The last two years have taught us one lesson, it is important to be prepared for uncertainties.
Just as the global economy was limping back to normalcy following the unprecedented onslaught of COVID-19, supply chains and prices of essential commodities across the world got battered by the Russian invasion of Ukraine.
Shiv Parekh, Founder of hBits says, “Within this climate of economic uncertainties, we now live in a time when the second source of income is no longer an option but almost a necessity. Even if one can hold on to one’s job, rising costs and shrinking savings may result in loans and the creeping pressures of debt.”
Below are a few key reasons why a second income is important;
Mitigating Rising Expenses and Inflation: Incomes have stayed nearly stagnant while prices of essentials including petrol, diesel and LPG have skyrocketed. Parekh says, “Traditional means of investment like fixed deposits (FD) are struggling to remain viable, as it no longer keeps up with the annual increase in the rate of inflation.”
Preparing for an Emergency: Financial emergencies such as job loss, health crises and hospitalisations have unfortunately seen their worst facet, over the last two years. In such sudden financially exigent situations, experts say the stock market or mutual funds may not always guarantee a sufficient yield. Some may have to dip into their provident funds or fixed deposits and face penalties.
Funding Financial Goals or Pursue Interests: According to Parekh, buying a car, enrolling in an upskilling course, going on that dream vacation to Machu Pichu or simply pursuing a passion are such goals which can be funded by a second income.
Retirement Corpus: Given that private-sector jobs do not offer pension schemes and retirement planning on a single income can create pressure on one’s expenditures, experts say a second income source appears vital towards creating a sustainable retirement corpus.
What can you do?
Parekh points out, “When one thinks of a ‘second source of income, one invariably thinks of dividends received from stock assets or rental income from residential property. However, it is wise to explore an asset class like real estate that offers greater stability, given the volatile market conditions.”
He further adds, “This is where commercial real estate (CRE) can offer steady returns, higher than residential properties and with less risk.”
Fractional ownership of property refers to a group of investors pooling their funds to jointly purchase real estate, so they can reduce the cost burden and risk exposure and share the rental income.
“It is particularly ideal for investing in Grade A Commercial Real Estate (CRE), the cost of which can run into hundreds of crores, but requires merely Rs 25 lakh from each investor. Such premium CRE usually yields high rental returns of 8 – 10 per cent,” explains Parekh. This means an investment of Rs 25 lakh could yield approximately Rs 1.5 lakh to Rs 2.5 lakh per annum.