Those Who Believe
Investing in House Will Fetch Perpetual Rental Yield is the Very good
Investment Idea - True Facts...
By
Mr. B. Padmanaban, CFPCM,
Certified
Financial Planner, Chennai.
Many feel that real estate investment is a great investment and
one of the important reasons are, we can get rent as long as we are holding
that property. Yes, but at what rate???
First of all, when somebody sells real estate they can not enjoy
all the growth it generates and 20% of the growth will go for the capital gain
which many do not aware.
Those who know of all those things, will not bother much on
this.
I met one of my friends, and he told me about one of his
investment he made and I will explain the same here.
He bought a land in Chennai outskirts in 1998 for Rs. 4 lac and
subsequently he spent Rs. 3 lac in 2002 and construct a house and he is telling
me if I sell I will be getting about Rs. 60 Lakhs and moreover it fetches Rs.10,000
as rent.
According to him it is
one of the best investment and many of his family members also believe the
same. Their mindset is not planning to sell in the near future and they would
love to receive that Rs.10,000 as rent and incremental rental yield as the year
goes by.
|
1998
|
₹ 4,00,000
|
₹ 6,52,189
|
|
2002
|
₹ 3,00,000
|
₹ 3,00,000
|
|
2002
|
|
₹ 9,52,189
|
|
2017
|
Present Value ( @ 15%
growth)
|
₹ 59,55,247
|
|
2017
|
Current Value Expected
4 house
|
₹ 60,00,000
|
|
2017
|
Rental Yield
|
₹ 10,000
|
|
Sensex on 6th January
1998
|
3,719
|
|
Sensex on 6th January
2017
|
26,760
|
|
Number of Years
|
19
|
|
CAGR for the last 19
Years
|
10.95%
|
|
If I apply 2% dividend
Yield
|
2%
|
|
Total return at index
level is
|
13%
|
Let us assume as per his expectation the property can be sold
for Rs. 60 Lakhs. If they put the same money in a balanced fund assume it
generates only 12% per annum he takes only 9% which is Rs. 45,000 per month.
 |
| B. Padmanaban, CFP, CHENNAI |
The remaining 3% is growing with principal. Over a period, the principal also
grow much better than the real estate growth. Investors are very emotional and
happy for Rs. 10,000 because it is their preferred investment and never felt
that they are losing so much.
I have taken Sensex data during the same period and Sensex has
delivered 11% and if we add the dividend yield 2% then it comes to 13% and I
applied 13% growth from the day it is invested in real estate. If we look at
the mutual fund investment it is more than double than the Sensex returns.
They can part sell and they can take more money if they need and
that is not possible in real estate and those rental is taxable and here it is
not.
Last, but not the least, whenever we want to
take some decision which determines our future investments, we need to spend
good amount of time. If we look at the data without any emotion we will
fortunately make the right decision! Unfortunately bigger decision are taking
very quickly.,
Mr. B.
Padmanaban, CFPCM
Certified
Financial Planner
9884349173
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