EMI Jhatka

EMI Jhatka

A man chooses to buy a house for investment.
House value 1.25 cr
Loan amount 1 cr
Interest rare 10%
After 5 years the value of the house is say 1.6 cr based on 5% compounding
He decides to sell it.
While closing his loan he has to pay up approx Rs 1.5 cr
So his total cost turns out to be
Rs 5 lac registration
Rent 25 lac initial amount
It all equals to Rs 1.8 cr
Against this his house fetches Rs 1.6 cr
Les capital gains would be say approx 3 lac
Add his rent income approx of Rs 15 lac
Add tax saving 3 lac
Total income is equal to 1.75 cr.
So in the end he incurs a loss of Rs 5 lac
If the house had appreciated at even 10% he would be left with a profit of Rs 20 lac
So between 5 lac loss to 20 lac profit is what he makes
On the other hand had he invested the 25 lac in an Equity mutual fund and had done a SIP of Rs 1 lac (approx EMI amt) he would have earned Rs 1.6 cr
(Assume Equity returns of just 12% in this period.)
Net profit would be 1.6 cr less
investment of 85 lac
( 25 lac + 1 lac SIP for 60 months)
= to 75 lac.
He could also earn tax rebates in ELSS schemes upto 2.5 lac taking his earning to Rs 77.5 lac
Now compare Rs 77 lac profit with Rs 2 lac loss or at best Rs 20 lac profit.
Even a bank FD would have provided a net profit of 40 odd lac
Next time think a 1000 times before saying house investment is smart thinking.
The equation will only get worse for longer periods of investing.
Without taking a loan if one were to invest in a house then at best case scenario the returns from the house may come close to that of a mutual fund.
But remember that is without taking a loan.
How many people ever buy a house without taking a loan.
  • Mohit Joglekar
    Posted at 08:47h, 17 June Reply

    Very helpful insights in terms of customer oriented messages, very helpful to attract new league of customers…

  • I v Ramakrishna
    Posted at 08:48h, 17 June Reply

    It’s really brush up, I have gone through this type of article earlier, but this has good clarity

  • Amit mahto
    Posted at 08:51h, 17 June Reply

    what a analysis sir ?One must think b4 gng for a loan for longer period.

  • Naveen Agarwal
    Posted at 08:51h, 17 June Reply

    Good work sir here! Food for thought for clients for sure

  • Rima vasa
    Posted at 09:00h, 17 June Reply

    How u hv calculated loan pay off costs him Rs .1.5 cr aftr 5 yrs of emi payment

    Posted at 12:14h, 17 June Reply

    Very nice revelation. But people still have a conservative notion about this which is in their blood. So we have drive hard to place our point for which the example is much helpful.

    Posted at 13:11h, 17 June Reply

    To sell Immovable property either house or site nowadays is time consuming and it may be luck if the property sale fetch more than 10% on cost of the property. Till the conclusion of sale it may be tension & risk to both buyer & seller inaddition to follow the procedure of registration & negotiation.

  • Nikhil girme
    Posted at 17:28h, 17 June Reply

    Eye opener

  • Chandramohan S Parab
    Posted at 06:34h, 18 June Reply

    Very true. By cost averaging concept one can achieve more returns than in investment in real estate.

    Also he can easily liquidate in SIP

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