The hum of the city, the scent of freshly cut grass, the security of a place to call your own —for many, the dream of homeownership is the foundation of a stable, successful life. But what if this cherished dream is, for a vast majority, a beautiful but limiting trap?
We’ve been conditioned to believe that buying a house is the ultimate, and perhaps only, path to building wealth. We’re told that real estate is a guaranteed investment, an appreciating asset that will secure our financial future.
But a closer look reveals a more complex, and often less rosy, picture.
What Does Wealth Mean?
Before we talk about real estate, let’s understand wealth. Many people think wealth is just having a high salary or a lot of money in the bank. But that’s not quite right.
True wealth is about owning assets that grow in value over time and generate income for you, even when you’re not working.
It’s the difference between what you own (your assets) and what you owe (your debts).
Building wealth means your assets are growing faster than your debts, giving you financial freedom and security for the future.
How Do You Build Wealth?
While a house/real estate is a common asset, it’s just one tool for building wealth. There are many others that can help you grow your money.
- Investing in the Stock Market: You can buy small shares of companies (stocks) or invest in a basket of stocks through a mutual fund.
- Debt Investments: You can lend money to banks through a Fixed Deposit (FD) or Recurring Deposit (RD) to earn a fixed return. This also includes bonds, where you lend money to governments or corporations for regular interest payments.
- Starting a Business: You can build a company that becomes an asset on its own.
- Real Estate: Real Estate: We'll focus on this one because it's a widely popular path to build wealth.
This is the story of Manish, a tale that resonates with countless individuals who have followed the conventional wisdom without questioning it.
The Story of Manish and His Two Houses
Ten years ago, Manish decided it was time to invest in real estate. He purchased a house for his family, believing it was the first step to building a strong financial future.
- The family home cost ₹80 lakh.
- Manish took a loan for 70% of the value, which was ₹56 lakh, with a 20-year repayment plan. He paid the remaining ₹24 lakh as a down payment.
For the first five years, a huge chunk of his income went toward paying his monthly loan instalments (EMIs). He felt a sense of pride watching his property’s value rise.
Five years later, Manish received a portion from inheritance/gift of ₹40 lakh. Instead of using it for a different investment, he used the entire amount to buy a second, smaller property as an investment.
- The investment property cost ₹40 lakh, which he paid for in cash from his inheritance.
Now, ten years after buying the first house, let’s look at the true financial picture of both properties, assuming a conservative 5% annual appreciation.
Property 1 (Residential House):
- The house is now worth ₹1.30 crore.
- He has paid Rs. 44.23 lakhs in interest over these 10 years.
- He still owes Rs. 39.77 lakh on his loan.
Property 2 (Investment Property):
- The investment property is now worth ₹51.05 lakh (₹40 lakh compounded at 5% for 5 years).
- Since it was a cash purchase, there’s no loan or interest to pay.
On the surface, it looks like a great return. But let’s look at all the money Manish has spent from his own pocket.
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Particulars
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Amount (in Lakhs)
|
|---|---|
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Down Payment on Property 1
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Rs 24.00
|
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Cash for the Property 2
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Rs 40.00
|
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Interest paid on Property 1
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Rs 44.23
|
|
Conservative estimate for maintenance, tax etc. of both
|
Rs 10.00
|
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Total Outflow
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Rs 1.18 crore
|
Now, let’s calculate his actual wealth from these properties.
- Current Net Worth in Real Estate:
|
Particulars
|
Amount (in Lakhs)
|
|---|---|
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Value of Property 1
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Rs 1.30 crore
|
|
Value of Property 2
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Rs 51.05 lakhs
|
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(Less) Outstanding Loan
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Rs 39.77 lakhs
|
|
Current Net Worth
|
Rs. 1.41 crore
|
So, did his money grow? Yes. But at what rate?
He put Rs 1.18 crore of his own money into these investments and ended up with a net worth of ₹Rs 1.41 crore.
If we calculate the CAGR it results in a return of about 1.02% per year.
This is a shockingly low return, barely keeping up with inflation. He could have earned much more with a simpler, less risky investment.
Beyond the House: The Realities of Real Estate
Manish’s story shows us that the real estate isn’t always the goldmine we think it is. Here’s what people often miss:
- The Myth of High Returns: A rising property price doesn’t mean big profit. After subtracting huge interest payments, property tax, maintenance, and brokerage, the real return is often just 1–2% per year—barely above inflation.
- Lack of Liquidity: A house is hard to sell quickly in emergencies. You can’t sell a small part (like a room), and the process takes months with high costs, unlike stocks that can be sold in minutes.
- The Burden of Debt: A 20–30 year home loan ties you down. High EMIs eat up your salary, leaving little for other investments, travel, or emergencies. This is the classic “golden handcuffs” situation—you’re stuck just to pay bills.
- Opportunity Cost: By investing Rs 1.18 crore in property, Manish missed better options. A simple stock market fund with 10–12% returns over 10 years could have grown his money to 2–3 times more than the property’s appreciation.
A New Way to Build Wealth
The goal isn’t to say that you should never buy a house. A home can provide stability and happiness. The point is to challenge the idea that it’s the only path to wealth.
True wealth is built on a diversified portfolio, which means not putting all your eggs in one basket. It’s about having the freedom to choose your life, not being chained to a long-term loan.
Here's a better plan:
- Invest First, Buy Later: Instead of rushing to buy, start investing with guidance from a Certified Financial Planner or Financial Advisor. Let your money grow and build wealth.
- Renting Can Be Smart: Renting frees up money you’d otherwise use for a down payment and maintenance, allowing you to invest it elsewhere.
However, there are downside to renting:
- Lack of Ownership: A downside is that you don’t build any equity, and your rent can increase over time.
- Less Stability: You might have to move if your landlord sells the property or doesn’t renew your lease, which can disrupt your long-term plans.
- Explore Other Options: Look into different types of investments. A well-balanced portfolio is stronger and more likely to give you better returns in the long run.
A financial planner is a good person to talk to about diversifying your portfolio.
Manish’s story is a powerful reminder that the true measure of wealth isn’t the value of your house, but the financial freedom and security your investments provide.
Ready to understand how your real estate investments fit into your overall wealth plan?
Let financial consultant Niraj Nanal help you create a smarter, balanced strategy for long-term financial growth.
Book your consultation today