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POSTED BY ON April 18, 2011 4:02 pm COMMENTS (2)
I am planning to buy a property within range of 23 to 25 lakhs. I have 10L in liquidity to pay the upfront money and rest 13 to 15 lakhs from loan for 15/20 years which will add a liability of 15 to 20K as a Housing Loan installment. Recently, I came across with some adv claming 12% assured return on the property purchased. It could be an Office Space of 100 sq ft @ 5 L which will provide 12% return for 48 months (till possession) and there after it can be rent out to some IT companies which may provide Rs. 48/psf of rent for 3 years and subsequent years in multiple of 3 and also appretiation on the property value.
The other option is a full furnished service studio appartments which may cost Rs. 6000/psf for 675 sq ft and will be utilized by others and would provide rent on regular basis as per their commitment and also appretiation of the property.
Presently, I am putting in my father’s owned property and want to invest in real-estate for better prospects. Please suggest, whether I should go for a normal investment in a residential flat for which I need to bear a liablity of repaying a loan or should go for alternate option in investing the amount is Office space/Service appartment which could generate a regular income. I also want to know the authenticity of such advertisement.
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Look at this article from moneylife : http://www.moneylife.in/article/8/4589.html
Dear Shourya Mohan, If your primary aim is investment, my simple take ‘ll be not to invest in any one of the options you have mentioned. The reasons are obvious. Prices are on the peak & due to hardening of interest rates, the correction may come any time.
Considering the options one by one –
Residential House – “ll invite a big liability in the form of home loan with limited near term benefits. In the long term, you may get a decent return in the form of Capital Gain but after factoring in the cost (interest paid for the home loan), the net effect ‘ll be very low. Also after putting away your 10L Rs. as down payment, your own liquidity ‘ll come to almost nil. Think over it.
The 5L Rs. Shop – Calculate on your own if you are taking that same shop on rent & apart from the 12% return (in the form of rental income) which is 5K mly rent in simple terms, what ‘ll be your add on cost to run any business & make a profit. Please answer yourself, how many businesses you may run from a 10 Ft * 10 Ft shop? Don’t think like the owner of the shop. Think like the rent payer of the shop to come to a conclusion.
Studio Apartment – 6000 * 675 = 4050000
I don’t know this 40.5L Rs. is the final amount or the basic cost? Even if I consider it as final amount, it means more loan that your home loan & more EMI than your home loan. Rest you know already.
If you opt to invest those 10L Rs. sincerely based upon your risk tolerance, you may earn much better returns From Eq. & Debt & other asset classes.
Thanks
Ashal