Why you MUST buy Real Estate…

 

I am sure you rubbed your eyes when you saw this heading….that too on Subramoney.com (the world believes that I am a RE hater, so be it).

Let me tell you WHO should buy RE, how much, and with how much leverage:

Assumptions:

You are a 48 year old male with a CTC of Rs. 70L, your wife works too and has an income of Rs. 40 Lakhs a year. Your primary residence has been paid off in full and you are likely to inherit a nice big house in a metro from your parents. Your wife too is a only daughter and is likely to inherit one house and that too is in a prime location in a different metro. You have no clue as to when the inheritance will happen.

Your income from other sources is about Rs. 1.75L per month, AND you keep paying 30% tax on that. It sucks. You keep saying this to yourself.

Now you have an opportunity to buy a COMMERCIAL space (office) for Rs. 4 crores, and you are wondering whether to buy. You have about Rs. 1.5cr available and you can rustle up another Rs. 50 L from your wife’s investments. The question is ‘should you buy or should you not’.

THE ANSWER IS: ¬†OF COURSE YOU SHOULD BUY….let us see and say you should…and why:

1. He has a lot of cash sloshing around, and is not invested very wisely: If he has Rs. 2 crores available it means it is lying in some not very efficient funds, it should be used.

2. Assuming he invests Rs. 2 crore of his own money and Rs. 2 crores of borrowed money (possible to borrow for commercial RE also) he will an asset which could start giving him a rent of about Rs. 1.25L a month.

3. It will be a case of negative gearing – and the LOSS that he has on house property will be set off against the salary income – this will reduce his income VERY SMARTLY.

4. He can give it on a big deposit and a very low rent, thus reducing the amount borrowed, as well as the current income.

5. It is easier to let out a commercial property – and he could enter into a longer agreement – with an annual increasing clause.

6.

 

 

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2 Responses to “Why you MUST buy Real Estate…”

  1. Did not understand the point about negative gearing and how income reduces. could you please elablorate

  2. It seems like the idea outlined in the post will help reduce tax on salary & build an asset but I wonder if investing ones surplus in Real Estate makes for a case. Given the weak market conditions coupled with high acquisition cost, high disposition cost, surplus availability, lower appreciation & taxes – getting decent returns on real estate investments seems challenging.

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