EP. 5 | We Tried Rentvesting as First-Time Investors, Here's Where It Went Wrong

Julius

Since last year, I could say around 38% increment in discovery calls where the subjects are more towards the rent vesting, the objective is very important. You're doing rent investing means objective is to making enough money in next seven to eight years. So either you can sell everything and buy property on your choice suburb, or you can withdraw the equity for enough borrowing, you can buy another property in your choice suburb.

Mudit

There are 15,000 suburbs, so you are assuming, then you have to make an assumption that Brisbane is going to be the fastest growing suburb in the whole country, and the chances of that happening is very

Julius

low, exactly. And then you need to have a right mix of assets also. That's why, when you do a proper portfolio planning, you need to manage the cost.

Speaker 1

Welcome to the property portfolio podcast, where property finance and investing are broken down into real conversations, which have benefited 1000s over the years. The show is hosted by leading industry experts who bring different strategies to the table. Parag Dixit, chief strategist of infinity financials and prop wealth, has more than 20 years in the financial industry and is consistently ranked among Australia's top 10 mortgage brokers. Radit kandahal, Director at infinity financials, has two decades of experience and over 205 star client reviews. He's known for helping clients build strong property portfolios. Julius darbray, co founder of Prop wealth, has spent more than 15 years in real estate domain. He is a lead data researcher and has helped hundreds of people create wealth through property investment, subscribe to the channel and get regular updates on what's happening in the property market.

Mudit

All right, hello, guys. How are you? I'm doing very well. How have you been good?

Parag Dixit

Good, yeah, good, yeah, good, good, good. Week coming closer to the end of this year, are we been curious?

Julius

I'm doing good. Thank you. It's a bit busy wrapping up few things. Yeah, yeah. Fell go on holidays.

Parag Dixit

Oh, yeah, I know. I know what a year this has been. I think, you know this year, I think in my entire life, this year has gone the fastest just flew past me before you realize this year is gone, a lot happened. Yes, Lord, happened. A lot happened. Personally, I've I've traveled to from four or five countries this year, a different country. So every second month I've been traveling. Then there have been events within Australia. They've gone there, then, then so much has happened in the property market, in the mortgage market and rules changing investors, ruling the first half, first home buyers now, ruling from the last quarter or something. It's been a dramatic year, very, very exciting,

Mudit

very exciting. No, no, I completely I hear you and agree with you that the year started a little slow, and there was slow movement in the market, not too much, but I think, as the year progressed, last few months, and then, especially after the introduction of the first home guarantee scheme, the expansion by the government on that, that just changed the market. And the biggest change, of course, the interest rate cuts. And there has been so many, so much change around that itself. The year started, the rate started dropping. And then everybody was expecting there will be more rate cuts, even till a month back, it was like, there will be more rate cuts. But then suddenly, now the now, it's completely different. And now very, very high chances that the rates can go up, in fact, and the banks have already started increasing the rate. So the people are, I think it's been the game, mind games between people, and they're like, what's happening and what's going to happen next.

Parag Dixit

Keep guessing. If you're in the Gold Coast roller coaster, these are changing like every day, every day, every day. You believe it. You know you were talking of in maybe, I think in November or maybe late October, we were talking of three more rate cuts. Now we're talking of two rate rise. It's joke. Now, the way it's economy is changing. Nobody's to be blamed. But it's a weird

Julius

thing in significant certain changes in property markets as well. Start of the year was bit slower, especially towards most of the capital cities. And then mid of the year was dramatic. Yeah, I could see around 15, 20% growth in last four to six months. Yeah, that is not normal, even though the interest rates are not changing, still, inventory is low and market has significant first term buyer and investors impact. So next year would be different.

Parag Dixit

I'm very sure next year would be different, see, but again, I think next year is going to be even more challenging. I believe 2025 has been dramatic in that aspect, that a lot of things had started stabilizing, though they still went in a sine wave or something, but still it started stabilizing. The market went into some direction. The pre pullment of first to buy a scheme did change it dramatically, but maybe it's a relief for us. Otherwise you would have been working during Christmas period or something, but, but it's still, it's a bit of a different direction which it has taken from there, especially, I suppose the first home buyer schemes and the the property limits, which had got changed, that has been a dramatic game changer, because in lot of cities now, the properties are trying. Thing to come within reach. They're still not within reach. Not it's not a drama. It's not a big change with respect to amount of money, but it's a psychological, big change which has come in and that's driving people to now start buying faster. I read somewhere yesterday or day for news, it was talking about that even lenders, I don't know which ones, but there are some lenders where their SLAs have blown out because they've got so many first home buyer applications, you know. So it's a dynamic market. It's a supermarket,

Mudit

absolutely right? And I remember, Julius, you were mentioning some time ago that how Perth market, for example, has changed, and then it was slow, and then it has bounced back. And so there are so many different one on the finance side, and then on the property side, it has been just a roller coaster, like you said, yeah,

Julius

yeah, selected owner occupied, driven markets pricing in block size of $50,000 a month. That is what I could witness like, especially those suburbs which are more a choice above or more famous within owner occupied, it's very hard to find the properties there. And then owner occupiers are motivated because of the schemes, because 850, K, with that 5% have changed. Lot of barriers for a lot of people, and there is more confidence in a buyer's level. And that confidence was required because Perth was historically, the incomes are pretty good all the time, plus the inventory was extremely low. Only thing is, you need that push, and after that scheme, they got that portion, then it's crazy. Now, yeah, that's true. And says,

Mudit

I think that's, that's what is it is done. It's bought more confidence into first home buyers that I can, I can try, I can get something which I like. But still, I think a large, vast population of first home buyers are not able to get something which they like to live in some some matters of choices, some matters of of compulsion, because of various reasons. But, and I think that there's still a large number of people who can't reach where they would like to reach, in the cities where they would like to reach over. And that's that's still, it's still a way, long way to go before all first home buyers. You're absolutely right, Parag, and in fact, a lot more first home buyers, first first time buyers, actually, I would say, I should say they are looking at investing rather than buying the home they want to live in. Oh, really, the the number of such people has increased significantly over the last few years. So more people are driven towards it, and especially because of affordability issues with the kind of property that they want to buy a dream home that you have in your mind, it takes much longer to save for the deposit despite the schemes. Then there's borrowing constraint. Then there are other other things as well, where lifestyle flexibility of how you will do so I think a lot more people are are looking at investing, rent wasting, and that's the common term, right? We have spoken a lot of times about it. We do our webinars on that, as well as what people are doing on trend vesting. But this year, also, like last few years, the trend has been moving more towards that. But I think it's important to also keep in mind that trend vesting, although it is becoming more and more popular, a lot of people are talking about it. There's lot of buzz around it, but then there are some things to keep in mind that, is it a good thing for you as a strategy, or what are things to be more cautious about? Yeah, I think that's something we it's worth. It's worth understanding that, what does it take to get into this? And is it for me? Is it not

Parag Dixit

for me? So when, when you say that rent vesting, people have taken this up because of flexibility, right? It's all lifestyle. So I think that's where the the issue, or maybe that's where the birth of investing came up. Okay, I rent. I can't afford to buy what I want to buy, and hence I don't want to be away from the market as well. So hence, I now get into something where I can afford to buy. I may not live in it, but at least I'm not out of the market Exactly. And I hope that that property increases, so whenever it increases, I take my value out or sell it, or do whatever, and then I'm able to do what I wanted to do in the short or the long run, right? That's where rent wasting came into account. But it brings flexibility. That's true. That's That's correct lifestyle. So when you talk of lifestyle, it means, does it mean that it allows me to lead my lifestyle, or does it mean that I can, I can choose to postpone my lifestyle

Mudit

later on? Yeah. So I think that's a good point. So by lifestyle, what I mean is that where I'm living currently, right? So I'm, let's say I'm, I've just moved in, or I've just moved out of parents house, or just moved in, and I'm living on rent right now, right? So I choose a place where I want to live, that could be a choice of a suburb that I prefer this location because of, it can be of various reasons, right? I can I want to live closer to the city. So I'm living there on rent, right? Or my kids, I want to send them to a certain school, and I like that school and the suburb for that school, so I want to live in that suburb. Or my friends live close by. I want to live close to them, right? Yeah, I want to travel to office, and I want easy and fast commutation to commute to my office. I don't want to. And like hours driving to back and forth to the office. So these are some important decisions from a lifestyle perspective, safety neighborhood, right? The importance of the neighborhood living close to water or whatever, right? So there are so many factors in our mind when we're looking to live in a specific location, and then, of course, the kind of property we want to live in, whether I want to live in a two or two bedroom kind of small villa. Or I want a large backyard, so I want a detached, big house. Or I prefer living in a contained, you, a strata environment where I don't have to take care of any of the Yeah, I don't want to mow the lawn, right? So I would rather spend that time elsewhere. So the choice of all these factors is important from a lifestyle perspective. But the question then becomes is, now I want to live here, the kind of property I want to live in, the kind of place I want to live in, and I want to I That's my choice. But can I afford that? Should I should I be buying that first of all? So one is, can I afford that? That is one question. And if I can't afford then probably I can live on rent right now, but like you said, I don't want to even commit. Maybe that's also one thing I don't want to commit, yeah, but I don't want to commit right now, because three years down, five years down, yeah, I may not. I may not want to live here. There are changes happening in my life. I will probably plan family. For a lot of people who are just married and they're yet to plan family, kids will come in, and then where do you want to live in? All these can change. So I don't want to commit to that. So these are factors which are important. Affordability is important. How much savings do I have? Do I have the borrowing capacity? These become very important. And that's where the whole idea about, okay, I want to have this kind of property or this kind of house, but because of I want to postpone that plan, not do it right now, and I will do it five years from now. I think

Parag Dixit

one of the key considerations like you put out is that I just don't have the savings. So I want to buy a house in an x area, or an apartment in an x area, which I want to live in, and that is going to cost a million dollars. So I in, say, in Sydney, you even if you see with a 5% scheme, you need about, say, 50,000 plus. You need about 40 grand in stamp duty. So we call it grand, right? Yes, I've just got 40 grand. I've got enough income to be able to get a million dollar property, which is just have 40 grand. What do I do? I can't buy it there. I can't buy the place where I want to buy. So sometimes the savings becomes a big, big roadblock. I just can't cross that this. It's maybe the bank mom and dad can come in there, but mostly it doesn't. And when it's not, that's where we get stuck. Or I'm another big one is borrowing capacity. I want to live in an ex suburb. I my all my friends are there, or my family's there, and but the property is going to come for 2 million there, and my borrowing takes me to $700,000 what do I do? I'm too far off. I'm just too far off. I can't reach there. So that's a big constraint when it

Julius

comes to it, yeah, and a lot of people, there is a confusion about, okay, I'll buy something now, because I can only afford that much. Yeah. And then try to get in the asset which is, which is not exactly matching your lifestyle, but yeah, you are in FOMO, and then you have to buy something. And then people are trying to get into this type of a set.

Parag Dixit

Yeah. And classic confusion, right? Do I do I? Do I buy now? Or do I buy later? Do I buy something small and then I can upgrade myself later? Or do do? What do I do? You know, that is too many things, movies from buyer.

Mudit

Yes, that's, that's a lot that that is on people's mind, that there are and schemes are good, right? So standard duty waiver, up to certain limit and then 5% deposit. These are very good schemes. You can save somewhere between 20 to 4050, grands, depending on what you're looking for, not a small saving. But then the question is that if you're buying something to avail the benefits of the schemes, what are the things to keep in mind? Is that the right decision, is there something that you're missing out on that so, so that's the that's the confusion in people's mind all the time. And we talk to so many people, that's that's where it comes on, what your goals are, what is your strategy, and how do you move forward?

Parag Dixit

Yeah, and it's a, it's a, it's not a great situation to be in where you want to really get into something, you really don't want to miss out, but you don't know what to do. And that's, I think that's that bit of a that bit of a fear of missing out has given birth to the rent wasting as a phenomena, and people are taking up more and more to it. As a as a mortgage broker, I know maybe the number of conversations I would have had, maybe in year 2024 versus the conversations I'm having in 2025 I think 25 must be more than double of what I've been doing in all in the in the previous year. And it's it's becoming more and more popular. It's becoming more and more prevalent, and it's becoming more and more important. But on the other side, when, when I talk to those do the first of Myers, they also have this thing, okay, if I buy the investment today, or if I go into something today, will I miss out on the first home buyer schemes later on? Can I still avail that? Can I buy in a trust and avail that? Can I buy in my personal loan and still avail that? Can I buy a property in a different state, but I still avail my first home buyers and so. Benefits in my estate. This is a big fear of missing out, because you're right, the the it's very Luke, some schemes are very lucrative, very good, and why not get the benefit you can, you know, and you're allowed to do that. It's a it's a big fear. It's a big thing in mind,

Julius

yeah, even though what I witnessed is when the amount of discovery calls, which we are making nowadays, since last two to three years, since last year, I could say around 38% increment in discovery calls where the subjects are more towards the rent vesting, because those who are either missing out on something where they can't buy here or they can't afford to buy here at the borrowing capacity limitation, people are more aware about those type of terminology. Now and then more and more investors would like to get into that shoe that they want to get into the investing where they can invest their money.

Mudit

Yeah, I think you're right. So let's say pre covid, or seven, eight years ago, this term people didn't even know about this term was probably non existent, similar to like buyers agent, they didn't exist that time, right? So they, I mean, lot lesser people knew about it, but today, the conversations, the number of people thinking about it, is a lot more, and that's where the caution is very important that, yes, this study has worked for a lot of people. I know of a lot of trends. I'm sure you guys know of a lot of people who have this has worked for them. And we should also talk about that. How did how does it work? But at the same time, it's important to know that and to understand that, what are things to keep in mind? What are important factors, which whether it is suitable for you or not,

Parag Dixit

absolutely correct? And and see the factors are important, the the issues which come in front if you are important, the benefits which come into you in front of are important. But again, the because we are living in a social media world. The biggest thing which comes in, which catches somebody by surprise, and which catches somebody by the confusion they get into, is I know I can't get into my first home now, but I also know that in two years, my same the same property will be 10% higher, or whatever, so and I it will still be further away from me. So that capital growth, can I still capture it in some way or the other, that I'm not completely out of the market perpetually. So, you know, I'm out of the market because of a 300k gap in my borrowing capacity and my borrowing, if it doesn't increase too much, that gap is going to become 500k in two years. So it's going to keep on increasing. And that's that's my problem. I still want to be in there. And then we still find that there is, there are, this is law and there is the popularity of property investment still drives people in and still creates that huge amount of FOMO, which, as soon as new schemes come in, drives people up into buying properties, because you seeing in front of you there's a tangible capital grown benefit. Growth benefit, which people can see has happened in few years. And I think property has been one of the key wealth creators in the last few years, and which is which drives people to that? And there would be many, many, many examples of people who have started small, but have eventually gone ahead and achieved something which has been so strong, so nice, that they they feel that okay, I have been fairly rewarded with taking that path. And there are other ones as well, who, who've not got the desired results. But I think there are, there been many happy stories, and that's why this, this, this movement started off,

Julius

yeah, I worked with a lot of clients. When I speak to them, initially, the discussions are around, I'm not able to buy in Sydney, yeah. And then I would like to buy in Sydney in future. But how? Yeah, and that's how we have to build the strategies around it, yeah. So a lot of strategies are proven, like we worked with lot of investors, where the borrowing capacity is around 300,000 $400,000 and then amount of deposit they have is also limited. So around in 2020 21 when we have started talking to them that time, the borrowing would be around in between 506 100. Yeah, incomes are limited. Only one person were working, but they hope that okay, if we start working, and then they'll have more borrowing capacity, but at this time, I don't have I have very limited deposit. So we have started investing them in multiple cities across Australia and not in Sydney, because lot of other states were accessible. Yeah, started buying a property for them, and then in three to four years, their portfolio, in portfolio, added around four to five properties, all right, so the entire equity growth is very close to around six to $700,000 now if you want to buy something in Sydney after three four years. So it doesn't mean that Sydney's prices are stopped there, yeah, but they have enough amount of deposit which they can use to go for the entire Sydney home. So for an example, if you would like to buy one plus million dollars of property, they still have a $500,000 borrowing capacity. And then they if they sell everything, they still have a $500,000 equity sitting in their account which they can use towards their first home. So. These are, like classic examples of how we can achieve that from the interesting examples.

Parag Dixit

Oh yeah, that's that's a good way to put it. So what would I pick up from you in such a nice way you explain that. So I have bought a property in whatever time, and after some point of time, we know that the properties values have grown up. So in last six, seven years my the the property which I would have bought six years ago has grown Gone. Gone up by 60% 70% 80% and now. But what I've also done is I write I was riding the wave. I bought some properties in some other states, and I was riding the wave, and my equity growth is giving me still the place where I would have been few years ago, but in the house which I like, so I may still be at a 500 600k kind of an equity position. So I withdraw that, I invest that into the owner occupied, which I'm buying. I'm still at a half a million loan. But in the house, the kind of house I would have liked to be, which I could not have been at that point

Julius

exactly, exactly, and that's the beauty of threat investing.

Mudit

I think you're right there. So especially like if you're not able to buy your dream house today, but you start small. That's the whole strategy about reinvesting. You start small with a small property, it goes up in value. So instead of not investing, not taking any action, and just waiting that okay, I will buy my home three years, four years down. You can't just base it on hope that, because property prices are going to go up. So reinvesting strategy works in exactly that way. Is that you invest that money in a high growth kind of scenario. You start with a small property, which is more in your budget, more in your borrowing capacity. It goes up in value. Use that equity. Buy one more if possible, and then in the next few years, depending, again, it's not general for everybody, but yes, that's how broadly it works. And then use that equity, buy another. Use that equity if you can buy another. And then eventually, although the dream home has gone up in value, but your equity growth will take you there. So that's how the reinvesting strategy has worked for a lot of people, and that's where people want to be in right now in the process, what people what we have to realize that, what to avoid, and what to keep in mind, what, what could go wrong. And those are important things. And I think that's where we need to focus today on. Yeah, absolutely right.

Parag Dixit

No, I think it's very easy to flow into the good examples. You know, we can always talk of X and a Y and a Z and a John and somebody else who's done good and who's done who's made money and who's done this. And you can always hear these happy stories in the media from so many buyers and mortgage brokers or people who are in the various segments. But eventually, we need to know what can go wrong. And there are even worse stories as well, where people try to do that and people have failed. So it's not that it's only, it's only the good, good, good, which has existed a lot of bads has also existed here. So I remember so many clients who, who would, who would jump into something just because they wanted to get a first home buyer benefit, and just because they wanted to get a first home buyer benefit, they would say, okay, my first home buyer benefit comes in this price range. So whatever comes in this price range, I will go and buy it. And when you go and buy something like this as an asset, there can be a number of wrongs which can happen when you're saying, Okay, I will just buy my borrowing capacity allows me to get $600,000 in a few I think few years ago we, if we still have that scheme, the first home owners grant of 10 grand, which you can get in Sydney. So you have to buy a something brand new within $600,000 so you would fit around your requirement into buying. Say, I remember a client who bought a studio apartment in paramatta, if I'm not wrong, and he had obviously him wife and two kids. There was no way on earth they can stay in a studio apartment. It's studio so. But they bought a studio because that is what they could buy within 600,000 because they wanted the first home buyer, first home owners grant, plus the first home buyer benefit, plus the plus, obviously the stamp duty benefit. So eventually, for a $600,000 property, if I'm not wrong, they would have paid what, nothing more than 20 $25,000 because 10 grand came from

Mudit

the first 10 grand, 20 grand, the grant from the government, oh, believe it or not, it has been so lucrative, so lucrative that it's like, oh, free money. Why should I not take it? Right? It's like, when the government is giving free money, I have to take it. It's not whether it's the right thing or not, but you're absolutely right. That has people don't realize sometimes and miss out on that the kind of property or the kind of asset they are buying, $10,000 coming free money is good. But if the property you buy, if that is not gonna keep pace with the market, then you might be under a lot of more money. I mean, if

Parag Dixit

it's a subpar asset, see, it's. The properties on its own is not bad. It's a studio apartment. It's made for a purpose. It's made for a bachelor to live in there. I trade for something like that. But as a family of four, it's technically a subpart of asset for you, because it's not going to serve your purpose. You've gone into it to get some benefits, and then you struggle, struggle in your daily life. And so that asset then puts you in a weaker position, because you bought it for all the wrong reasons. You, you, you could not afford anything else. You bought something which is, which is not suiting you, and when it's not suiting you, you are now getting into trouble with, with something, with with that. And then you, you, you've got an asset which is not showing any capital growth. You've got an asset which is struck where it is because it was purpose built for something else. It was not built for having a phenomenal capital growth. It was built for people to rent and live and work there.

Mudit

I think what you're saying Parag, is right, and I've seen that a lot of people make this choice of they have that in mind that okay, I am going to rent vest, but I will buy this asset right now to get the first home buyer benefits. Yeah, so that. So then you tend to buy it where you're living you get the first home buyer benefits. And eventually you people have that in mind, okay, because the scheme, schemes are like most. Mostly schemes are like, you have to live in it for for a year at least, and you can't rent out for a year. And people then think that, okay, after one year, I'll rent it out. I'll just put it on rent and I'll go on rent. So ultimately, the objective is, okay, I'll move on rent and make this as investment property. But because I'm getting first home buyer benefit, let me buy this property. A lot of people have done that, and the biggest challenge with that is, because you're going for that scheme, if I'm, let's say, if I'm living in Brisbane, then I will have to buy this property in Brisbane. Yeah, in my archive, in my backyard, you have to buy in Brisbane, because then only you get the benefits. But now the problem with that is, okay, you're taking it for the benefits, but then, because ultimately you have investment in mind. But the challenge is, there are 15,000 suburbs, so you are assuming, then you have to make an assumption that Brisbane is going to be the fastest growing suburb in the whole country, and the chance of that happening is very low, that the city you are living in that should be the fastest growing in the entire country. That's that's not going to happen.

Julius

That is where a lot of investors fail. That is what I've seen. Because research is the key. Every market across Australia will always run in the timings. And there is a market Cycle Timing which you have to follow. So as you say, like there are more than 15,000 suburbs if you don't do your research properly. And if you're getting into the market where that market is already past their cycle, and the next cycle, maybe in next 456, years, then if you're buying that asset, it will not help you to build your generational wealth, because you're not ready for the next one, because the property is not growing, you already paid the highest price for the property. Or there are lot of people who are trying to get the properties on the same street where their entire market is flattened out and because of the excessive supply, reason the property market is not booming. So if the research is not correct, in that case, you will end up buying something which will not give you a good capital growth or good cash flow. That means you're stuck with the asset which is not growing either, and then it is even though too much of negative as well. So that research part is very complicated, and then that is where a lot of people are

Parag Dixit

failing absolutely so you you bought an asset. You bought into something because of an emotional thing, or because just wanted to rent waste or as well, right? It's not only the first home purchase which is wrong. I wanted to rent waste so I didn't know. I had no experience, I had no professional advice. I had I didn't talk to anyone. I just thought, okay, I can buy for $500,000 so let me go on the map and wherever it is $500,000 let's say Done, dusted. But that area didn't grow. That area doesn't grow. You don't get capital gains, capital growth benefits. You are in the negative the you have a high negative cash flow coming in from there. You don't know what comment policies exist. What is changing in that state, how it is changing, how it is impacting what kind of income, which you can get from there. So all those issues are getting get bypassed. And we've seen that being done by the first home buyers. When they start suddenly want to get into into a rent wasting scenario that I want to go there and I want to buy, and you buy in one out of the 15,000 suburbs, and into some property out there, just for the price range, and then you make a mess of it, and it's kind of, it's a scary situation, because you don't buy assets. It's not bag of chips, right? You don't buy assets just like that. You you buy, most people in their lifetime will buy maybe one or two or three houses.

Mudit

That's it. Yeah, and when, when you buying a vacuum cleaner, which is $1,000 $500 right? People spend hours of research into it. They talk to their friends, they'll talk to they'll go on Google, check the reviews, they'll go to good guys and talk to the agent and ask them about everything, and they'll spend five hours on that. But when it comes to probably, it's, it's not a $500 it's now $500,000 So it requires 1000 times more research. So I we got, I can't, I can't, I can't focus more on how much research needs to be applied.

Unknown Speaker

In the sense that research is not only

Parag Dixit

about the asset which you've got. So you bought an asset in an area, so which exit in an x area, but you've not only lost out there, but you lost out on opportunity cost as well. Because there is another different area where, if you would have known, or you could have got research to back you, you would have been able to invest there and made much more money in capital growth, versus this area where you've not gone ahead and bought something and now you're stuck, you know, you just can't get out of it.

Julius

Yeah, the classic example of that opportunity cost is, like lot of people buy something which is going to settle in next two years, and they're going to build it. Yeah. So you know that, okay, you have to do that. That means you're stuck with that asset. It will take two for an example, you buy land, it is going to register in next two years. That means you can't buy anything else till that. And then there is a lot of uncertainty after that. You have to take, you have to wait for another years to build. That means you're losing the two to three years of period because of that one asset that is, like kind of very bad asset, which you can choose, and you lose lot on the opportunities,

Parag Dixit

absolutely right? I think off the plan apartments or home and land construction, but typically off the plan. They are, they have been, they've been good. Lot of people have got a great capital growth out there, but what it brings to you is a lot of uncertainty with it. And when a first home buyer would want to buy something in their own backyard, it's still easier, because you can keep an eye on it, but if it's in a different state, you just don't know what's happening. If you buy it as an investment, you don't know what kind of an asset you got into. You don't know how when it will settle. So for one year, two years, you just can't do anything. You you know that your budget is limited, so you can only afford to get this one but then you realize that there are other, some fantastic opportunities which have come along the way, and you can't go in there. So you are it's a very cagey situation that you can't do much about, and it's not something which you can come out of it. So off the planned apartments have also been contributing to some of the huge mistakes rent vestors have done while doing rent wasting when they are doing that, but where they didn't do the due diligence, or didn't realize how long it's going to take for them to stabilize, or how long it's going to take for them to be able to actually get that property. And then you it's gone. The time is gone,

Mudit

absolutely right? And this is this has come again and again. This is not one of scenarios. I mean, you you read media, you read news articles, and there are so many cases where people have lost out like that. And some of the risks to keep in mind are, there are inherent risks in off the plan, whether it's a unit or a household or whatever, right? So inherent risk, developer related, financial risk. So, I mean, there have been a lot of examples developer related, what if the developer or builder goes bankrupt, right? So bankruptcy has been happening. It's not new. Last few years, you see the small, medium size, large, a lot of builders have gone bankrupt. So you but knowing and being aware of whether the builder you are choosing or the builder who's building that, what's the what's the balance sheet, like, how's the P and L statement? That's not easy for you to know. So that that you will never know. Second risk is that there could be lot of delays, and we have seen that a lot of examples where the projects have been delayed by not not weeks or months, but, like, years. So you are living in that uncertainty. Also, when will your house get ready? And that's a lot of stress back of the mind as well. You have, you've thought about that. You're going to move in six months, but then it's going to take one more year. Third is quality of construction. So what you have been shown is a promise, right? So you were shown some some unit which was ready, and that's how it will your house will be, but your house is not ready yet. So whether it will be of the same quality or better quality, that's always a risk. And another builder side risk is that there could be escalation of price. So whatever, you can't make it 100% watertight the contract, there will be always some clause there, because of which a price rise, a fee escalation can happen. So you have to keep in mind that these are the risks you're taking. I'm not saying that these are not for everyone. Okay? I, as a person, can choose that. Okay? I have the risk appetite because I'm getting probably a 50 grand cheaper property because of this. But then I have to be aware that my risk and I'm okay with these risks, right? So I think these are something that definitely to keep in mind.

Parag Dixit

Yeah, this comes in with home and land construction, where you know the land is going to register in some point of time in the future, and you are not able to, you don't really you underestimate the costs which are getting into it. You underestimate the builder selection. You don't do the builder selection properly. And eventually, a lot of people who go into investments and want to invest in a different state and a home and land package or something. Because the classic bit which comes in here is what I've realized in all these years is I have only 40 grand so and but I know I will have a bonus coming in next year, and I will my partner will have a bonus coming in next year. I'm getting some money from somewhere, so I will have 100 grand next year. So let me buy a home and land package. I'm going to buy it in today's prices, because I only need to put in 30 grand, 40 grand right now. Know. So I do that, and I later on, when the money comes in, I'm running a huge financial risk, because I don't know if it comes in or not. Assuming it goes right, it's good. If it doesn't go right, I'm in bigger trouble. But assume it goes right, I buy an asset, and I get into all these issues. I had underestimated the price. I had builder issues, which come in, and that drives me into one of my worst mistakes, which I have done. And this has come in the post covid environment. This has come to come to the front so many times with so many people where they got caught out.

Julius

Yeah, and opportunity cost is a classic example, too. Because when you when you build a portfolio with the certain objective, that means it's a time bound activity. If you're losing 234, years of good market cycle timing, where you can invest somewhere which markets are growing, then you can actually make good money on your portfolio. Yeah? But if that is restricting you, yeah, then it's, then it's a problem, yeah? Then only a one asset which is and you even don't know whether it will be growing

Mudit

or not, correct, yeah, true. And along with it, there are. So we're talking about the risk. Along with that comes the financial risk also, like you're saying, right? So my circumstances can change 100% that is a possibility. Second is external market can change. There are with the way the unemployments are changing. I mean, the rates are going up, and the banks are changing their policies. The interest rates can change. We have seen that in recent past itself. So today, you imagine that, yes, you have the borrowing capacity to buy this. But two years from now, if the external market changes, changes happen with your job, your employment, and suddenly you might be caught out. What do you do? Then you have 10% you have already committed to that property today, and in two years time, if you're not able to settle that because of changes in Financials, either yours or the larger policies and macroeconomic environment, then you just got out. What do you do? There's no recourse.

Parag Dixit

It has happened right post covid, when there was an issue in the building industry, and builders were going bankrupt like crazy. At that point of time, we had so many people who had booked lands, bought lands, interest rates had risen like crazy. When it reduces 6% six and a half percent, kind of rates that we had reached. Borrowing was too short for people. Very, very short. They just couldn't settle on the off the plan land, which they had got, an apartment, which they had got, they just couldn't get a loan for it. And so many people lost out on money. Builders helped a lot of people. I know a lot of people. They gave an extension. They did what they can to put some comfort around it. But eventually, so many people lost their deposits. So many people lost their money into it. Those are bad decisions which you've taken, because maybe circumstances change it. But eventually, when you go too far into the future and you don't know what's in front of you, as a rent vessel, as somebody who's coming into the market for the first time, who doesn't have a plan B, yeah, of what I'll do if this happens, they get, they get really stuck into it, yes. And then that that that may be either the greed or the lack of knowledge, or the lack of opportunity or the lack of you know information, it hits you, right? Big time. Hits here, right?