A TRUTH THAT WILL STARTLE YOU 100%
A man chooses to buy a house for investment.
House value 1.25 cr
Loan amount 1 cr
Interest rare 10%
After 5 years the value of the house is say 1.6 cr based on 5% compounding
He decides to sell it.
While closing his loan he has to pay up approx Rs 1.5 cr
So his total cost turns out to be
Rs 5 lac registration
Rent 25 lac initial amount
It all equals to Rs 1.8 cr
Against this his house fetches Rs 1.6 cr
Les capital gains would be say approx 3 lac
Add his rent income approx of Rs 15 lac
Add tax saving 3 lac
Total income is equal to 1.75 cr.
So in the end he incurs a loss of Rs 5 lac
If the house had appreciated at even 10% he would be left with a profit of Rs 20 lac
So between 5 lac loss to 20 lac profit is what he makes
On the other hand had he invested the 25 lac in an Equity mutual fund and had done a SIP of Rs 1 lac (approx EMI amt) he would have earned Rs 1.6 cr
(Assume Equity returns of just 12% in this period.)
Net profit would be 1.6 cr less
investment of 85 lac
( 25 lac + 1 lac SIP for 60 months)
= to 75 lac.
He could also earn tax rebates in ELSS schemes upto 2.5 lac taking his earning to Rs 77.5 lac
Now compare Rs 77 lac profit with Rs 2 lac loss or at best Rs 20 lac profit.
Even a bank FD would have provided a net profit of 40 odd lac
Next time think a 1000 times before saying house investment is smart thinking.
The equation will only get worse for longer periods of investing.
Without taking a loan if one were to invest in a house then at best case scenario the returns from the house may come close to that of a mutual fund.
But remember that is without taking a loan.
How many people ever buy a house without taking a loan.