A decade ago, the real estate investment was an easy game. Financing was easier to do and the cash flow was simple, but unfortunately this trend is going to continue and after a decade, this business will get worse!
Let’s begin with the basics
We’ll agree to one thing that the real cash flow from real estate comes with retaining the property for a longer period of time. The end game is to hold the property for a longer term in some shape or form.
There are two reasons why we will agree to this, firstly- investors can make a lot of money by using all the techniques, but in the end we want to retire! Secondly, when we retire, we wish the cash flow to continue in the form of ‘passive cash flow’.
Something about cash flow
Cash flow means income minus the expenses. Ask yourself- are your expenses increasing every year? Yes, they are- expenses are sky rocketing every year. So, if the expenses are increasing, then the income must also increase, otherwise cash flow will become blocked. As an investor, you too can increase your income every year by increasing the rent. But, will the tenant be able to afford the increasing rent every year is a question to ponder about?
The problem arises
The minimum wage in this country is that a person working full time can no longer think about having a basic roof over their heads. And, whenever there are talks about improving the condition- the big and small businesses protest saying that the expenses will have to be transferred to the consumer, or they will have to shut down their business. The prices of the rent cannot be increased because the tenant will not be able to afford the rent and they will soon enough stop taking those places on rent, due to which the owners will have to stop the renting business.
Back to Real Estate
As our expenses increase, how many of us truly think that the rent can be increased every year in the present scenario? Rent can only increase if the income increases if that does not happen, then the change will not take place. This reveals that the passive cash flow that we all are fighting for or striving for after our retirement is itself under pressure! Due to this real estate or commercial property in India is losing its hold as an investment vehicle.
The question that arises is that if the income does not increase, how will we build the value for the property for longer term?
We have grown to believe that the true cash flow will only come if we retain the property for a longer period of time. This theory made sense in the past, but in the present scenario- sorry to say this theory is in great mess.
A bit of good news!
As bad as things seem to be, still real estate is and will always be considered the best opportunity to remain safeguarded in the near future. This is because we take other people’s money to buy property and to pay off the real estate. When the property is bought with nothing or very little amount, you are guaranteed to succeed- presuming you have bought the right kind of property.