Before we get into specifics here are General Principles to follow :

- We look at value created in long-term
- A bird in hand is better two in bush ( Liquidity is valuable and its ok to pay some premium for liquidity)
- When you cannot quantify risk it means you do not understand it fully
- Its always good to assign probabilities to outcomes so you don't plan for best case scenarios.
- With these principles in mind let us look at your problem and in fact any such problem

**Option 1: You invest your money in Buying a house**

So on day 1 your cash flow is -40 lacs and you have an equivalent asset. Lets analyze what have you got.

An asset which is worth 40 lacs

Depending on real estate growth it might grow by certain amount lets say 5 % annually.

You might get some rental income lets say 10 k monthly from it

You have some basic maintenance cost on the house maybe 3 k per month

So your monthly net cash flow is 7 K

Let's say your rental income increases by 5 % every year

So In 10 years, you will have an asset which has appreciated to = 40*(1+5%)^10 =65.15 lacs and you made an annual income of 84 k in the first year which increased at 5 % every year.

For the rental income lets say your tax bracket is 20 % so you actually earned only 5 k net income per month and let's say you invest it in some monthly SIP or any other investment.

At 10 years you calculate the total value of your investment. I used Bodhik SIP Calculator to calculate value if it was only 5k standard investment it came to around 10.33 lacs all through but your investment will change as your rental income increases you can do an excel to calculate it will be let's say close 13 lacs

So at the end of 10 years, you have 13 lacs in liquid cash + house which is possibly worth 65 lacs

Now let's say the house is not that liquid so you want to discount the gains by 10 % as liquidity premium which essentially means the market rate is X but if you are ready to sell the asset for 0.9 X its liquidity improves multifold, so we are left with total value of 73 lacs

Here is the best way to get

**Option 2: House financed by partly by bank rest of the money in FD**

You buy the same 40 lac house financed 75% by bank

So you have 30 lac loan and an EMI of 27 K

So you have the house and now you can earn the same rent as we discussed in the option 1

You can use the rent to pay part of your EMI

You can also deploy your money in a fixed deposit and get returns lets say 9.5 % as you say so that's 23750 monthly ( its approximated) will be a little less 20 % tax and it gets reduced to 19000

So you can similarly build a simple cash flow excel as your rent will increase and in year 2 or 3 you will break even

I will leave you to do those calculations or you can pay me to do it for you

**Option 3: Chuck house Invest all in FD , invest proceeds in MF**

You chuck house and invest all your money in FD

Returns are 19 k per month, you invest this money in aggressive SIP every month

So at the end of 10 years, you will have your principle in FD 40 lacs

This SIP if we assume 12 % return will be worth 44 lacs in 10 years

So at the end of 10 years, you have liquid 84 lacs

**Option 4: Chuck house invest all in MF Lumpsum**

Let's assume all of it grows at 10 %.

At end of 10 years, you will have about 1.03 crores

Option 5: Chuck everything Put everything in FD at 9.5 %

You will have pre-tax 94 lacs at 9 % annum FD

Post-tax it will be different as tax gets deducted based on your hurdle rate.

Before we get into specifics here are General Principles to follow :

- We look at value created in long-term
- A bird in hand is better two in bush ( Liquidity is valuable and its ok to pay some premium for liquidity)
- When you cannot quantify risk it means you do not understand it fully
- Its always good to assign probabilities to outcomes so you don't plan for best case scenarios.
- With these principles in mind let us look at your problem and in fact any such problem

**Option 1: You invest your money in Buying a house**

So on day 1 your cash flow is -40 lacs and you have an equivalent asset. Lets analyze what have you got.

An asset which is worth 40 lacs

Depending on real estate growth it might grow by certain amount lets say 5 % annually.

You might get some rental income lets say 10 k monthly from it

You have some basic maintenance cost on the house maybe 3 k per month

So your monthly net cash flow is 7 K

Let's say your rental income increases by 5 % every year

So In 10 years, you will have an asset which has appreciated to = 40*(1+5%)^10 =65.15 lacs and you made an annual income of 84 k in the first year which increased at 5 % every year.

For the rental income lets say your tax bracket is 20 % so you actually earned only 5 k net income per month and let's say you invest it in some monthly SIP or any other investment.

At 10 years you calculate the total value of your investment. I used Bodhik SIP Calculator to calculate value if it was only 5k standard investment it came to around 10.33 lacs all through but your investment will change as your rental income increases you can do an excel to calculate it will be let's say close 13 lacs

So at the end of 10 years, you have 13 lacs in liquid cash + house which is possibly worth 65 lacs

Now let's say the house is not that liquid so you want to discount the gains by 10 % as liquidity premium which essentially means the market rate is X but if you are ready to sell the asset for 0.9 X its liquidity improves multifold, so we are left with total value of 73 lacs

Here is the best way to get

**Option 2: House financed by partly by bank rest of the money in FD**

You buy the same 40 lac house financed 75% by bank

So you have 30 lac loan and an EMI of 27 K

So you have the house and now you can earn the same rent as we discussed in the option 1

You can use the rent to pay part of your EMI

You can also deploy your money in a fixed deposit and get returns lets say 9.5 % as you say so that's 23750 monthly ( its approximated) will be a little less 20 % tax and it gets reduced to 19000

So you can similarly build a simple cash flow excel as your rent will increase and in year 2 or 3 you will break even

I will leave you to do those calculations or you can pay me to do it for you

**Option 3: Chuck house Invest all in FD , invest proceeds in MF**

You chuck house and invest all your money in FD

Returns are 19 k per month, you invest this money in aggressive SIP every month

So at the end of 10 years, you will have your principle in FD 40 lacs

This SIP if we assume 12 % return will be worth 44 lacs in 10 years

So at the end of 10 years, you have liquid 84 lacs

**Option 4: Chuck house invest all in MF Lumpsum**

Let's assume all of it grows at 10 %.

At end of 10 years, you will have about 1.03 crores

Option 5: Chuck everything Put everything in FD at 9.5 %

You will have pre-tax 94 lacs at 9 % annum FD

Post-tax it will be different as tax gets deducted based on your hurdle rate.

If you surplus amount of money with you, then you can choose real estate investment, but for periodic investments SIP investments in mutual funds are preferred over real estate investments.

]]>FDs these days give very low returns after tax. So, I would also prefer to go with Mutual funds only. At least I can withdraw my money when needed. There's a hope to get better returns as well. ]]>