This Slide Share compares the investment in Real Estate (Apartment Flat) with borrowed money and Equity Mutual Fund. In other words, it is a comparison between EMI vs SIP (Systematic Investment Plan).

1. ‘Investing’ in
Real Estate?
Reflect on it!

2. Well…
First let’s make it clear what really intend and what not.
Here we are compare is it worth considering buying an APARTMENT FLAT as an
INVESTMENT, by funding it with a LOAN
OR
You will be better off investing Equity Oriented Mutual Funds
Though, financially, this applies for your purchase of a
flat for LIVING (self occupancy) as well, for the reason
there are some things money can’t buy , HOME, your
‘OWN’ home, being such a priceless thing, these
calculations may not be rightfully made applicable to it.
However, if you think buying a second apartment
flat is great real estate investment idea, then
you have a real great learning here.

3. So, what we have done here is…
• Considered a scenario of buying an apartment flat (say it’s worth 50 Lac)
• Assumed, this purchase will be 80% funded by 20 year housing loan (Say 40 Lac) at a
fixed rate of interest rate (say 10%)
• Remaining 20% is paid as down payment (say 10 Lac)
To make the case stronger in it’s favour,
• we considered this property is ‘Ready-To-Move-In’ immediately after purchase
• this property is let out for rent (say Rs. 15,000 a month) and factored in an annual
increase of the rent (@ 5%)
• we, also have considered, net tax savings available on the interest payment
• Further we assumed this sum of net of rental income (post maintenance expenses
and property taxes @ 5% of rent) and net of tax saved money will be invested in
Equity Mutual Funds (say, @ CAGR 15%) to maximize the returns
• We have obviously accounted for appreciation in the value of the property (Say, @
CAGR 10%)

4. We have also consider some other things of calculations
• Investor being in highest tax slab (@ 30%)
• Nominal Rate of Inflation (Say @ 7%)
• Nominal Discount Rate for future Cash flows (Say @ 7%)
We’ve compared the above scenario with investments in
Equity Oriented Mutual Funds (Say @ CAGR 15%) as
alternative, where
• Down Payment Paid to acquire property is invested in lump sum
• EMI’s paid are invested under the Systematic Investment Plan (SIP)

5. So, who won?!

6. So, what we’ve done is:
• We added all the gains, tax benefits, present value of future cash flows and
appreciation on the value of the property…
• From the above sum we deducted the Outstanding Loan amount to arrive at the
worth of the property if it were to be sold on that day.
• Then compared it with Equity MF’s projected account balance
Property Equity MF
2016 993,105 10,38,601
2020 36,98,762 53,94,191
2025 83,16,175 1,50,09,013
2030 1,58,97,744 3,01,75,214
2035 2,74,56,305 7,72,66,833
2.7 Crore
TAXABLE!!*
7.7 Crore
Tax Free!!*
* As per current Tax Rules; property gains will attract Long Term Capital Gain Tax @20% after Indexation
where as Long Term Capital Gains from Equity MF’s are fully exempt from tax.
Have a look at the
numbers beside…result
is boldly visible!
In case you want to be
sure of the calculations
and see in detail refer
the next slide

7. Real Estate with Home Loan (Apartment Flat) Vs Equity MF
Rental
Income
Rate of
Inflation
Discount
Rate for
Future
Cash
Flows
Down
Payment
Loan
Amount
Loan
Tenure
(Years)
Annual
Interest
Rate
No. of
Payments
Per Year
Rate of Net*
Appreciation
of Property
Rate of
Return on
Investment
(Equity MF)
15,000 7.00% 7.00% 1,000,000 4,000,000 20 10.00% 12 10.00% 15.00%
Year Year No.
Instlmt. /
EMI No.
Rental
Income
(increasin
g @ of
Inflation
every
year)
Maintena
nce Exp
(@ 5% of
Rental
Income)
Principal
Repay
Interest
Payment
on Loan
EMI Loan Balance
Tax Saving
( ‘-’ Figure)
OR
Additional
Tax
( ‘+’ Figure)
[=30% Tax on
(Rental
Income-30%
allowable
maint.) -
(Interest on
Home Loan)]
Effective
Post-Tax Net
Income
[=Rent-
Maint Exp-
Interest
Pymt on
Loan-Tax]
Present
Value of
Net
Income
Cumulative
Value of the
Net House
Property
Income
Invested in
Equity
Oriented
Mutual Fund
Net worth of
the Property
[= Market
Value of the
Property
(i.e., Net
Appreciated
Value) - Loan
Balance]
Total Value of
the Asset (=
Net worth of
the Property +
Cumulative
Value of
Income From
House
Property)
Value of the
Corpus if the
Down
Payment &
EMI Amount is
Invested in
Equity MF as
SIP
2016 1 1 15,000 750 -5,268 -33,333 -38,601 3,994,732 -6,850 -12,233 -12,162 -12,162 1,005,268 993,105 1,038,601
2020 5 59 19,662 983 -8,524 -30,077 -38,601 3,600,693 -4,894 -6,504 -4,615 -753,095 4,451,857 3,698,762 5,394,191
2025 10 120 27,577 1,379 -14,142 -24,459 -38,601 2,920,972 -1,547 3,285 1,635 -1,731,565 10,047,740 8,316,175 15,009,013
2030 15 169 38,678 1,934 -21,237 -17,364 -38,601 2,062,386 2,913 16,467 6,162 -2,926,111 18,823,855 15,897,744 30,175,214
2035 20 240 54,248 2,712 -38,282 -319 -38,601 0 11,296 39,920 9,884 -6,181,194 33,637,500 27,456,305 77,266,833
Here is the table showing details of the components considered…
You can access the above spreadsheet @ http://bit.ly/HomeLoan-Vs-MF,
If you wish to do the analysis with your own set of numbers.

8. From beginning to the end,
Equity MF beats the
Property Investment by
large margin!

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