High Priced or Low Priced: Which one should I go for?


Many often, we come across this dilemma when we wish to make an investment, not only in Real Estate, but even while investing in Equities and Bonds. Let us try to decipher this confusion.




Define a Time Horizon


The first thing you should do is to decide is the time window you are looking at while making the investment. The decision of high/low valued assets will follow your time horizon. We typically define the windows as follows:

1-5 years: Short-term Investment
5+ years: Long-term Investment


Everything has a Limited Upside


This is one fact that you should imbibe in your thoughts if you want to be a successful investor in any asset class, real estate included. You cannot count indefinitely on the increasing prices and trust that they will keep on increasing forever. There will be a stage when the price movement will virtually halt and the growth rate will shrink manifolds.


The Decision!


Once you have decided your time frame and imbibed our above advice in your wits, it’s time to take the decision. Check the analysis done below:

Here we are taking an assumption that the upside for High Priced property is 10 years & for low priced, it is 7 years. This is justified because generally the high priced property is more sustainable as compared to the low priced property.


Initial Investment
Initial / Long Term Growth Rate (%)
Short Term (1-5 years)
Short Term Returns
Long Term (5+ years)
Long Term Returns
CAGR
Low Priced
$ 100,000
13 / 8
$ 163,047
63.05%
$ 190,178
90.18%
7.40%
High Priced
$ 1,000,000
8 / 8
$ 1,360,489
36.05%
$ 1,999,005
99.90%
8.00%



As is apparent from the above analysis, the Low Priced Property yields more returns in short term and comparatively lesser returns in the long term as compared to the High Priced Property.

With this illustration, this discussion comes to a conclusion:

Low Priced  :
Short Term
High Priced :
Long Term

Disclaimer: The above analysis holds good for most of the cases, but not all. Hence it is advisable to take an informed decision before making any investment.


------ Thanks for reading RealT Horizon J Happy Investing ------


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