Saturday, 13 February 2016

Home IS where the Holy Grail is

This is a late post. Late by many years, considering how old my thoughts on this one are and how the property prices have ballooned. But if you have read any of my earlier posts, by now you know I am a lazy writer, so blame my moods not me.

A few weeks back, I read this post by Jason Zweig. If you read it, I do not need to write on the emotional aspect of owning a house any more. But, there has been too much chatter on why investing into a house is not a great idea. Too many people who claim how pure equity investing is Oh! So much more lucrative and better for you as an investor.  Too many people glorifying the fact that renting it out is so efficient for your portfolio and may take you to heaven when you die. Now, don’t you get me wrong! I haven’t been paid by the builders to write this post nor am I trying to seduce you into Real Estate. I am better off evangelising mutual funds over Real Estate any day; at least the former is healthy for wealth creation and fetches me a cute pay check at the end of the month too.

Before you read ahead you may want to know that:
  •  I am not a fan of real estate but strongly believe in owning one debt free house in which you  aspire to live immediately or eventually.
  •  This investment should be done as early in your career as possible.
  •  I am strictly against buying many properties for rental income. It is like buying a dairy farm    when you need 1 litre of milk. In short, you have better options for ‘side income”.

Now that I have fairly immunised myself from hearing your criticism for recommending real estate, I shall try to tell you why investing into a ‘home’ is much more than just that ‘investing’. It is a way of life.

Most of us have read about the renowned investor Rakesh Jhunjhunwala, about how he sold his CRISIL shares in 2005 for 27 crores and bought a flat at Malabar Hill. If he had remained invested, that money would have been worth some 600 crores by 2015. The flat at that time was worth some 65 crores. This story has hindsight wisdom written all over it. Imagine if instead of CRISIL he had shares of Hindalco. 27 crores worth of Hindalco shares would have been approximately worth 18 crores at the end of 2015. This story reeks too much of survivorship bias. Also, what he did made his mother and wife much happier. He probably saved his marriage and ensured that his mom continues to make the best Dal Baati Churma for him. Jokes apart, no stock market returns can parallel the happiness of your near and dear ones. Sometimes you do things to comfort the people in your life who matter. When you enter your grave, nobody will remember how much CAGR you earned on your portfolio but people will remember how much love and respect you earned from those around you.

I had come across these beautiful lines by Prof Robert Shiller in one of the articles “A rental doesn’t have the same permanence as an owned property. There is an instinctive sense of territoriality shared by people and animals that a rental probably can’t fully satisfy”. Did you know many animals mark their territory by peeing in that area? We are then humans for god sake. The most evolved thinking animal. Homo sapiens have that natural tendency to mark their area too. Not by peeing of course but by buying it. We are quite decent that way. The emotions, the sense of belonging, memories, attached to a house that you own can never be matched by a rented property. I remember the TV ad of a Housing Finance Company, where the child is colouring the walls with crayons and the mom lets him do by saying ‘Apna hi ghar hai’. You don’t have to be careful where you hammer the nail for that painting, that the wall colours are not as per your taste, that the windows need attention but the landlord has no time and you are not willing to change them as you only pay rent. Owned house, however small it may be feels home but a rented apartment however magnificent it may be; will never make u feel the same. Partially may be but totally, nope.

Another ludicrous suggestion I read off late was to invest into equities in formative years and then buy a property in late forties, assuming you have built wealth investing by then. I found it quite cute the assumption that you will continue with your job and high salaries to be able to pay EMIs in your late forties or early fifties, when I see voluntary and sometimes forced retirements all around me. By late forties, you may have gotten used to a certain lifestyle which could be difficult to cut down with the huge expenditure of a house and sudden erosion one will see on their liquid portfolio (for a drawdown to pay for the house). If the same house is bought early, you learn to live within your means. One tends to work out their lifestyle accordingly. Stable EMIs with rising salaries only further helps to improve one’s standard of living. Also, rent is nothing but a sunk cost. The lower the better, even if you are claiming tax benefit, it remains money spent which did not build you an asset. I wonder how many of us are truly judicious with our disposable income, most of us end up spending on too many things to impress others and depress our investments anyway.

Leverage if used efficiently and prudently is one of the most beautiful financial concepts to my mind. Reckon, that leverage when used to buy a property fetches us tax exemption but the same leverage used to buy stocks popularly known as derivatives is considered a taboo by many a prudent investors. Warren Buffett has rightly called them the ‘weapons of mass destruction’. What is important to my mind is the leverage multiple when you buy that mortgage. To put it simply, it is the Total Loan to CTC ratio. The essence is to keep this multiple in check. Stretch it too much and suffer sleepless nights, too low and you probably look foolish few years later for having bought a property much below your aspirations. The look, feel and comfort of a tangible asset can be very satisfying and will continue to remain so at least till the time you are able to stay in those demat accounts where you run huge leveraged positions. Can u ever comprehend leveraging yourself heavily year after year to buy the most convincing stock ideas? It is an extremely specialised field and requires phenomenal skill to make money out of leverage trades in markets, but owning a house does not need any special skill. There is a surety that after paying a certain number of EMIs, I shall have a roof which I can call my own.

Staying on rent forever with a great equity portfolio sounds quite exciting when you are young.  Do you want to take a minute and imagine getting old??? Trust me, when you get old this same idea may sound criminal to your mind. One does not have the energy, patience, willingness or strength to endure the burden of a rental home. Because all said and done, you still remain at the mercy of your landlord or land lady who may decide to pack you up if some eventualities arise. Also if you are pinning hopes on you children to stay with them at that age, you may also want to pin hopes on night outs with their friends. The moot point being, have no expectations from anyone but you.

Another argument I usually get is: But, I do not intend to stay in this city. I am working here and I need to access the best facilities while I stay in the best of locations. Ok. Fine, I see no problem in this one. A very valid argument, but ever heard of the word ‘future-planning’?? So plan, decide and buy a livable property  in some corner of the world, be it Timbaktoo, as early in your career as possible. The place which will shelter you when you are out of this rat race rubbing tea tree oil on your weak knees.

I can at this juncture entertain disagreement in this entire argument depending on who is buying the property: Salaried person or a Business person. I am kind that way. When the stream of income is pre-defined like in case of salaried employees, buying a house makes more sense. But if you are living by the adventures of self -employment or upcoming business, etc. renting it out and not hurrying into buying a house can be a more logical thing to do. As your return on capital employed in your business will be far higher than blocking money into a house (Or so I hope and wish is the case with entrepreneurs)   

Reverse mortgage is another fantastic financial innovation. Where a couple gets a stipulated amount every month depending on the value of their property and when they both die, the bank will offset the accrued interest and principle of the annuities given and whatever remaining is passed on to the rightful owners. I am not saying this is the most efficient or cost effective tool but all I am saying is this benefit also exists. Why would I want to leave my house to my kids after I die? Why can’t I instead, live a better life even when I get old with zero expectations that my children should bear my monthly expenditure, medical bills or cost of travels? I personally aspire to give them the best education and then leave them to fend for self. Sounds great, till they don’t read this!

Your wealth can dwindle, plans can go haywire, money can be philandered or lost, businesses can wipe out, medical ailments or court cases can leave you broke but a house remains. When I was a child, I remember my dad suffering a huge business loss. Eventually, it stripped us of all our savings but the house which he had bought in earlier days stayed. He was desperate to sell it and get rid of the bad loans. I remember having prospective buyers at my home but my mom would send them away, saying the house was not for sale. The house remained. It also gave us a reason to be in the city and fight it out. My parents together struggled, suffered but the house remained. We sought comfort in the fact that we eventually have some final asset left to bail us out of the mess. That gave strength. The house was our strength.

I gravely deride all the suggestions of 100% equity investing and firmly believe in owning a tiny abode somewhere. It will leave you with reminiscences and peace of the unmatchable variety. Go Get it.


  1. Aptly said. House is very very a necessity for happiness, social standing and investment. For surviving/winning in stock market one requires lots of commonsense(genius). I am investing in stock market since 1992. Surprisingly, real estate investments gave more than equal returns than stock market returns.

  2. wow... now this article is making me seriously think of d all equity part in young age... what if equity mkts dont move +vely for nxt 10yrs... what if salaried Investor is considered as businessman??..

    1. I am glad if my writing has set you thinking. Remember the golden mantra 'Asset Allocation'

  3. So true ... Even on an emotional count a 'home' gives far better satisfaction then a fancy 'house' - Phoram

  4. very senti end to the post like in movies.

  5. Very well articulated. Thanks Yamini.

  6. I would suggest that person live thru at least 1 bear market in equities maintain an excel to calculate CAGR post that then decide on house investment based on reality. That's like taking the middle path. It has worked for me. No EMIs & a house to call my own.

  7. BTW, on the Ad, its Dad & not Mom who lets kid scribble. Is "Women" allowing discoloration on house walls possible? :)

    1. Oh is it!! I just recalled vividly the statement, who said is immaterial :) the strong connect with 'apna hai' is beautiful!! thanx for reading