Money in the hand today is worth more than money that will come in tomorrow. Obviously money has a time value.

However questions are never asked like this…

For example a friend has a small cozy flat in one of the suburbs of Mumbai. He paid Rs. 77,000 for it in the year 1976 – The Emergency ensured that he got a flat at that price. A few years later he bought the neighboring flat for Rs. 94,000.

Now he has a decision to take. A builder is offering him Rs. 5 crores for both the flats. He is sure that he should take it.

However the builder wants all the 24 flats in both the wings of the building….and that is beyond my clients call.

Another friend is offering him Rs. 4 crores for the whole deal – immaterial of whether all the flats are sold or not sold.

What should he do? Should he do for the first builder to make good the offer of Rs. 5 crores or should he take the Rs. 4 crores and scoot?

I have given him the solution….readers views welcome….lets have some fun. In case you need to ask questions, I promise to answer them. The figures are a little tweaked.

And for solutions, i do not charge any fees….L O L

Related Articles:

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

  1. I would suggest second option assuming your friend is paying the money immediately and no caveats attached.

    Few reasons why Option #1 is not recommended.

    (1)Chances are high that builder will never get all 24 flats and that will delay the payment further.
    (2) Assuming delay of 12-18 months of delay in getting understanding from all flat owners to buy would further risk the movement in housing prices.
    (3) Never trust builders!

  2. I would suggest he take the money from his friend.
    In case of redevelopment project all members don’t agree to sell to the builder and that delays the process. My own building is to be re-developed but its still on hold for the last 2 years since all the members are not agreeing.

    So second option is the best.

    Rakesh

  3. I agree with earlier poster. Convincing 6 flat owners is easy, 12 is some what difficult. 24 is close to impossible. (Power of Compounding 🙂 ).

  4. Subra,

    Option of taking Rs. 4 crores from friend looks obvious. However, we need to dig little deeper. Could you please tell whether these flats are self occupied or given on rent? If these flats are self occupied, how much your friend has to pay for alternative accommodation? If these flats are given on rent, whether your friend is able to get them vacant without paying anything to tenant? Please advise.

    Regards,

    Ankur

  5. Subra Sir,

    Earlier also i have felt that you ask question with insufficient data but kept quiet. So, this time let me state it and ask questions which first come to mind.
    1. Why does he need to sell both of his flats together ? Why not one ? If he sell’s both, where is he going to stay ? How lucrative/difficult is that option ?
    2. What is he going to do with the money that he gets from this deal ? Does he know how to manage this kind of money effectively such that his long term returns will be better than what his flats could otherwise provide? Does he have a need for such amount of money right now for any reason ?
    3. What if he choses not to sell at all (to either party)? Are there possible circumstances under which he might be forced to sell at lower prices in future ?

    That’s all for now 🙂

    Regards
    Raja

  6. if he needs money in near future go for option b). if he doesnt need money, he can wait it out for many years go for option a). Yes, a) may not materialise ever if 24 people dont agree, my feeling is they never will, even then .. if b) is willing, he can still sell then.

  7. I have similar questions like Raja but inline with TVM(Time value money). What will be the ROI for the money he recieves and expects? What is the cost for the replacement housing he is going to live? Is this an investment property for him than what is the investment expectation for the money he recieves and why now? Can it wait for his retirement period or any urgency to sell?

    WIthout all this data, we can only suggest to take friends money which seems to be hassle free solution

    Vijai

  8. Why does he have to sell? Is he in need of money? Is he anticipating the bubble burst in Mumbai (amazingly high prices)? Cant he sell only one? Can he get a bigger house from the builder at a locality suited to him – rather than waiting for the time builder will buy (if he is interested in properties 🙂 )?
    If after all the analysis – he has only the two options above (i.e. he HAS to sell and to one of these): Sell to builder if he can guarantee the possession the day he wants and builder pays the money upfront. (unlike a house under construction – this is a completed house – no reason why builder should pay price in parts).
    And later don’t fret (or be happy) when the last two tenants of society sell of their flats at different prices.. (if the situation comes that is)..

  9. Sell one now to friend / alternates….with a possible understanding that friend will support redev….sell second once the redev game is closed.

  10. the friend will be the neighbour and he will buy from every body and a net a cool 24 crores from the builders.
    please dont ask the logic ask how he will pay 24*4 core etc

  11. What really pushes the case towards closing the deal early is the uncertainty of the builder’s offer. It is much better also to close deals when we are on the upswing of any market. One year later the builder’s offer may come down simply because the market is down. Recently there was a transaction in Navi Mumbai at Rs. 6 crores. The seller had refused an offer for Rs. 8 crores some time back – the seller was more desperate now!

    Here the seller is not desperate, situation is comfortable, the Rs. 4 crore deal is a single cheque deal, and the money can go perhaps into a bond (like REC). If he tries timing the market…he may get it wrong!!

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes:

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>