Announcement

Collapse
No announcement yet.

Repay existing loan or buy additional property for investment?

Collapse
X
Collapse

Repay existing loan or buy additional property for investment?

Last updated: March 13 2012
9 | Posts
2325 | Views
  • Time
  • Show
Clear All
new posts

  • Repay existing loan or buy additional property for investment?

    Hi

    I have an ongoing home loan ~45 lakhs @11% on my existing house in gurgaon, which I use for self habitation.

    I have accumulated some cash ~20 lakhs and need to decided whether to repay my existing home loan or use this money to buy another property (e.g. in 8x, 9x sectors). What makes sense from economic/rational stand point?

    My logic is that if I pay 30% in year 1 for new property and after one year even if the property prices increase by 4%, I get >12% returns (since I have paid only 30% in cash). This beats my cost of interest of 11% even with 4% property appreciation.

    Does this make sense?

    PS: From cash flow perspective, I should be able to manage the existing EMI + periodic demands raised under CLP for potential new property.

    Really looking for guidance !

    Thanks
    Aakash
  • #2

    #2

    Re : Repay existing loan or buy additional property for investment?

    I didi a quick calculation for you. Just check this attached sheet.

    Unless you want to make another property with 5 year horizon, according to me it dosent make sense for you to invest in another house.

    Following assumptions I have taken :-

    1. Investment in a property costing 75,00,000/
    2. First year outflow to builder 40%,second year 30% then 20% then 10%.
    3. I have taken 10% YoY apprecation .
    4. Though I have taken appreciation on full value of property,yet please be aware that you dont get any appreciation on other charges ie IDC,EDC,PLC,Car Parking,IBMS etc etc. Hence actual appreciation will be on 65L. In case you are expecting more than 10% return, thi s shall nullify that gain.
    5. In the first year EMI for 10 Lakh calculated for just 6 months. For other years they are taken for full 12 months.

    I think if you can afford to build another asset and can invest for min 5 year horizon without putting too much strain on your finances, you can think of investing in another property.

    If not then just pay off your loan and relax.

    Do highlight if I have missed any other important point while making this calculation.

    Happy Intesrest free life.


    Originally posted by AakashG View Post
    Hi

    I have an ongoing home loan ~45 lakhs @11% on my existing house in gurgaon, which I use for self habitation.

    I have accumulated some cash ~20 lakhs and need to decided whether to repay my existing home loan or use this money to buy another property (e.g. in 8x, 9x sectors). What makes sense from economic/rational stand point?

    My logic is that if I pay 30% in year 1 for new property and after one year even if the property prices increase by 4%, I get >12% returns (since I have paid only 30% in cash). This beats my cost of interest of 11% even with 4% property appreciation.

    Does this make sense?

    PS: From cash flow perspective, I should be able to manage the existing EMI + periodic demands raised under CLP for potential new property.

    Really looking for guidance !

    Thanks
    Aakash
    Attached Files

    Comment

    • #3

      #3

      Re : Repay existing loan or buy additional property for investment?

      I would definitely try to finish my Loan first. You are taking scenario where you want to sell after builder demands more then 30% . It will add unnecessary stress if funds are issue and in case you are not able to dispose your property...

      In my view one should not over-leverage..

      Comment

      • #4

        #4

        Re : Repay existing loan or buy additional property for investment?

        My suggestion : Invest in a property in upcoming Tier-2 city.

        Also do not forget that Home Loan EMI Interest repayment also gives tax benifits which is upto 1.5 Lac now but can increase in thi Budget so wait for that. Also if you buy a second flat entire Interest amt can be eligible for tax savings.

        Comment

        • #5

          #5

          Re : Repay existing loan or buy additional property for investment?

          I like the tax benefit part and buying property in Tier- 2 cities.

          So, pay down loan so that interest meets the tax deduction for the year and invest rest of it in an upcoming good property(possibly plot) in tier 2 city. Want to keep it close, then look for an upcoming areas that are still cheap but you can hold it for long term like Dharuhera, Bhiwadi, RNE etc.

          Comment

          • #6

            #6

            Re : Repay existing loan or buy additional property for investment?

            AakashG,
            It all depends on your risk potential and following options you have:
            1) HIGH RISK - Invest in some property in New GGN
            Pros - After 2 years you money will grow ~28-35 Lac
            Cons - Not able to exist even the currently principal is invested ie 20 lac.
            Even after you are able to make money, I'm 100% sure you wont repay your loan and would invest in some other property and this cycle would keep on going

            2)MEDIUM RISK - Do part payament of say 8-10 lac towards your existing loan and invest rest of 10-12 lac in some tier 2 city.
            Pros - Your loan tenure/EMI would be reduced
            Cons - Investment in Tier 2 would not give quick returns and you may have to hold for long

            3)LOW RISK - Repay your loan
            Pros - No loan so no tension
            Cons - No investment angle and you cant tell your peers that you have also done investment in property
            Last edited March 13 2012, 06:30 AM.
            Thanks,ROHANm

            Comment

            • #7

              #7

              Re : Repay existing loan or buy additional property for investment?

              Akash,

              I would suggest you go for the 2nd property. Few logics:-
              1. Property appreciation per year is 20% on lower side and 33% on higher side
              2. Since you are buying your second property I assume you are young and in your thirties.
              3. Home loan interest is only 11% while appreciation is far higher.
              4. Over leveraging is the name of the game in India for next decade.
              5. If you want to be safe invest in an area with ready infra so that liquidating is not an issue.

              Comment

              • #8

                #8

                Re : Repay existing loan or buy additional property for investment?

                For your info in 2009, I repaid large amount on my current house and am regretting now.

                Comment

                • #9

                  #9

                  Re : Repay existing loan or buy additional property for investment?

                  Great

                  All this information is great guys - Thank you !

                  I think my risk appetite is moderate to high. Thinking of buying something in New Gurgaon.

                  How about spaze in sec 93? There are very few talks/threads on this?

                  Comment

                  • #10

                    #10

                    Re : Repay existing loan or buy additional property for investment?

                    you can get 1285 sqft unit in Maceo at 3200...total outflow will be around 17 lac.......crescent parc ph 3 1150 unit you can get at 3100 ...total outflow will be around 20 lac.......both good for end use and investment point of view as well....

                    I can be little biased as I am invested in above projects and very happy with my investment....you must do your research as well.....

                    Best of luck...

                    Comment

                    Have any questions or thoughts about this?
                    Working...
                    X