Comfort Zone For An Investor.

We are always urged that we must not live too much in the comfort zone.

What is comfort zone for an Investor?

For me, excess liquidity is a comfort zone. I have lived most of my life carrying big debts, taken for borrowing big ticket asset acquisition – that always created the excitement, the Mojo in my life. In some way, that also created the zeal to keep working in the profession instead of taking voluntary retirement at 40!

So as Investors, our goal should be to always have some debt that has been taken for buying some asset. As an Investor, you always have to leverage your future savings today. That is living out of comfort zone for an Investor.

So, excess liquidity creates comfort, which leads to discomfort. This discomfort has to be tempered with patience & preparation. Otherwise one takes hasty decisions which lead to regret & losses.

Investment is not just a financial science. Human Psychology plays a very big role in your financial success. Hence I urge you to read more about Human Psychology & Behavioral Economics if you want to be a successful Investor.

Why I love real estate?

One of the most traditional and time test avenues of investment has always been real estate. In the bygone era , a person’s status was judged by the real estate that he owned.

I am a conservative investor who wants steady returns. But I am patient, and wait for the investment to mature and start yielding fruit. I started by investing in an office to set up my CA practice. We were 3 partners having total savings of Rs 15,000 in 1989. At that time we bought an office worth Rs 15 Lakhs. 1% was our own contribution (Equity) and balance 99% was loan (debt).  We almost made an IPO to raise debt! Today the same office will be worth almost Rs 2.5 Crores.

The chances of going wrong with real estate in a growing economy like India are very low. In the long run it always pays off. In case of shares, certain shares lose 100% of their value over time. I still own a few shares which are not worth the paper on which the share certificates are printed. This is one major feature of real estate that suits my temperament as a conservative investor.

Real estate is also called ‘immovable property’. Once you have invested money in real estate, it is not easy to give it away and fritter your money.  If you have too much liquidity, there is a chance of frittering away that money. However, once you have locked your money in real estate that risk is reduced significantly.

God stopped manufacturing land a long time ago. This is a favourite quote of investors who love real estate. So the supply of real estate is fixed. With growing population and a growing economy the demand for real estate keeps on growing. This drives the prices higher and higher. Sometimes the prices become unrealistic and then there is a price correction. So it depends on when you enter the market. Bubbles get created and as an investor you should have the patience to wait for a good deal and the courage to walk away from a bad deal.

One of the best features of real estate is that I can buy real estate with my future savings (debt). Bankers love real estate as a security and are willing to lend you money against security of your real estate. Secondly, personally, i can enjoy a peaceful sleep if I have borrowed and invested in real estate that is generating me cash inflow by way of rent which I can utilize to pay off the interest and the principal amount. I would not be able to sleep well if I borrowed and invested in shares.

Real estate also gives me an emotional pleasure of ownership. You do not get the same pleasure on holding the Demat Statement of your shares as you get walking inside your 10,000 sq. ft. office which is leased out to a MNC.

Do you love your chosen avenue of Investment?  Leave your feedback and suggestions below as a comment.

Why do I borrow?

My father was a traditional businessman – very conservative in his approach. He never borrowed in his life as borrowing was considered a taboo in the times that he grew up. He used to say that one should spread his legs as per the size of his blanket. He used to lend money; never borrow. I had just qualified as a CA and started my practise, when my father suffered a huge loss due to default by one of his borrowers. This set me thinking. Why should one lend money? It is better to borrow.

Here is my take on borrowing.

• Savings will never make you wealthy. People who have built fortunes have done so by building a portfolio of Investments. Rich industrialists have always borrowed. It is the middle class that has lent them money through the Banks. So who is wiser?
• In an inflationary economy the borrower always wins and the lender loses. So why not be on the winning side?
• I get a thrill in buying assets which I used to think are out of my reach. Thanks to borrowing, I am able to buy really BIG sized assets today.
• The time and effort required in finding and nurturing an investment is the same, whether your investment is small or it is big. So why not buy BIG Investments?
• I find the task of continuously looking for saving / investment avenues quite stressful. So if I have a surplus of say Rs 1 Lakh a month, I find it cumbersome to think every month about where to invest this Rs 1 Lakh. I would rather borrow Rs 40 Lakhs and repay the debt along with interest in the next 4 years. So the Rs 40 Lakhs borrowing is not a debt/ loan for me. It is my future savings that I am bringing into the present by borrowing.
• Borrowing gives me the motivation to work and find avenues for early repayment of loan and start the next round of borrowing.
• I cover the fear of borrowing with a term insurance policy on my life. So if something happens to me, the loan will be repaid by the insurance company and my family will get the asset without any liability.
• I believe that borrowing capacity too is a currency that must be optimally utilized. Your debt repayment track record and reputation enhances your borrowing capacity for the next round.

Let me caution you that I have never borrowed for consumption or for buying a depreciable asset. I borrow to create assets that provide me cash inflows. As I said, I don’t borrow; I use my future savings today. Thus for me borrowing is not a risky affair. My loans are repaid from Ai as well as from Pi.

Do you borrow? How do you repay- from Ai or from Pi? Do you have a plan B? Do you measure your borrowing capacity at regular intervals? Look forward to hearing from you.