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Weigh your rental income against interest on savings

Mint, Hindustan Times and NDTV, bring you a personal finance show, "Let's Talk Money". The weekly call-in show, anchored by Monika Halan, editor, Mint Money, and Manisha Natarajan, senior anchor, NDTV, aims to answer viewers' questions about money-related issues.

india Updated: Sep 05, 2010 23:18 IST

Mint, Hindustan Times and NDTV, bring you a personal finance show, "Let's Talk Money". The weekly call-in show, anchored by Monika Halan, editor, Mint Money, and Manisha Natarajan, senior anchor, NDTV, aims to answer viewers' questions about money-related issues. Here are edited excerpts from the show that aired over the weekend on NDTV Profit and NDTV.

Amit Kukreja, 37, IT professional from Gurgaon and father of two:

I currently own two houses — one is self-occupied and the other one leased out. The latter is an independent house developed by a reputed builder and has appreciated significantly in the last one year...It's now valued at R3 crore and gives me a monthly rental income of R28,000. The property has an ongoing loan of about

R24 lakh. Should I sell off the house and invest the sale proceeds in other investment avenues (assured-rent office space, plot, equity funds) or stay invested?

Halan: In terms of net worth it's looking very good, but it needs a little bit of restructuring. The yield is very low at 1.12% , If you were to sell this house and put the money in a fixed deposit, you will do significantly better without worrying about maintenance so you should actually sell this property and pay off the loans on both your houses.

Natarajan: Absolutely. And I do suggest that you do look at another property, a flat maybe (for R1 crore)...which will give you a much better rental yield...if the rental yield is close to your savings account rate of about 3-4%, that's a good investment because you will also see capital appreciation on your property. Take the remaining R2 crore, pay off the loans that you need to and then whatever amount you have remaining, stagger it out in equity mutual funds.

Halan: There is a product called systematic transfer plan. You hit a liquid fund with that R1 crore, then you give instructions to transfer that money periodically to an equity fund, a mid-cap fund or a large-cap fund.

Venkatraman, 31, IT professional from Chennai, single:

I earn R47,000 as salary and am repaying these loans: 1) Citibank personal loan R5,948 (per month, 2 years left), HDFC Bank personal loan R9,653 (3.5 years left), SBI car loan R7,824 (3.5 years left). LIC Housing Finance mortgage loan R9,511 (17.5 years left). I don't have any personal medical insurance. I am in a dilemma whether to do a debt consolidation and then start investing.

Natarajan: Venkat, loans are eating up 70% of your income. Anything above 50% is really dangerous. You will have to figure out how to start repaying it very quickly. You told us in the email that you took this loan for your sister's marriage. Well, what can we say, sometimes these things happen and loans become unavoidable. But with the income that you are earning, unless you are supporting other people in the family, there must be at least a little bit of room for savings.

Venkatraman: Yes, I am supporting my parents.

Natarajan: There are no easy answers really and I would say for at least the next one year forget everything. Even small things like eating out and movies have to stop. A car loan could have been avoided, but there is nothing you can do about it right now. You will get some bonuses, some lump sums from your job. Use every opportunity to repay your loans. You just have to get loan-free and think of it as a crusade or as a mission. First, just pay back your personal loans which are expensive. There is no point in thinking about savings and investing that money, before you are done with your loans. We do think that you should take medical insurance. Life insurance can wait till you get married.