Some things in life seem too good an idea to have any drawbacks – that great new SUV, the latest hit on the runway, the new mutual funds investment option, that upcoming residential community. The truth? There’s no such thing as a one-size-fits-all approach. That is especially true when it comes to investing in real estate, particularly land.
Investing in land can be a rewarding or frustrating decision. While there are plenty of rags-to-riches stories of how land purchase transformed lives of their respective owners, the converse is equally common. Given that land purchases have been the favourite mode of investment since time immemorial, this discussion is often regarded with scepticism.
Let us tell you specific ways how investments in land can become disappointing. Keep in mind that purchase of land for self-occupancy is not considered a bad decision (for obvious reasons).
- Expectation of immediate income generation:
Some people very clearly earmark land purchases as long-term investments. Some others harbour unreasonable expectations with regard to income generation through land. For instance, buying land at the outskirts of a city and expecting a major rise in value after a year. It’s safe to say that any significant increase in value of land is usually seen between 3 to 5 years, assuming that the locality chosen is expected to develop fairly well in future. A surprising number of people end up disillusioned because of this one very basic misassumption. - Poor choice of plot/locality:
This is one problem that arises from inadequate or misleading research before buying. Based on the RoI expectations of the individual, the appropriate locality needs to be identified and reliable real estate sellers need to be contacted. Understand which area is likely to enjoy what percentage of rise in value in a specific number of years is a good place to start. This way you will clearly map your investment goals to available options. - Inability to diversify/liquidate asset:
There are countless people across the globe to whom sound investment is synonymous with land purchase. But as any investment advisor will tell you, it is important to diversify your portfolio across options that range from easily liquidated to less liquid or illiquid investments. Purchasing land is a less liquid form of investment. So if you put all your savings into buying a plot of land, when emergencies arise, you will be hard-pressed to find liquid funds for use.
Purchasing land is clearly a decision that needs to be thought out by every individual for himself or herself. Depending on age-old wisdom can be helpful in certain situations but when it comes to buying property, you definitely need to keep up with times and make an assessment based on current information and your requirements.
