For Real Estate investment, does my math make sense?

[mayello]

I am planning to buy a 2BHK flat for investment purposes in Bengaluru. Here is my high level maths:Planned For 10 years

Cost of Property
₹1,10,00,000

Downpayment
₹25,00,000

Registration
₹8,80,000 (approx 8%)

Interiors
₹8,00,000

Property Tax
₹88,000 (₹8000 per year +10% every 5 years)
EMIs Paid
₹8,787,346

Yearly Repairs & Paints
₹4,28,000 (average ₹42,000 per year) Total Investment (A) ₹1,34,90,000 (approx)
Rental Income
₹67,00,000 (approx ₹35,000/month with YoY 7.5%)
Income Tax Rebate
₹5,00,000 (approx ₹50,000 per year) Total Earning (B) ₹72,00,000
Appreciation in 10 years
50%
Sale Price (C)
₹1,65,00,000

Loan Foreclosure Penalty
2% of outstanding principal
Payback to Bank (D)
₹60,00,000 (approx) Net Profit
B+C-D-A


₹72L + ₹165L - ₹60L - ₹134.9L


₹42,00,000

Does this sound feasible? Anything more I should consider in this plan?

What I am seeking an opinion on:

1. Have I missed any other critical cost to be considered?

2. Is my method of calculating the Net Profit correct?

3. Depending upon the financial growth I make (or don't), there is a possibility that I won't sell but move in to this as my home, since currently, there is no property or land to my name. So, although real estate is most of the time considered to be a bad investment, but given that I do not have any land/property to my name, would it not make sense to own one, even if I end up making lesser returns that MF or Equity or any other such investment instrument?

EDIT:

1. Included the amount paid in EMIs
2. Monthly maintenance of society is included in the cost for 5 years & for the next 5 years, the tenant pays, so that is not considered here.
3. Updated the 10year appreciation to 50%
4. Added more information about the opinion needed
   

 

[theendwasin70ad]

@mayello So in 10 years you plan to earn 27.5L?

That downpayment of 25L if you put in a simple FD @7% will become 50L in same tenure. Not even talking about mutual funds/equity which can easily give you 12% XIRR amounting to much higher profits.

There’s no guarantee of having a tenant throughout the tenure. Selling again is not straightforward. Liquidity in RE is not easy. Finding a buyer can take pretty long. Whats the point of so much hassle?

 

[littlechu]

@theendwasin70ad This. I dont know why some people find it so difficult to get whats wrong with flats as an investment especially in tier-1 cities in India at inflated prices.

 

[imjapun]

@theendwasin70ad When I read the post, I immediately did a similar calculation. Even after the modified calculation, if he recieves a total of 42 lakh profit over the years (including rent and appreciation), considering that as a lumpsum profit of 25 lakhs to 42 lakhs over 10 years gives a paltry sum of 5.5%.

For real estate as investment, people tend to forget the IRR they get in the end. They are more concerned about amount. Instead of going thru all that hassle of maintaining the property, spending money with agents, tenants, maintenance, etc., the same downpayment kept in a FD would have given returns higher than this. Or maybe invest in equity savings fund for getting debt fund returns with equity fund taxation.

 

[theendwasin70ad]

@imjapun Yeah majority of India still feels RE as the ultimate investment avenue. For my relatives in tier-2/3 towns, am a fool betting 60-70% on income on equity (index funds that too ) and not RE

 

[mayello]

@theendwasin70ad Thanks for your response. I have updated the assumed appreciation (it was very conservative earlier). Also, given that I do not have any land/property to my name, would it not make sense to own one, even if I end up making lesser returns that MF or Equity or any other such investment instrument?

 

[theendwasin70ad]

@mayello Only if you intend to live in it. Else buying apartment for investment is pointless IMO

 

[hayley123]

@mayello Net profit doesn't seem very attractive to me considering the tenure of 10 years.

 

[amyanne87]

@mayello Its better you invest this 25 L in IOCL will give you rent also and also give you appreciation also liquidity

 

[jordan1000]

@amyanne87

IOCL

What is that?

 

[amyanne87]

@jordan1000 Stock Indian Oil Corporation

 

[bastian]

@amyanne87 IOCL is going up for some reason nowadays.

 

[slowbie]

@mayello Add monthly maintenance and value of 27lakhs after 10 year in ur life.

 

[feldon]

@mayello Real-estate as a form of passive income generating investment is the stupidest thing I have heard.

Especially when you buy it on credit.

 

[mayello]

@feldon Thanks for your response and suggestions. I have heard of the same mostly. Hence, did the maths, Anything you could suggest on the maths?

 

[feldon]

@mayello What you are saying has lot of moving parts, first you need to find tenants, if you don't find them you will miss on rent ,the if you finally find them youist ensure they give rent timely, then comes repairs , thee eis no fixed number for this, then comes growth of property value everyone says property value only increases, my frd, it does not see 2008 housing crisis, so seeing all this there is high chance after 10 years you will.lose money rather, instead invest your money in more liquid form of investments like stocks, fd, debt funds etc

 

[mayello]

@feldon Thanks for your response and suggestions. I am counting on the fact that in Bangalore, it should not be a problem to find a tenant, who pays on time, in the area where the property is. I'd need to look at 2008 situation in detail, because otherwise I have only heard it in theory that Real Estate fails as an investment, yet to see it in reality.

I do not own a home currently, this property would also be like a fallback home, in case I am unable to buy a house in future, due to property rates going absurdly hight (looking at the rates at which it is increasing) and although I might get a higher RoI from other investments, not sure if they'd be high enough for me to be able to buy a house.

 

[feldon]

@mayello If it's a home? Sure but it but don't call it investment please, especially when you are buying it in tier one city, rather invest in real estate of growing tier2 or 3 cities to make actual multiples on your investment in a decade.

 

[jesusismyanchorinthestorm]

@feldon What about as a business? buying agricultural land near home town for cheap and growing something

 

[feldon]

@jesusismyanchorinthestorm Sure as a business you can definitely make it work, coz you are investing your time too, something you don't do with buying residential shit expecting it to be passive income.