Five reasons why I will never invest in real estate

Published: September 22, 2015 at 11:05 pm

Last Updated on September 4, 2018 at 10:57 am

Here are five reasons why I will never invest in real estate.  This is me taking sides on the equity vs. real estate debate. There is more to investing than returns. So instead of comparing past returns of both asset classes and claiming equity won or real estate won, I would like to consider other important aspects.

So here goes. I will never invest in real estate because,

1. It will skew my asset allocation perhaps forever

Personal finance has two components: insurance (or fortification) and investment.

Investing is all about the right asset allocation. I don’t want to ‘invest’ in an asset that will grab a big chunk of my asset allocation pie perhaps forever.

Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥

There are two ways to buy real estate: dip into your liquid net worth and/or leverage.  Even if we assume leveraging does not backfire, I will never be able to find the right balance in my asset allocation.

It is never real estate and equity and fixed income. It is always REAL ESTATE and equity and fixed income. Once I choose to buy real estate, it may take years, if not decades, for other asset classes to occupy a significant portion of your portfolio. I do not find that appealing.

Why would I buy an asset class that practically eliminates my ability (see below) to freely control asset allocation percentages?

2. It is hard to assign “present value” and calculate ‘growth’

I have a real estate returns calculator, but obviously its output depends on inputs! Most people talk about how much their property is worth without actually speaking to potential buyers. It is only when they do so, reality dawns. They would rather ‘wait’ and enjoy low rental yields rather than sell for a ‘low’ price. There is no designated market price. He who haggles the best, wins here.  If there is no universally agreed market price, I cannot understand how risky the asset class is.

I am afraid I do not have the ability to transact without data or wait indefinitely for the right buyer to come along. Would like to buy and sell stuff with a universally accepted price tag attached to it. Would like to buy asset classes with quantifiable volatility.

3. It is not liquid enough when I wish to sell.

This I am sure you have heard before: You cannot sell a small chunk of your property when you feel like, unlike marked to market asset classes which can typically be traded in small amounts and on any business day.

Whether I trade for profit or loss, the freedom and the ease associated with the transaction appeals to me.

4. It may not be liquid enough even after I sell

The taxman considers capital gains from real estate to be a different species. While there no rules ‘what should be done’ with capital gains from equity or fixed income, real estate CG should necessarily be reinvested in property or in section 54EC bonds (with pathetic post-tax returns – close to SB account returns for 30% slab) for 3 years to ensure the capital gains are tax free.

I recently advised a family to pay tax,  equivalent to 16%  of selling price, and enjoy the liquidity from a real estate purchase.  This is much lower than the 30.9% tax on monthly income they were paying. However, they did not see it that way. For them, the loss of “several lakhs” to the taxman was unacceptable.  They would rather let that sum languish in another property or in an infra bond for 3 years than pay “that much tax”.

If one does manage to sell, and pay the capital gains tax, this reason does not apply, but then again …

Will such logic escape me, if I sell property? I don’t know. Why would I enter an innumeracy trap on my own accord?! I would rather not own any investment property.

5. It has ’emotional attachment’ issues

Many retirees who do not have the means of inflation-protected income ought to sell their invested properties for enough liquidity. Not many are able to do that. They are too fond of their ‘achievements’ and/or want to leave that as estate to their children. They believe it is their duty as parents to leave behind property to their children. Some who do want to sell are shocked at the actual selling price!

Again, will such logic escape me, if I need to sell property when I retire? I don’t know. Why buy an addictive asset class and risk financial independence in retirement?

Like I said, there is more to investing than returns.

PS. for the price the broker quoted the above-mentioned family, the CAGR over 20 years was 14%. When buyers came to see the apartment, no one was ready to gift the family ‘that much’ return. Last I heard, they have ‘shelved’ the idea of selling.

V Muthu Krishna suggested I add two more reasons:

6. risks before possession

These include legal risks of ownership, delays by builder, non-completion of all amenities, stay orders, deviation from plan, quality issues, etc.

7. risk of renting out

No guarantee of regular income. One may need to constantly look for tenants. Issues with paying property and water tax, and the legal hassles associated with tenants not moving out!

Do share this article with your friends using the buttons below.

🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! More than 1,000 investors and advisors use this!
New Tool! => Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
Follow Freefincal on Google News
Follow Freefincal on Google News
Subscribe to the freefincal Youtube Channel. Subscribe button courtesy: Vecteezy.
Subscribe to the freefincal Youtube Channel.
Follow freefincal on WhatsApp Channel
Follow freefincal on WhatsApp
Podcast: Let's Get RICH With PATTU! Every single Indian CAN grow their wealth! 
Listen to the Lets Get Rich with Pattu Podcast
Listen to the Let's Get Rich with Pattu Podcast
You can watch podcast episodes on the OfSpin Media Friends YouTube Channel.
Lets Get RICH With PATTU podcast on YouTube
Let's Get RICH With PATTU podcast on YouTube.
🔥Now Watch Let's Get Rich With Pattu தமிழில் (in Tamil)! 🔥
  • Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
  • Have a question? Subscribe to our newsletter using the form below.
  • Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.

Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!

About The Author

Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free!  One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course!  Increase your income by getting people to pay for your skills! More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!   
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Both boy and girl version covers of Chinchu gets a superpower
Both the boy and girl-version covers of "Chinchu Gets a superpower".
Most investor problems can be traced to a lack of informed decision-making. We made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So, in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it, as well as teaching him several key ideas of decision-making and money management, is the narrative. What readers say!
Feedback from a young reader after reading Chinchu gets a Superpower (small version)
Feedback from a young reader after reading Chinchu gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)