Smart ways to invest and attain early financial freedom


You need to read this note till the end to get to the investment opportunity.

Unlike stocks, identifying land to invest is comparatively easy in India. Due to urbanisation, most urban lands would appreciate in value by at least 15% per annum as long as the titles are clear.

Here is how one of my friends managed to make a great ROI.
Having worked in the IT industry in Bangalore, this person had Rs. 1.9 lacs ($3650) in his savings account. All of us know that this amount is not enough for investing in land in Bangalore.  However, unlike most of us, he decided to do something about it. He sold some gold (worth 1.5 lacs / $2850), took a few bank loans (8 lacs / $15400) and saved aggressively for two months (another 0.6 lacs /$1150) - he thus managed to have a capital of Rs 12 lacs ($23000).
When you need funds – they say you can go to FFFF stands for “family and friends” (there is also FFF - it stands for family, friends and father-in- law). So this friend of mine followed the FF route – he borrowed Rs. 6.25 Lacs ($ 12,000) @ 10% interest cost.  Most of these loans were for one year duration.
So starting with Rs. 1.9 lacs ($3650), he managed to get ten times that amount - Rs. 18.25 lacs ($ 35,100).
As he was arranging funds, he also identified cheap BDA plots (BDA stands for Bangalore Development Authority and the plots sold by them are legally clean and hence safe and easy to sell).  Unlike most of us, he took the route of the smallest plots available (20*30 ft plots) -he  identified two localities in the outskirts of Bangalore – and  he bought two 20*30 ft plots  of land between Feb 2012 and April 2012. His logic of buying the smallest plots available was that most plots are 30*40 ft or 60*40 ft and hence these small plots would be a rarity and so will have lower competition while selling (and he was right). He registered the two plots for a total of Rs 24 lacs ($ 46,100). As he fell short of funds, he enlisted another friend, interested in investing in land, as a partner for 50% share in one of the two plots for Rs 6 lacs ($ 11,540).
As he had to pay back the loans after one year, he put the plots in the market within six months of buying them. To his surprise, the prices kept going up every month.  And finally in December 2012, he sold the two plots for Rs 33 lacs ($ 63,460) - so within nine months, by investing 24 lacs, he got Rs 33 lacs – he made Rs 9 lacs ($17,300) – that means the land price appreciated by 50% on an annualised basis.
Does it look good – I am sure you will be nodding a YES (so am I)

What he did well – The best learning for me is the way he managed to get the funds – this just shows that there is always a way.  He also was creative by going with the smallest plots sizes available – he had segmented the markets and was clear that he will have a higher negotiating power with this segment. He also identified safe and legally clean plots, he identified good outside locations, he used lawyers and brokers (they are needed for any real estate deal in India) and he acted decisively (many of us will take longer than him to act).

What he could have done better – well, he took one year loans – he should have taken a longer term loan as the cost of capital was only 10% per annum and the price appreciation was 50% per annum. Also this transaction will attract short term capital gains tax in India – he will end up paying 10-30% of the gains as tax. Ideally he should have managed to keep his FF at bay and kept the land for 3 years and then exited – post three years, the taxation is lesser as it is a long term capital gains tax.

For more information on investing, you can read at my book -"How to get rich and retire early" (available on flipkart and homeshop18)
So finally - here is the investment opportunity for my readers – if you want to join with this enterprising friend of mine – either as a equity partner or as a debt– he is looking at the next set of plots – he surely needs more funds and even though he may not get the 50% annualised returns, I do believe he will surely get 25% plus returns. If you want to participate, please do write to me at rajasekharan.sg@gmail.com and I will introduce you to him.

Author Description

S. G. Raja Sekharan

S. G. Raja Sekharan is a visiting MBA faculty, a mentor to budding entreprenuers, a wealth management consultant, an author of a book on Investing in India and the author of this blog.

Loading Facebook Comments ...

4 thoughts on “Here is an investment opportunity for my readers

  1. Sir the example what you have mentioned is exiciting as you have talken only about postive aspects. I mean suppose what would have been his fate if real estate boom has gone for toss and prices have came down?? dont you think its too risk in this case that he borrowed and invested? Why am mentioning this point is, its not wise to invest beyond your capacity and that too on high rist investments. Will you buy my point? correct me if am wrong. Thanks Prasanth

    1. Prashanth – you are right on one respect – if someone had taken loans like this and invested in let’s say equities – I would not have approved of it.
      Here the investment was in urban land – done by BDA in Bangalore – in my view, urban lands, that are legally clean and in good locations will give 15% appreciation per annum – there is almost a zero risk of the value going down (unless you have bought it at a high price by mistake). having said this, there will always be exceptions to this rule. So even though I do not approve of high leverages – this case is unique and farly low on risk.

  2. Sir, First of all thanks a lot for sharing all these experiences and information. Surely helps me a lot.

    What I would like to ask is, are buying plots from BDA easy? Arent there any lottery system or some other way, because i would assume that a lot of people would be interested to buy them, so how is the demand and supply met?

    Buying a plot/Flat from Delhi Dev Assc (dda) is nt easy. They do it through lottery system, if i am not mistaken so depends a lot on luck.

    Ankit

    1. Ankit – You are right – getting a BDA plot is like a lottery.
      But there are lot of BDA plots available for resale – just look at Times of India classified on Sunday and you will see lots of BDA plots for sale.

Leave a Reply

Your email address will not be published. Required fields are marked *