Posted by:*S. G. Raja Sekharan*

I had recommended a property investment in my last blog and quite a few people had reached out to me and few did go ahead with the investment. Many did not as they could not fathom the calculations on how the ROI is calculated.

So I have created an excel sheet that is formula driven –you can download it from drop box url here.

In the excel sheet, you can change the numbers and see for yourself.Let me share the big picture.

- You are buying a 2000 sq ft flat at a cost of Rs 5000 per sq ft plus one car park (at Rs 3 lacs). So you commit Rs 103 lacs for the flat.
- The flat is ready in 4 years – i.e. Quarter 4 of 2017
- You pay 20% upfront right away (i.e.20.6 lacs Nov 2013) and take a home loan for the remaining 80% amount (Rs 82.4 lacs) that is paid over 12 equal instalments by the bank
- The home loan rate is 10.5% and you pay the pre emi for the loan for the next 4 years every month. The pre emi that you have paid over four years totals to Rs 18 lacs.
- You sell the flat at Rs. 9000 a sq ft – and get Rs 4 lacs for the car park – you get Rs 184 lacs by selling it in March 2018 (you may ask why Rs 9000 - well that is my forecast of the price of the property after 4 years)

You have paid Rs 20.6 lacs now and then paid a monthly pre emi totalling to Rs 18 lacs – so your total outflow has been 38 lacs.

By selling you get Rs 184 lacs – you repay the loan of Rs. 82.4 lacs – you are still left with Rs. 101.6 lacs

Remove the amount that you have invested i.e. Rs 38 lacs – you will be still be left with a profit of Rs. 63 lacs ( let us leave the change out of our discussion)

So you get Rs 63 lacs profit from this transaction -

Will you be able to save Rs 63 lacs over four years through your salary? Most probably NO

Even though this example is for a three bedroom flat and Rs 100 lacs investment, you can start with Rs. 60 lacs for a two bedroom flat in Prestige Lakeside - and you can go up to a few crores - the mathematics will not change.

If you have any questions - please do come back to me.

If you want to go with the investment - please reach out to my ex student Varun - his number is 99459 50109 - he works for a good real estate advisory and will help you with all the documentation.

Good Recommendation Sir.

Sir, I have few other loan and my current eligibilities for home loan is Rs 40 Lakh, and I can invest Rs 8 to 10 Lakh upfront. can you please suggest any property based on my eligibilities.

how is Godrej E-City Bangalore, there 2 BHK comes to Rs 40-45 lakh in current pre-launch offer. pre-launch offer price is 3800/- per sq ft.

Rajesh – please reach out to me at 98452 63000 -with the funds that you have shared, a two bedroom in Prestige Lakeside can be a reality. Godrej E-city is also a good project.

The maths looks simple . But Down payment of Rs. 20.6L and an EMIs of Rs. 37500 for next 4 Years is what gets the calculation all wrong.

Sibi – I can understand your issue – Please write to me and share with me what is your current loan eligibility and how much can you afford to pay upfront and I will share some similar ideas

I have seen one commercial space in kaggadasapura-vignan nagar main road,Bangalore, area is 2700 sq ft, selling @5700/- per sq ft, on ground floor, near to State bank of India, location is good. expected rent is Rs 50 per sq ft. good for supermarket and bank. in this location commercial space available on 10% increment in rent on every year. as I am staying nearby and I think good investment to get rent and after 4-5 years rent will be same as bank loan EMI and even more. I am not eligible to get this much big loan alone. anyone interested then let me know.

Rajesh – an investment of 1.54 cr and getting an annual rent of 16.2 lacs – this is a perfect commercial property scenario -can you call me at 98452 63000 – I would like to see the property and off course meet you as well

As per my exploration (based on my talks with a person from ICICI bank) we can’t take a joint loan on commercial property. Even I am exploring options to buy a comercial property. Kindly share good potential areas.

What about the tax on sale of property? What’s the net % return post tax?

Sankar -good approach -one surely needs to make any transaction as Tax efficient as possible and also see the ROI post tax and not pre tax.

There are standard ways to manage the tax in real estate capital gains – one is to reinvest the capital gains in another property and just take the principle home ( I prefer this option) – other is through depositing the money in 5 year bonds (which I am not in favour of). There are ways of making it tax efficient – any CA can help.

@Rajesh we can’t get loan for commercial property @ homeloan rates of 10.5%. For commercial property interest rates will be above 15%

Dear Sir,

I always followed your blog, even I want to invest in real estate but don’t have any clue about the same. Kindly guide me!

No, other than you can make this so simpler to understand.

Hello Sir,

Real simple maths. Thanks a lot. I would like to understand on what basis do you think that the appreciation would be 9000 per sqft. ?

Forecasting is not exact science – there is a bit of gut feel and experience that helps – the basis of this is as follows – a similar property by prestige called Shantiniketan was launched by prestige 10 years back – it was launched at Rs1845 psft – which then was a very high price – today 10 years hence the same property is selling for Rs. 6500 psft.

In 4 years at 10% inflation (compounded) the current price of Rs 5000 psft would go up to Rs 7320. Beyond Inflation the other factors that will take it up is the quality of community that it will create ( it will be a good set of 3500-40000 families residing here), also the quality of design that Prestige is well known for will make it a premium property. I do believe that these factors will take it concervatively to Rs 9000 psft – but as I said, forecasts like these come from gut and not from some kind of excel sheet

Hi Sir,

I am not sure if you have already considered stamp duty + registration + vat + service tax + short term capital gains into consideration.

Assuming 6% stamp duty , 1% registration, 1% VAT, 3.09% service tax and 10% of short term capital gains, XIRR is changing to 8.4%

Niraj – if you want to exit – you must exit before the registration – the duties here in Bangalore are around 10-11%.

On the Short term capital gains tax front – I agree, you will need to pay tax on the profits made

1) Calculate with rate Rs 7000/ psft which can not be ruled out.

2) Pay short term capital gain.

Your calculation go for a toss !!

Balram – in any investment, we need to forecast and this forecast of mine is based on my experience. I will not publicly recommend something based on which many of my readers invest without me being sure. If you see my blog – there is only one more real estate recommendation till now in the past three years.

1) Apartment generally appreciate ~10% per annum in most of cases. Therefore, i forcast Rs 7300/- at the end of 4 years.

2) Therefore as per calculation (i am taking same example as mentioned in blog)

Purchase rate – Rs 5000/- psqft (for 2000 Sqft apartment)

Cost of apartment = 20.6 (paid now) + 18L (interest paid) + 82.4 (loan amount) = 121 Lac

Purchase price = 121 Lac (Rate – Rs 5000/- psf)

Sale price = 146 Lac ( Rate – Rs 7300/- psf)

Profit 146 -121 = 25 Lac

Net profit 25 Lac – 5Lac ( Long term capital gain -20%) = 20 Lac

Let me know if i missed something in calculation.

Cheers,

The assumption of 10% appreciation is what I believe is wrong -10% appreciation is due to inflation. Plus there is appreciation due to location growth and the kind of community that gets built – so high end communities have a higher growth. Prestige Shantiniketan for example had a good location and built a good community and so even though it was launched at 1845 psft around 2004 – it is now going around 6500 psft -a 15% CAGR – this is despite the 2008 dip where every asset was affected for 2-3 years. This property has the same characteristics of Prestige Shantiniketan and I expect a 15% CAGR here too over the 4 -4.5 years. Many of my friends have invested and some have exited made money on that investment.

Instead of communicating through this blog, please write to me at rajasekharan.sg@gmail.com– I will share more such data .

I agree! sometime it simply works. You can not predict.

On the other note, i invested in DLF ggn at rate of Rs 2000/psft in 2004 and now ongoing rate is Rs 16000/- psft. You can not simply predict in property appreciation – how it turn out 😉

But i never thot that it work this way.

I agree, PLH is a very good project :–)

Balram – you have got 29-30% CAGR in GGN. That is the power of good location and a good property – premium properties is what I always trust even though they cost more to start with. This is an excellent example of smart investing and good luck

You have not added the 4 years interest on Rs. 20.6 Lacs, which paid at the time of booking. The compund interest comes out to be Rs.10 lacs. so investment is 48 lacs instead of 38lacs and i believe property value after 4 years 9000/Sqft is too optimistic.

gist: making money is not simple.

Rohit – you sure are right on this interest issue – I agree that this needs to be taken – this is a mistake.

This issue of 9000 psft vs other numbers is my view – you have your view – so let us respect that.

I am talking from sheer experience and in forecasts like this, experience matters.

If this works then stop blogging and fooling people, you better ge rich or might be your friend as well.

You yourself are the agent and trying to make 2-3 lakhs in next 12 months…..mbaclassdiscussion..bullshit…

Rahul – please stop being negative – and if you are not in agreement – that is fine – but do not make assumptions about others intentions. I have achieved financial freedom and I am trying to help others now. I wish you well.

The author seems to be a indirect real estate broker giving all his readers information of booking flats and selling it later thus indirectly making others life miserable with artificial price hikes. A wise investor wont suggest this kind of ideas.

Investing at 5000 psft near Hebbal/ Manyata park will appreciate faster than a property in Gunjur village, over next 4 years. I am sure all will agree with this statement.

Going with that logic, why should one prefer PLH in Gunjur/Varthur over (say) Bhartiya city near Manyata park ?

Bharatiya City is also a good bet – many investors have put money in that – in fact there are many such options.I have not recommended it just for one reason – The promoters of Bharatiya city are new to this industry – they have not done any project of this size – that is the only reason – nothing else. if you see – this industry is all about selling and then managing the project well as the project management is a huge task and if you miss it – all the profits are gone due to escalation of costs. A good example is Total Environment – they have good design skills and they can sell – but their delivery is always late due to bad project management. A project of Bharatiya city’s size is too big to take risk with a new builder.

Manyata Tech park is a good location. But not as good as this location of Prestige as this location sits in between Sarjaput (where the new Infosys campus will come) and white field. The number of jobs in this area is much larger than Manyata tech park area

These are my views and you may not agree with me – but we can still be friends 🙂

Oh yes we are friends. How can we let Bhartiya city & Lake habitat discussions come in between our friendship 🙂

I just feel 5K psft is too high a pre-launch price in a place like Gunjur, when you can get ready to move-in flats at 6K or less, near Sarjapur & other IT parks.

This price might just scare the investors away..as even to recover this investment, the price should move to ~8K psft at the time of possession. That means finding a buyer for a 2BHK @ 1 Crore in 2017 in varthur … will you be willing to buy ? ;-)