Subra one does not know whether I will pop off at 45 or like A K Hangal at the age of 98. So in order to live peacefully, I need to create a serious amount of income and wealth. – So said a reader who is about 40 years of age.

He also said ‘the only way I can do that is by leveraging and buying a lot of real estate’.

Ok it goes somewhat like this…Let us say a person earns Rs. 250,000 per month, after expenses, say he has about 150,000 available for paying EMI for a house. It means he can buy a house worth Rs. 1.75 crores – make a Rs. 25,00,000 down payment and borrow Rs. 1.50 crores. He can give the house on rent and earn about Rs. 500,000 as rent (annual).

After 4 years (by which time real estate will double, right) he can sell the house for Rs. 3.5 crores and buy another house for Rs. 6 crores. Rs. 2.5 crores will be a loan and on this he will have to pay Rs. 2.5L per month as an EMI….

After another 4 years….blah blah….

I am sure you are getting the hang.

Will this work? Have people tried this before? What is the risk?

Well it will work for sure. However for this to be a real success you should have a real big PORTFOLIO already so that if something goes wrong, you have a fall back option.

What are the risks:

-to repay the loans the current income has to be enough so that negative leveraging does not affect the lifestyle

-the surplus on a monthly basis should remain constant or keep increasing so that the EMIs can be repaid

– the house has to appreciate by a rate higher than the interest rate for long periods ofย  time.

– the house has to be on rent continuously and there should be no gaps while being on rent

– if the income stops for any reason whatever the landlord should be able to sell at a price high enough so that the loan can be repaid, AND there is a surplus left.

This is a high risk strategy does not suit me at my age, net worth, and my love for equity.

Negative Gearing is not something which I like too much, and have benefited being conservative…in the past….


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  1. There are no guarantees or warranties to life, events in one’s life, and decisions taken in one’s life. Every breath is a breath only after it is consumed ๐Ÿ™‚ Until then the fate of each breath hangs in balance!

    So, u may plan (which is good and must be done) to the best of ur intelligence, aptitude, and ability, but 80% of the time it may not turn out as u expected and 20% of the time it will ๐Ÿ™‚ Again this 80:20 is just a silly rule devised by another human being.

  2. Vani,

    it is not WRONG to plan. You just need to know what you will do if some of those things go wrong. If you can see your income stream for 4 years, do not commit to a 20 year EMI. For e.g. if you have a Rs. 20L salary and a Rs. 2L dividend income, and your EMI is Rs. 2L – you CANNOT GO WRONG AT ALL…that is what I am trying to say.

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