Note: I’m not against owning real estate or property, except for – people need to understand that it’s not what it’s actually believed to be; either in returns or in tax efficiency (yeah, it’s efficient in tax avoidance for sure)
So, I did a small real time calculation of something that I’ve seen grown over the last decade – of a property which many people talk to me about 🙂 as a reference point
2 calcutions that I did –
XIRR on cash flows – payments for that property (apartment) from the blue print stage to the occupancy date.
For standardising the payment schedule, I took the cash outflows (payments) at a half yearly frequency from Jan 2015 until July 2021 (including the cost of interiors). The payment amounts being random amounts.
The property occupied from July 2021
Total cost of the property, including interiors is ₹ 3.85 Cr
” I DID NOT ADD – “
Home Loan Interest Rate
Monthly Maintenance Costs
Property taxes
Corpus fund
Any additional cash outflows on the maintenance of that property
or
Capital Gains taxes on today’s Sale Price
Today’s sale price – ₹ 8.5 Cr
XIRR ???
10.35 %
If the same apartment is sold for ₹ 8 Cr, then the XIRR is @ 9.54%
Point to point 🤷🏼♂🤦🏼♂
That’s the REALITY
Now, people might say – I’ve given it on rent & receive a great cash inflow. Superb 👍🏼
So, I added Rental Income (and still did not negate it with any costs mentioned above or even tax on that rental income) 😀
Been very generous in the rent hikes as well, every year 😂
From Jul 2021 – Dec 2021 – ₹ 1 L rent a month
2022 – ₹ 1.25 L rent a month
2023 – ₹ 1.5 L rent a month
2024 – ₹ 1.75 rent a month
2025 upto 1 Dec – 2 L rent a month
Now the XIRR (with zero taxes paid on rent received or on sale proceeds of ₹ 8 Cr)……
Guess 🙄🤔
It is 11.18%😂
This is the REAL REALITY of just one example
Yes, people make money on property investment, but is it the ONLY one and the GREATEST one?
Not a generic level
Exceptions are always there – Real Estate, Equities, Gold or any other asset class
At a generic level, I think we’ve crossed the phase of the higher returns phase on all assets 😌
I’ll just try to drive this myth of higher returns on property ownership 😀 with some more examples
₹ 2 Cr property purchased in 2008 & sold for ₹ 22 Cr today – Point to point return is 15.15%
₹ 35 L apartment purchased in 2003 & sold for ₹ 2.35 Cr today – Point to point return is 9.04%
₹ 6 L property purchased 30 years ago & sold for ₹ 75 today – Point to point return is 8.78%
&
a ₹ 6 L land purchased 30 years ago & sold @ ₹ 6 Cr today (100 times)….. Still works out to be 16.59% CAGR
Assume, what would happen if I include home loan interest into the landing price of the property & it was used as a consumption asset with no rental income 🤐
I’ll end this analysis with the inclusion of home loan interest payment for the property purchased…
If we take a home loan @ 9% for the property purchase, & for a 15 year tenure – the landing cost of that property (the total ownership purchase cost) including the interest paid to the bank – will be close to DOUBLE the original cost
Assuming that equation….
What’s our return going to be on the sale 😊
It’s not even worth the time to calculate 🤷🏼♂
Real Estate –
It is for consumption
It is for Cash Inflows (rentals) only as another channel
It is an Inter Generational wealth transfer mechanism (yes, it helps a bit)
It is a base for creating a productive asset (factories, industries etc.)
It is for our SURVIVAL – food from farming
It isn’t an Accumulating Asset
It is MOTHER EARTH – we can’t trade it as people do all the time 🙏🏻
