How much would you give for a 1BHK flat in Nanganallur? - III
Now the second question.
At what price will an investor take the bet? I will buy a flat which fetches me a rental income of Rs. 5000 per month if some nice guy will sell it for Rs. 10 lacs or thereabouts. Assuming an EMI rate of 1000 per lac per month.
I don’t want to pay EMI much higher than 2 times what the flat fetches as rent per month.
Now, this is unlikely to happen when IT sector is booming, when water is available in plenty, when things are ‘normal’. So the investor waits till the market gives the house at this price for any of the distressing reasons mentioned or for new reasons.
More often than not, things turn around: some arrangements are made for drinking water, people move on after tsunami, cities get rebuilt after earthquakes, job market invariably gets better after ‘recession’.
For those with a better memory, there was a time when housing prices was available at the prices much below than quoted above. In 2003, I remember seeing flats for my friends @ 30 lakhs in C P Ramaswamy road, Alwarpet etc. I saw one NAVINS flat in Sri Nagar colony for about Rs. 20-25 lacs. Prices started to move up in 2004 onwards. It is sky high now.
How to make a multi-bagger investment? Well the fact is, it’s too hard to foresee. i dont believe anyone who says otherwise. This is akin to some guy buying Pantaloon retail stocks when it was real low, and ending up making 35 times (not percent) in a few years. One cannot plan for such events.
It just happens. Just like some guy making it in the lottery. But what we need to do is consciously think hard so that we do not become suckers.
My experience suggests that making 15% per annum (which is twice the bank rate of interest) with low risk is not that hard provided one can think independently and not depend on ‘popular wisdom’ which in financial matters is more or less an oxymoron. By buying assets low, with adequate margin of safety, we expose ourselves to such booms. If it does not happen, the investor need not lose sleep, because he has not paid much in the first place.