Real Estate and Stocks as Investment for Seafarers
Last updated on March 10th, 2023 at 11:01 am
When you change your money into other forms to get returns then it is called Investment. The two most important point every seafarer should keep in mind while investing is that –
- Whatever return he/she gets should always be higher than inflation rates
- It should be a form of investment that is easily liquidable
Real estate has always been an attractive investment. But is it a rational one ? For a long time, buying properties has been popularly associated with valuable assets. It indeed is but buying one requires a significant amount of time and understanding that a seafarer is limited with. Not only this, transaction costs associated with buying and selling of properties is quite high as it includes commission, loan origination fees and many other charges.
Suppose a 3rd Officer buys a house on loan at a rate of 8.5% interest . The rental yield that is expected from the property per annum will lie between 2.2%-2.5% interest only. While a return on any commercial property in India varies from 4%-6%. Apart from this, managing the rental property is challenging. Hence, a property bought with the purpose of rental is not a great investment even if it seems to be.
Most of the buying and selling of real estate takes place in cash, making the money transaction flow black. Suppose a seafarer bought a nice property with the purpose of investment in Delhi aiming to get good returns in future. He sanctioned a loan at 8-10% interest rate and thought of putting the property for rental. In India, a residential property will not provide a rental yield more than 2%-2.5%.
Now after seeing the marginal rental return the seafarer is getting on his property, he decided to sell it. This is a tricky part in real estate. Now as we know, to sell this property the seafarer has to accept some money in cash from the buyer leaving only 25-30% of money as white transaction. The cash money which is termed as black money, can not be further used for any other thing legally. So in this case, the seafarer has to buy some other property by adding white money to the cash in hands. Now you know why real estate can become a big vicious cycle.
That is why, estate business is not a lucrative form of investment for seafarers who have limited time when they return from their sail. It is better to buy the best property at the best place within your budget than to get trapped in this estate business for a lifetime. Entering the housing market has a lot of barriers for common man including the need for a lot of money to start. Generally, it consumes 3-4 years of the entire earnings of a seafarer to invest in a rental property and maintain the ongoing expenses and mortgage issues. Hence, we would like to conclude with real estate as an expensive investment that yields a low return.
Investing in stock means that you own a piece of company that you buy stock in. So, as the company shares grow, the value of your stock rises and vice-versa. Stocks have the benefit of high liquidity i.e. if you need cash, you can easily sell your stocks on an exchange and get the money in a few days time.
Investing in stocks requires a specialized knowledge of equity analysis, selection of stocks and trade. That is why a team of experienced people under the guidance of a Fund Manager responsible for selecting and managing the performance of your stocks should be trusted. The advantage of stock marketing is that it is very easy to start and does not require a lot of money in the initial phase.
If you are buying stocks on your own, you must research each company to determine how profitable you think it will be before you buy its stock. You must learn how to read financial statements and annual reports and follow your company’s developments in the news. It is necessary to have enough information about market crashes and other key traits of investment in the market which will help in monitoring the performance of your stocks.
Stock prices fluctuate often in the market which can cause seafarers to buy high out of greed and sell low out of fear. Hence, sailors should go through the basics and detailed analysis of stocks and market flow before investing.