Since the beginning of time this has been one facet of human life where we see a striking commonality of thoughts all across the world. For most people it is the first investment, for many it’s the only investment and further many believe that this is the only investment they will keep making all their lives.

Leveraging Strategy

In the simplest of sense this means taking a loan to fund your real estate purchase. But there is much more to this, especially assumptions and rules that must be complied with. There is not much room for deviation. With a loan in the picture, the financial situation can change dramatically. Here is an illustration:

1. Consider the property cost being Rs 50 lakh inclusive of purchase and registration cost.

2. You will need to put in about 20 per cent i.e. Rs 10 lakh of your own money and balance 80 per cent will be bank funded. Implicit assumption is that you are eligible for getting 80 per cent funding.

3. Consider a floating rate loan. We assume calculations based on property providing a capital gain of about 15 per cent p.a. while the loan interest rate at about 11 per cent p.a.

Profit Scenarios

There are various profit scenarios at your disposal depending on which one of the following option you may want to consider.

Here are 3 examples explained in detail:

1. Do nothing: Just keep paying your loan. The advantages are:

a. Right from month one, you are better off and start making profits. Profit being market value of property minus cost of property along with interest paid till date of calculation.

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