Saturday, October 26, 2013

Prestige Lakeside - How to make 63 lacs profits by investing 38 lacs in 4 years


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
This is one smart way to get rich and retire early
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.
I also would like to have comments from my readers and people who have already invested in this property

16 comments:

  1. 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.

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    1. 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.

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  2. 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.

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    Replies
    1. 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

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  3. 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.

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    Replies
    1. 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

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    2. 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.

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  4. What about the tax on sale of property? What's the net % return post tax?

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    Replies
    1. 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.

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

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  6. 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!

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

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  8. 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. ?

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    Replies
    1. 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

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  9. 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%

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    Replies
    1. 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

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