Here is one idea for investment

I have a friend who worked in the US for a few years and came back to Bangalore in 2003. He had a fair amount of savings then and realised soon enough that the real estate scene in Bangalore was hot. Sure enough he invested his entire savings by buying a few plots of land in different parts of Bangalore – between 2004 and 2008, things looked good with the real estate prices giving him 20% return per annum – it was not cash at hand – but he knew, if he needed cash, he could sell the plots within a few months. He also focussed on doing well in career and he was rewarded with two promotions in that period. His lifestyle kept pace with his improving financial condition - he bought a higher end car, took loan and bought a big flat, put his kids to good schools, went on international holidays - everything looked fine till the 2008 crash – early in 2009, his company started downsizing and he lost his job in mid 2009 – unfortunately he still had to pay the EMI's for house and car , he still had the school fees to pay for –and his cash inflow was zero. He had a few FD’s that he cancelled and used the money -   he tried selling his land – but could not as there were no buyers – and then he came to me for advice –what can one do if situation is already out of control?

What would you do differently if you were in his shoes?

This brings me to the concept of Passive Income streams - passive income is the one where the cash flow comes in, irrespective of whether you are working or not - we all must work towards increasing passive income streams. A good example of passive income is rental income – dividend payout, interests from FD’s are also examples of passive income. You dont have to be in a great job to have passive income streams - I know a few taxi drivers and auto drivers in Bangalore, who own a few taxis /autos and have given it on rent and earn a rental income –these are passive income streams.

We must not just aim at increasing our wealth and income during our career - our aim in the first fifteen years of our careers should also be to build  passive income streams to support 100% of our expenses. What it means is that by the time you are 35 years old, you must be completely financially free and you should not depend on your work /salary for a living.

Looks impossible? Haven’t seen anyone doing it? – Well, It is eminently doable –and quite a few people have done it. Only you have to observe and you will see people in your neighbourhood who have achieved this. These are not opulent people – they have simple (but not stingy) lives – they still work and they are good in their jobs – but they have assets that work harder than them and these assets give them passive income streams.

So here is an idea that will give you a better than average passive income stream.

Rental income is one of the most commonly found passive income streams. Many people invest in residential properties and give it on rent –  in India, we get an annual rent of about 3-5% of the market value of the flat /house. So if you had a house worth Rs 50 lacs, you will get an annual rent for about 1.5 to 2.5 lacs. However, commercial properties give higher rentals –  in India, we get an annual rent of about 7-10% of the market value of the commercial property.

Here is an example of a commercial property that is currently available this week in Bangalore:

Property Address	:	Sigma Soft Tech Park, Varthur
Area offered	:	1000 Sft
Price per sft	:	Rs 5250/- per sft
Car park	:	1 No
Rent per month	:	Rs 38/- per sft – ROI of 8.0 -8.7%
Deposit	:	10 Months
Lease term	:	3 +3 + 3 Years
Lock in Period	:	3 Years
Commencement of Lease	:	Aug 2007
Escalation	:	10% every 2 Year
Tenant	:	Will not be disclosed in this blog
Power & Back up	:	1 Kva per 100sft with 100% Back-Up
Other charges	:	Registration @7.2%

This is a well known IT park – it has tenants already and the builder wants to sell part of this property - If you invest Rs 50 lacs in this property, you would get about Rs. 4 lacs per annum rent from the start.

And there are many more such opportunities. In India commercial property gives double the rentals of residential property and the asset appreciation is around 15% in both cases - hence a commercial property has higher ROI when compared to a residential property by about 3-5% per annum.

So if you want to get financially independent soon –investing in a good office space is one of the smarter ways to do that.

More ideas in my coming blogs.