I was unable to find a the native iPad specified too in which case a free version so perform the bizarre action of double at the. Darling is a for other purposes. With that, I key to the. Come learn how and Many more.
Are termed as hard won.
Moreover, the real estate returns very vastly from location to location. This is all I got to say.. Hi Dev, Kudos on doing this calculation thoroughly taking into all possible deductions, exemptions and scenarios. Again, very good analysis. It is very rare to see people doing such analysis take into consideration numbers such as insurance, maintenance and a realistic decreasing rate of return from mutual funds.
Good work! There are mistakes in the analysis which has reduced the returns from real estate. Post tax rent income of for a property costing 75 Lakhs is very low and not realistic. With these corrections real estate returns will look better than mutual funds returns. I don't agree with this comment. Dev has not even taken repair cost into account. As simple as that. In Chennai, a 1 to 1. Maintenance cost is outside of this. Where do you get 30K rent for 75lac flat?
But my family members friend may not agree because of psychological reasons. Most of us want to invest in real estates just because our friends, colleagues, cousins etc. The analysis Dev has done is simply outstanding. I had done a very rough calculation on a spreadsheet taking into account some of the factors that Dev has mentioned in his analysis. This analysis has given me some more insights. I have no idea about Chennai. Maintenance charges are separately taken care of in the calculations.
Agree with your views Dev. But I also have seen people who regularly makes great returns in real estate investments. I think it all depends on as they say 'Circle of competence'. If you are good in real estate there is no better investment than this. But most of the retail investors are not very good in it due to the ticket size involved.
Dev, as usual, a very well written article. Land is constant and in very long times to come it may become the most prized commodity. And that is probably one of the reasons why large business houses are jumping into retail, SEZs etc. There are many examples of some old companies surviving by encashing their real estate holdings This is not to be confused with the present day real estate investments being done by people like you and me i.
A huge nexus of housing loan companies and real estate developers fueled by govt. However, it is near impossible to have similar returns in the next decade. Whatever money gets made due to appreciation of land price will be made by builders and not by us individual apartment buyers.
Shyam, seeing people making regular returns in real estate was a matter of timing. You would have seen it happening in 09 to 12 period. I have also seen and experienced it. It is not happening now. Even stock markets go through similar periods. Awesome, the biggest con of real estate is the stress of having to pay an EMI every month. This makes one to be depend totally on job paying well, and continue working in this job however crappy the job is.
Distress sell in real estate is another big disadvantage. Methinks that RE prices are headed for a stagnation for the next years, if not for a huge correction! I agree with Mohan. I feel that the term Real Estate is being incorrectly used only for flats.
But generally it can be applied for Lands or plots where we are not buying flats but building our own on these plots, sites or whatever you call it. In Bangalore if you are investing around 75 lacs on a site the rental income is also good enough to sustain the repair cost.
But if you are talking about only flats then it is just a single flat not 1BHK houses rented out. You are correct Girish, but I think it depends on city to city and person to person. I have completely different take on this may be not for everyone but if one puts EMIs for first house in MFs at year 10 onwards there is a high probability that he can own a similar house with no debt.
Few pointers: 1. Loan processing fess now not more than 10, or so and in my case it was only 2. Not sure about the registration fees too 3. Tax relief under interest paid on Home Loan has been raised from 1. Rent assumed is paltry. However it depends from city to city but for the 1st year you have assumed rent of 87, for a property of Rs 75 Lakhs!!
That's too less! Assume something ranging from 2. Which will translate approx double the amount you assumed. Also MFs charges are not accounted for! That's really surprising coming from a responsible website! Adding to reasons against MFs.. The bad advice given by their MF distributors and sometimes the absence of it is the major reason of avoiding MFs.
Also a good property enhances your social standing in your family when you actually need it. I need to show off my property today at 32 or 33 of my age rather than at 52 or 53 when all is lost. Lastly Real estate investment should be restricted to 3 in worst cases After that the above points tend more favourable to MFs and people should avoid their real estate fixations and diversify through MFs.
So if we keep this to flats then its more fruitful. And for a property of 75 lakhs is unseen for me. I stayed in Gurgaon and easily a flat costing 75 lakhs fetches a rent of approx k per month. And what about Tax Benefits? Its 2 lakhs p. Well written article again, Dev! Self researched RE vs MF where we acknowledge that we dont understand equities enough so rely on experts.
Highly leveraged RE vs equity fully paid for. What if RE is fully paid for too. Will the difference be as wide as shown in example? Buffet says invest in only businesses you understand. Can we say the same about the asset classes? Ie invest only in asset classes one understands. Currently, like any growing economy, Indian RE market surely isn't suitable for rental income but for capital appreciation only.
Rent can just take care of property tax, maintenance etc. Flat is not an asset it is a liability according to latest defn. But I think that a major chunk of credit must go to my partner in doing this analysis — Ajay.
I am really short of words when it comes to praising how lucidly, Ajay is able to bring real life scenarios to excel. Post tax and other expenses, rental income of 30K is only shown in first row, which only considers the months starting from May and upto December And rental in general are decent enough, till the time we book expenses annual like insurance, taxes, etc and five-yearly ones like maintenance.
It is this very point which we also wanted to highlight. That just saying that a rental income of 20K may not be correct. We also need to look at the expenses like taxes, insurance, etc. Agreed Shyam. Have myself seen people make amazing returns from real estate. But these are more of exceptions than rules when it comes to middle class. Interesting thoughts Girish. And the idea of taking reasonable returns was to remain grounded. And we have done it even in case of MFs.
But really interesting insights of treating few types of real estates as 'Products'. Agreed Abhi. Even I get jitters from the though of EMIs running into years. Its like one becomes a slave of EMIs. But to be honest, even I might do it when the day comes. But my current stand is to build equity and MF portfolio before taking the jump into RE.
Agree with your points. The topic here is about investing in flats not for self occupancy using EMI as investment and for tax saving purpose. Investing in a plot by cash is a different ball game and it also involves other risks. It can also provide substantial returns. Although we have been fair in our asssumptions for both the cases, it is possible that we have assumed more or less on some areas that could skew the whole argument in favor of mutual funds.
However, it is not intentional. Probably as I am a hardcore equity fund investor, it is quite possible my arguements favor equity investment and equally and core real estate investor is likely to argue in favor of real estate investment. Legal opinion, verification of title in registar office,lawyer fees to review builders agreement document etc.
Regarding registration fees, again we referred to TN rates, may be slightly on higher side when compared with other states. It is also possible there may be many months in the 20year period without rents however this is not considered. But in real estate no professional is advising you but you are ready to do the research understand and take a risk. Fund reasearch is much more easy than the real estate. This is where the attitude needs to change to invest for long term goals.
Long term investment in MF pays.. You can check the website and the recent buyers. The interest is based on Axis Bank 20Year Fixed rate you can check in their web site for simplicity of calculation, we considered a 20year fixed rate which is more realistic way of calculating it. A friend of mine bought a propery 7year old in Alwarpet, chennai near Kamalhassan's house for 2.
The yeild is not so high in all markets. I would prefer to be tenant in that house than being a owner. We analyzed NHB data and then only chose the 3 points. Actually there is a vast difference on returns e. Hyderabad did not do well at all, Bangalore in nominal growth, Chennai was normal …. Although me and Dev put this post, I did not put my own experience in real estate experience and my personal view in this post, which I would like to add here:.
My first investment in was in a plot, which I sold just before the crisis with a net gain of 10 X my investment amount. I sold it because, I felt that those rates are unsustainable. Although, it dipped during the crisis, but it is still on its way up. But, I have no regrets about selling. My second major investment was in in a Independent house, the cost of the land has appreciated some 12 x times in 10Years. So my past experience with real estate has been plesant.
The property price what you pay for a flat is much higher compared to what you pay in Developed Countries if you could buy there. Even in places like Dubai, that has got excellent infrastructure, the cost of real estate is much cheaper than my place chennai. Atelast in Chennai i think same holds good for most other cities , there is absolutely no infrastructure and ameneities to support such a huge growth in high rise buildings.
It may come in future but it will take another 5 to 10 years and still you know we are not going to get all what we want as amenities. Even the climate in chenai is so harsh. The developers take the investors for a ride by the time they handover the flats. What is promised is not delivered and you cannot fight against the developers who got the time for it. The agreement is always one sided favouring developers. He has got no other option but to pay. Otherwise you end up in court and wate time or shouting in front of promoters house as seen recently in TV.
It is a nexus between banks, developers and politics. Of course, the political corrupt black money plays a big role in real estate. If there is a crash, it will hurt many people. But, it may or may not happen in near future. If you are a value investor, you will not invest in it. Well, you may look like fool to others who are investing in it!
Accumulate cash and wait for the right opportunity to buy it and I am sure there will be opportunity in future at some point…. REIT is not yet launched for retail investor and no investment returns data is available. It is difficult to compare in this situation.
In my opinion, REIT post expenses and taxes in the hands of investors are not likely to beat the equity returns. Here again the topic is about investing in flats not for self occupancy using EMI as investment and for tax saving purpose versus investing the same money in Equity Mutual Funds.
If invested using cash such a huge sum , the returns may differ, but in equity investing such huge some in one shot may not be recommended just for mental comfort although our earlier post proved that anything above 10year period can be invested as lumpsum mode on equity. Still I think, if the timing in equity is right or even partly right, it will beat real estate — flat returns. Plot may be a different ball game depends on many factors….
Arent mutual funds risk. Sometime stock market collapses like few years before. I dont know much about share market just a common man. Can u explain which is better. Yes, I would be happy If we are proven completely wrong… It will help to correct my way of investing…. Parag Parikh's once told in an interview about real estate, people think that buying a house using a loan is an investment specially 2nd and 3rd Home.
However they are actually buying a long term liability. Unless you buy it with your own cash in full, it is not an investment at all. Unfortunately, India lost another value investing legends, Mr. Parag Parikh, on 3rd May For quite sometime, Bangalore rental yield is one of the best you can get in India.
It is not the same in other place. It is probably due to large migrant population who rent rather than owning it. It is also due to high salary levels of IT industry. If there is a crisis in IT industry Bangalore will be the most affected market as well. Couldn't have said it better… However, did you include the fact that in the case where we invest in MF, we still do end up paying rent? Shouldn't this be factored in?
Flats can be an asset if they are sold off within years… Typically, in years, the area around the flat develops extensively, and can increase the sale price substantially. After one point, returns can dip significantly. Though development still happens, percentage wise, the highest development is in the initial years. An appropriate analogy would be: the growth between 1 and 10 is 10x, but to get 10x returns from 10 means price has to go to !
For example.. If we have a flat purchased for 45 lakhs and after 5 years, it is worth 80 lakhs, it might be a great idea to sell at this rate. You've earned a CAGR of You can pay off the loans, thus drastically reducing the interest component which you end up paying. You'll have a huge amount of money available in your hands for investment in other areas. What happens if you continue? Depreciation, leakages, maintenance headaches.
Just imagine keeping 80 lakhs in the bank for a year… You'd earn around 7. In my opinion, the term real estate is only usable for LAND… plain, unbuilt land! Least investment, and maximal returns without any overheads, depreciation. For security, a small house can be built and lived in or rented at a small profit. I would like to add another important point probably we missed in the post. Apart from the point mentioned in the post that the growth is enough to buy 2 litres of petrol in case of real estate and 11litres in case of equity investment, to buy the same, you need to sell the whole property to take the money out.
Whereas in equity you can sell partly to suit your needs and the rest will continue to grow to maintain one's life style. This is a significant advantage over real estate which most of the investors tend to ignore.
We took petrol as a simple example for cost comparison, for a large amount such as children education or marriage, you will feel the difference and comfort in holding equity over real estate. This post is all about 2nd house and not about the 1st house which in our opinion one must buy for self occupancy. So end up paying rent is applicable here. The rental income is already part of the calculation.
Onceagain I copy the 5 year return analysis from mutual funds over 20years 16 data points , which was there in our earlier post…. We have covered the following in this article:. Investing is essential to achieve your goals. It is the only way to make your future better. By making investments, you are also saving and accumulating a corpus for a rainy day. Apart from that, making regular investments forces you to set aside a sum regularly, thereby helping you instil a sense of financial discipline in the long run.
Inflation, in simple terms, is a surge in the price of materials and services. It decreases the worth of your money and reduces your purchasing power. When there is a rise in the inflation rate, you buy fewer things with the same amount of money. You have no control over the inflation rate. If you are to stay ahead of inflation, you need to have more money to purchase the extent of the goods you intend to in the future with the money you have today.
If your money has to grow, then it has to earn returns. To earn returns, you need to invest. Therefore, making investments is necessary to tackle inflation. It is very important to earn inflation-beating returns, if not, you may not be able to afford materials and services in the future from the savings you are making now. You have numerous investment options to choose from.
You have to assess your requirements and risk profile before deciding to invest in any particular investment option. Investments are broadly divided into active and passive. Active investment requires you to dynamically change assets in your portfolio, depending on the market and economic developments.
You need to have enough time and knowledge of investments to indulge yourself in active investments. Equity investments are the best example of active investments. On the other hand, passive investments do not require you to be hands-on with your investments. You invest your money and stay invested for a certain duration of time. It is also referred to as the buy-and-hold strategy of investment. The following table shows the major differences between active and passive investments:.
You have to choose to adopt either an active or passive strategy after you have assessed your requirements and risk tolerance level. However, you have to ensure that you are investing in only those options that fall under your risk tolerance and serve your requirements. Since there are numerous investment vehicles, it is normal for an investor to get stuck when selecting one.
If you are new to investing, then it is likely that you are not sure as to where you should invest your money. Making the wrong investment choice can lead to financial losses, which you would not want. The first step in planning your investments is to figure out the right investment that fits your profile and needs. Here are a few things to keep in mind when planning your investments:. You should get started with your investments as soon as possible. When it comes to investments, time is money.
The sooner you get started, and longer you stay invested, the more returns you earn on your investments. Consider the following example. Suppose you start investing Rs 1 lakh a year from the time you turn 25 years old and continue to do so until you turn 58 years, along with your brother who is already 35 years old.
As you can see from the table above, the difference is huge. You earn way more than your brother because you started early. Hence, the sooner you start investing, the better. Annual turnover - In lacs. GST registered. Thank you for your response. Start investing now or. Download link sent. Home Personal Finance. Updated on : Feb 17, - PM 08 min read. But there are various strategies with which you can easily save on the tax amount that you need to pay for profits from cryptos.
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Read more on how to invest a year-end-bonus. Learn who should invest and how to construct in high returns portfolio. Also, get to know about alpha and beta in mutual fund portfolio. You can also become a crorepati if you regularly invest in equity mutual funds. Read on to learn more about equity funds. Here are the six things to learn from the Financial Crisis of and how it lead to a roadmap for financial reforms.
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