Some ideas look bulletproof at the first instance. It is only over time that one recognises the idea for what it is - a lemon!
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I’m going to talk about two lemons some people hold in their portfolio and rue their decision later.
The two purchases I’m referring to are - a holiday home and a retirement home.
A terrific idea that looks terrible later-
You go for a holiday and love the place. You dream of a home in that place to which you could retreat to, from time to time. The dream becomes a resolve and you scout around for a suitable pad.
The dream merchants selling holiday nirvana will come up with that “last property” in that area, set near the forest or the hill.
They would no doubt ask you to count your blessings at having found such an ideal property, that is rare to come to market!
You ofcourse buy their dream pitch and the home! The home needs a bit of maintenance, some improvements, a lick of paint, but otherwise is good.
A bit of capital is required for these, but what the heck… why are we earning all this money, if we can’t enjoy, right?
So, that’s how we convince ourselves and the dream holiday home is ours.
The first holiday in the home is infact a dream. After that holiday, you rave about it to anyone who cares to listen. The second time around, probably six months later, the ardour is a bit less.
The reason - after six months of no use, the property seemed to have atrophied, mould and cobwebs abound, and the freshly painted home does not look that pristine.
It takes a bit of cleaning to make it livable.
The third time, the story repeats itself. After that, no one seems really interested in going to the same place again and again.
Also, the missus is put off by all that extra work which she has to put in, or supervise, on a “holiday."
The visits after that are really far apart and sporadic. After a few years, more maintenance is needed and that calls for further infusion of capital.
You wonder then, whether it is all worth it at all… you hunt down that broker who sold you that property. He eagerly responds thinking you want to buy another home there. When he hears that you may want to sell, he hems and haws and talks about how difficult the market is.
Later, you find that getting across to him itself is difficult. You find other brokers who quote prices that are two thirds of what you bought it for, a few years back!
You now know that you may not even be able to sell it. You then know that it is indeed a lemon.
Had you not invested in this holiday home, you could have pretty much holidayed anywhere. There is no issue of going to the same place, just because you bought a home there, no maintenance, and no extra expenditure on the place.
The painful realisation is that without this holiday home, things would have been pretty simple, much cheaper and truly delightful.
Setting up one for retirement -
You have heard of these nice retirement homes and the thought of lying in the hammock, nestling a drink, like they show in various pension plan ads, seems like a great idea.
You visit one such development and it looks fantastic. The place is operational and they have a swimming pool, yoga hall, walking track, central canteen as facilities for inmates.
The home itself is self-contained, senior friendly and will be maintained by the property developer. You are impressed. The property does not seem to be too expensive at Rs 70 Lakhs either, at least compared to the crores of rupees you need to pay in metros.
The builder helpfully suggests that you may live in the property for 3-4 days after which you can take the decision.
What’s more, the builder is willing to rent out your property for you!
You buy the property. You do get a rent of Rs.8,500 pm. But the outgoes are Rs.4,000 pm. You are happy that you don’t have to pay anything from your pocket and you have ensured that you have a good place to go to in retirement.
But look at these other facts - you have invested Rs 70 Lakhs and are virtually not getting anything from it.
The only returns you may expect are in terms of capital appreciation.
But, capital appreciation is also not going to be robust considering that the location of property, which would be somewhere outside the city, and the people who are opting for retirement homes are on a budget.
You are 17 years from retirement and by the time you go there the property is old and may require maintenance.
You also cannot be sure as to whether you would really like to go there after 17 years - a lot can change in the interim.
Overtime, better properties with better amenities would come up, which may be more appealing and suitable.
All in all, buying a retirement home now for retirement after a longtime, is a bad idea.
But this is another lemon one can find with many pre-retirees. But many have still not realised that it is a lemon, which they will, over time.
So, you have heard of two things to avoid. You are forewarned, if you are considering any one of these!
Suresh Sadagopan is a Certified Financial Planner and runs Ladder7 Financial Advisories, a fee-only financial planning firm
First Published: Jun 7, 2018 6:00 AM IST