Real Estate VS Fixed Deposits

rjayakkumar · Post by **rjayakkumar** » Wed Aug 17, 2011 2:22 pm

Hi,

I had returned back to India from USA recently. I need feedback on the options I have in investing the money I have in hand.

Have 2 houses in chennai, for which I had already repaid the loan.So not desperate to own another house just for the sake of it. I have around Rs 40L cash in hand, which I had put in FD's.Getting interest of around Rs 4L per annum (around 32K monthly).I want to know whether it is a smarter move to invest around 35-38L in buying a house (not interested to buy it on bank loan. Ready to use this liquid cash in hand) or to continue with the FD's.

I am in confusion because of the following.

(1) is it OK to have this bulk amount in FD's (will it not be a problem,having this huge amount?)
(2)Even if I buy a house for around 40L, I will be getting around max. 10K as rent (for a house of around 900 sq.ft, which can be bought for 40L in chennai).So I will be loosing around 20K per month (32K-10K), if I utilise the amount to buy a house?.
(3) As I will be buying this house only as investment,even if I sell the house in another 6 years, I will be getting a profit (approx.)of around , say,13L(just an assumption), but I will be loosing around 14L (20K*6*12)till that time.So by the time I sell the house,I don't see any gain in investing in house over investing in FD's.Hope my assumption is correct and not missing out any points.

Pls let me know the better option to invest the liquid cash for better returns.

r2ihyd2010 · Post by **r2ihyd2010** » Wed Aug 17, 2011 3:47 pm

If the house appreciates at 8% per yr then you would be better of with house(Rent + Appreciation). It could appreciate more or less than 8%, that is the uncertainty you would have with the house.

Initially I mentioned 4% which is not correct, so editing it. Took 14L mentioned above as the total interest which was wrong.

Now I think what sid_earth mentioned below in post # 6 is better than the 2 options you mentioned.

satbab · Post by **satbab** » Wed Aug 17, 2011 6:05 pm

rjayakkumar;405253Hi,

I had returned back to India from USA recently. I need feedback on the options I have in investing the money I have in hand.

Have 2 houses in chennai, for which I had already repaid the loan.So not desperate to own another house just for the sake of it. I have around Rs 40L cash in hand, which I had put in FD's.Getting interest of around Rs 4L per annum (around 32K monthly).I want to know whether it is a smarter move to invest around 35-38L in buying a house (not interested to buy it on bank loan. Ready to use this liquid cash in hand) or to continue with the FD's.

I am in confusion because of the following.

(1) is it OK to have this bulk amount in FD's (will it not be a problem,having this huge amount?)
(2)Even if I buy a house for around 40L, I will be getting around max. 10K as rent (for a house of around 900 sq.ft, which can be bought for 40L in chennai).So I will be loosing around 20K per month (32K-10K), if I utilise the amount to buy a house?.
(3) As I will be buying this house only as investment,even if I sell the house in another 6 years, I will be getting a profit (approx.)of around , say,13L(just an assumption), but I will be loosing around 14L (20K*6*12)till that time.So by the time I sell the house,I don't see any gain in investing in house over investing in FD's.Hope my assumption is correct and not missing out any points.

Pls let me know the better option to invest the liquid cash for better returns.

If you are interested you can invest in RE in a Tier2 city like Coimbatore instead of RE in Chennai.

essjay · Post by **essjay** » Wed Aug 17, 2011 7:39 pm

With FDs you are assuming that you will always get a 10% return. That may be the case now but can change (may increase or decrease) in a couple of years. Also, FDs are more liquid. If you need, say 5 or 10 lakhs, you can withdraw that money. If it is invested in a flat, this amount is not accessible.

LifeIsBeautiful · Post by **LifeIsBeautiful** » Thu Aug 18, 2011 1:32 am

r2ihyd2010;405255If the house appreciates at 4% per yr then you would be better of with house(Rent + Appreciation). It could appreciate more or less than 4%, that is the uncertainty you would have with the house. If you do not need the money in next few yrs, I think it is better to go with the house.

Can you please prvoide some calculation. It will help me to understand clearly.

TIA

Sid · Post by **Sid** » Thu Aug 18, 2011 1:40 am

If I were you, I would not buy the 3rd house. IMO, too much of IL-liquidity. I would find few well diversified mutual funds, and start a Systematic Investment Plan (SIP), where I put Rs 25K per week, and increase/decrease as I see opportunity in the stock market. This will utilize 12 Lakhs per year. The remaining money (28 Lakh) will be divided equally in to 2 parts, and put in 2 FDs (one of 390 day duration, and another 590 day duration). When the first FD matures, I will take out another 12 lakh for MF investment for the next year, and put the remaining money in another 390 day FD... and so on...

cmk786 · Post by **cmk786** » Thu Aug 18, 2011 6:11 am

If I look at some of the investment plans. They look so complicated and looks like we spend rest of our life by doing these complex investment calculations and planings and go crazy on them. But me funda is to keep the life in low profile and try to save as much as posible and also try to enjoy the life at the same time. I do not like to live my life going overboard on doing these kinds of calculations and also we try to focus so much on the future basing on this inflation fears that we get over cautious and forget to enjoy with what we have today by getting too much concerned about what happens tomorrow.

cf_r2i · Post by **cf_r2i** » Thu Aug 18, 2011 6:30 am

sid_earth;405395If I were you, I would not buy the 3rd house. IMO, too much of IL-liquidity. I would find few well diversified mutual funds, and start a Systematic Investment Plan (SIP), where I put Rs 25K per week, and increase/decrease as I see opportunity in the stock market. This will utilize 12 Lakhs per year. The remaining money (28 Lakh) will be divided equally in to 2 parts, and put in 2 FDs (one of 390 day duration, and another 590 day duration). When the first FD matures, I will take out another 12 lakh for MF investment for the next year, and put the remaining money in another 390 day FD... and so on...

sid_earth little bit off topic sorry to hijack. What are tax implications on SIP for US residents. If OP is US resident then it would benefit to have that factored in. Thanks.

Sid · Post by **Sid** » Thu Aug 18, 2011 6:41 am

cf_r2i;405440sid_earth little bit off topic sorry to hijack. What are tax implications on SIP for US residents. If OP is US resident then it would benefit to have that factored in. Thanks.

Implications are Profound! I would not recommend anyone to invest in non-US Mutual Funds if they are US residents (or USC). Just search for PFIC on this forum, and you would know why. I tried to understand all the laws, but after several hours, decided it was not worth it. The tax consequences are huge. But then, one can still invest in individual stocks. That won't be a problem from PFIC perspective. Regular US taxes on gains will still apply.

Regardless of anything, one would have to annually file FBAR if even a single investment accounts exceeds 10K.

mn_op · Post by **mn_op** » Thu Aug 18, 2011 10:43 am

Is OP US citizen? If yes, he may not be able to by equities...but I guess he can always by mutual funds in India.