly, Half Yearly, or even Yearly, REITS pay, typically, dividends on a Half-Yearly basis.



SO, HOW EXACTLY DOES A REIT WORK : 

1. A REIT (like a Mutual fund) collects money from Investors.
2. These monies are invested across Rent Generating Properties.
3. The REIT collects the Rent
4. The REIT distributes the Rent to Investors via periodical Dividends.
5. The Capital Appreciation (of the Property owned by REIT) is reflected in the NAV

 

 

Regulations in India mandate that these REITs have to pay out 90% of the distributable Cash Flows to the unitholders. 

 

And REITs are supposed to have a minimum 80% in COMPLETED AND INCOME GENERATING real estate properties. 

So, REITs allow lay investors to have exposure to High-Quality Rent Yielding properties that would otherwise be unaffordable.

Yes, REITs are also listed in Stock Markets and traded like any other Equity Shares and hence have no liquidity issues which a typical Real Estate will face.

SEBI came out with a list of DOs and DONTs for REITs way back in 2014 and in the US, REITs are in vogue for quite a long time and more than 300 are registered and about 40,000 Commerical Properties in the US are owned by REITs !!

In July 2020, Mindspace Business Parks came to the public to collect money for their REITs.
This was the 2nd REIT issue to hit the Indian Markets after Embassy Office Parks.
Later, Brookfield came out making it 3 REITs in India which are listed and can be traded. 

 

 

 

 

BENEFITS OF INVESTING IN REITs

 

 

 

 

1.
Owning Real Estate is a challenge both financially and in legal hassles, REITS is an easy simplified asset class to own the same without owning it Physically.

2. No Lock-In
You as an Investor can enter or exit the REIT as per your wish and convenience, unlike an actual Real Estate which has its own problems. You can even sell the REITs in the Stock Markets making it very very liquid. The REITs will be listed on both the NSE AND BSE

3. the Best way to have exposure to Real Estate. Affordable as you can buy a fraction of the property by buying just a few units

4. In addition to the Dividend returns, there is scope for Capital Appreciation which will be captured in the price of the listed unit of the REIT.

5 . Since REITs are mandated to distribute 90% of the surplus distributable Cash Flow, in form of dividends there is a good scope for Regular Income. 

6. Real Estate is one of the Most non-transparent asset classes and REIT aims to reduce that as it is regulated by SEBI and will be managed by Professional Managers (just like Mutual Funds)

7. DEBT ALTERNATIVE
A good alternative to Fixed Deposits and Bonds as the returns in REITS are more or less assured due to regular rents.

7. GEOGRAPHICAL DIVERSIFICATION TOO:

Since REITs will be investing in Different Geographical locations and mostly in Rental generating assets, it offers Investors a Good Diversification Option.

 

 

WHAT’S NOT GOOD : 
 
1. Typical Real Estate Industry Issues like a Bear Market could affect Capital gains

3. The Average Rental Yield is not very attractive in India at present (at about 5% to 8%).

4. Since REITs are listed in the stock markets, the demand/supply mechanism could affect the price of the listed entity and it could be quite volatile. They are not steady and flat. NO Sir!
And Short-term performance could be awful.
In fact, in the US, Dow Jones REIT Index fell 17% in 2007 and 39%  in 2008 though recovered subsequently!

 

 TAX ANGLE :

1. Dividends were supposed to be TAXED IN THE HANDS OF THE INVESTORS but later a change in the Finance Bill 2020 was announced post covid outbreak wherein DIVIDENDS EARNED FROM REITs WILL BE EXEMPT IN THE HANDS OF THE UNITHOLDERS.

Thus, The dividends received from REIT are tax-free. 

2. Short Term Tax (sold within 3 years) is 15% of Gains

3. Long-term tax (sold AFTER 3 years) will be at 10% of Gains.

4. Dividends received will be ADDED TO THE INCOME OF INVESTOR AND SHALL BE CHARGED TO TAXED AS INTEREST INCOME

Point No. 1 The amendment, however, clarifies that the DDT exemption will be given only for the companies which have not migrated to the new corporate tax regime.

 

 

The dividend portion of the income from REIT being non-taxable lends a significant advantage to a retail investor.

 

 

 

SHOULD YOU INVEST?

 

Please note that REIT is NOT Real Estate.
It is also not to be considered as an alternative to Real Estate.

Investing in REIT is like investing in a combo of Equity and Fixed income.

 

Though it has more or less a stable return in form of regular dividends, it also has price volatility in stock markets too.

 

In fact, in the US, the REITs have been MORE CONSISTENT in delivering top performance than even the S&P 500.

 

The records show that in the US and other developed markets, investors invest in REITs not to beat the Stock Market but for regular income as by Law, REITs have to mandatorily payout at least 90% of their net earnings as Dividends.

 

REITs, although listed, do not always move in the same direction as the stock market as the underlying asset is Commercial Real Estate and thus provides Good Diversification.

 

 

 

Investors should consider looking at REITS only if they have a time frame of 5-7 year plus and more as a Diversification tool.

 

Regards & All the best,

Srikanth Matrubai,

Wealth Architect, SRIKAVI WEALTH

 

  

 

 

 

 

Srikanth Matrubai Author of the Amazon Best Seller DON'T RETIRE RICH

Do read the book and give your valuable feedback and request you to post positive comments on

 

You are strongly encouraged to consult your financial planner before taking any decision regarding this investment.

The views expressed here is the authors personal views and should not be interpreted as a recommendation to invest/avoid.

 

 

All the best,
Regards,
Srikanth Matrubai

MUTUAL FUND DISTRIBUTOR

REBALANCE VOLATILITY CERTIFIED COACH

Srikanth Matrubai, Author of the Amazon Best Seller DON'T RETIRE RICH

You are strongly encouraged to consult your financial planner before making any decision regarding this investment. The views expressed here are the author's personal views and should not be interpreted as a recommendation to invest/avoid.

 

Srikanth Matrubai Author of the Amazon Best Seller DON'T RETIRE RICH

Do read the book and give your valuable feedback and request you to post positive comments on Amazon. https://amzn.to/3cHUM6M/ 

You can purchase the book on Amazon and Flipkart 

For the best of ideas on where to invest to create Mountains of Wealth 

join my TELEGRAM channel

WEALTH ARCHITECT
    https://t.me/joinchat/AAAAAELl4KUnaJzi-JJlDg/

Many gettting confused about Dividends
LETS LOOK DEEPER INTO THIS

In India, REITs often own property assets indirectly through Special Purpose Vehicles (SPVs). These SPVs contribute to the REIT’s income by paying out their own income (from rent and other sources) to the REIT as dividends. If any part of the distribution you receive from your REIT is in the form of a dividend, then it may be taxed in two ways:

• If the SPVs from which the REIT receives dividends have not opted for the new concessional regime (under section 115BAA) on corporate tax, then your dividend from the REIT will be tax-free.
• If the SPVs from which the REIT receives dividends are paying a lower rate of corporate tax at 22% instead of the standard rate, then you will pay tax on dividend from the REIT at your income tax slab rate.

To decide whether the dividend part of your REIT’s distribution is taxable therefore, you will need to find out if the SPVs of the REIT have opted for the concessional tax regime. Most REITs, thankfully, provide this disclosure in their investor relations section. Both Embassy and Mindspace REIT have clarified that their SPVs have NOT opted for the concessional corporate tax regime. Therefore, the dividend part of their distributions is tax-free in your hands. The above tax changes were brought in, in the 2020 budget when the Dividend Distribution Tax regime for companies and business trusts was done away with, and replaced by a system that taxed dividends in the shareholders’ hands

.Taken from the PRIME INVESTOR website which has clearly clarified about the dividends on REITs