Did you ever wonder how come these real estate guys got so rich when the markets were going up. And some even continued to get richer while markets weren’t even doing great. Aha! You’re about to know all about the “scheme”.
Before you understand I want to take up something to build on. In any business, you invest some money and do your best to make more than that. A healthy business is told to be operating around 18% per annum or more. With a good turnover one can make huge amounts of money.
Now let’s go to what happened in real estate. I am taking you 15-20 years back. The market was starting to pick up. People didn’t know very much anyways, except a few. These few being more educated in these transactions (mind you they were very educated even if they failed their 10th class exams, as they were knowledgeable about how things are done and where one can make gains etc), had an edge and used it to their advantage to the max. When someone came to sell a property for say Rs 1 Lakh, they gave an advance of Rs. 5000 and booked it. They got a time for 2 months to make the payment. In the meantime prices were going up and another buyer showed up willing to pay 1 lakh Ten Thousand and they sold to that guy and got their profit of 10 thousand. Now you may say that’s just 10% profit. No its not. His actual investment was only Rs. 10,000/- and he made another 10,000/- on it. That’s 100% profit. And within one month or so. That becomes 1200% profit per annum. Plus most of these guys didn’t pay any tax. And if you consider a guy doing 10-20 such transactions each month, you’ll see what a killing he would have made.
Now consider this a few years later. Say the property was for 2 crores. Many times financiers would go and negotiate and get it for 1.9 crores, and pay just 1 lakh advance. Then immediately they had a ready buyer for say 2.2 crores. They would take advance from that buyer and pass on to this seller. Investment- 1 lakh. Profit- 30 lakhs. Time- 0 days, since they had a ready buyer.
Now, they could have not been able to find a buyer and could have gotten stuck and would have had to pay the entire amount. Yes, ethically they would have and should have. But:
- Market was going up and selling wasn’t a problem.
- If they couldn’t sell and did get stuck, they would just not pay the entire amount and say let’s cancel the deal, knowing no owner would go to the court, since owner has his property at stake and title “gets unclean” . In most cases the owners would just return the money.
So the risk wasn’t that much and returns were huge. The turnover was high and no taxes being paid, no entry barrier, just knowledge of what to do and how to manipulate.
The market came down multiple times in between and many players went bankrupt, committed suicide or just ran away. But that’s the topic for another blog. Right now I am just highlighting how some people got so rich so fast dealing in properties, by knowing the right things at the right time and having the guts to jump in and take advantage.
Ethically or not, these guys made a lot of money and I feel so jealous 🙂 Do let me know if you feel bad too. We can cry together sometime.