Subscribe to enjoy similar stories. The claim that "real estate investment never leads to losses" is one that circulates frequently among investors. Many people are convinced that holding on to a property long enough will always result in a profit.
But is this true? Let’s consider a real-life example. A friend of mine owned a property for which he was getting offers in the range of ₹4.25 crore to ₹4.5 crore. However, he was determined not to sell for anything less than ₹5 crore.
He held onto the property for five years and finally sold it for his desired price of ₹5 crore. On the surface, it may seem a successful investment. But did he really strike a profitable deal? We’ll find it soon.
Investors often assess losses or gains based on the purchase price. If they sell a property for less than what they paid, they consider it a loss. If they sell it for more, they see it as a gain.
While this simplistic approach holds some merit, it neglects other crucial factors, especially the opportunity cost and the time value of money. Also read: Why history tells us to beware the IPO frenzy Where real estate prices fall, many investors are reluctant to sell their properties at a loss. They hold on, convinced that prices will recover if they wait long enough.
This mentality gives them comfort because they equate not selling at a loss with not suffering a financial setback. They wait for the market to offer a price that meets or exceeds their purchase price before selling, reinforcing the belief that there are no losses in real estate investments. What many real estate investors fail to account for is the opportunity cost, or the returns they could have earned from investing their money elsewhere.
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