Should I sell my house and invest elsewhere? - 37-year-old corporate worker with rental property in native village

Ans: Evaluating the Option to Hold or Sell Rental Property
As a Certified Financial Planner, I understand the importance of making informed decisions regarding your investments and assets. Let's analyze whether it's beneficial for you to hold onto your rental property or sell it off and reinvest the proceeds to achieve your financial goals.

Understanding Your Financial Situation
Firstly, it's essential to assess your current financial situation. At 47 years old, with a lump sum SIP of 7 lakhs and an annual income of 12 lakhs, you have significant resources to work with. Additionally, your rental property generates a monthly income of 30,000 rupees.

Genuine Appreciation for Your Risk Appetite
I appreciate your risk appetite, which allows for exploring various investment opportunities to maximize returns and achieve your financial objectives.

Analyzing the Rental Property Option
Pros of Holding the Rental Property:
Steady Income: The rental property provides a consistent monthly income stream, contributing to your overall financial stability.
Asset Appreciation: Over time, the value of the property may appreciate, potentially increasing your net worth.
Diversification: Real estate offers diversification benefits, complementing your investment portfolio.
Cons of Holding the Rental Property:
Illiquidity: Real estate assets are relatively illiquid, making it challenging to access funds quickly if needed.
Maintenance Costs: Property ownership entails ongoing maintenance and repair expenses, which may reduce your net rental income.
Market Fluctuations: Real estate markets can be subject to fluctuations, affecting rental yields and property values.
Analyzing the Option to Sell and Reinvest
Pros of Selling and Reinvesting:
Liquidity: Selling the property provides a lump sum of approximately 1 crore rupees, offering liquidity to explore alternative investment avenues.
Potential Higher Returns: By reinvesting the proceeds in high-return investments, such as equity or mutual funds, you may achieve higher long-term growth.
Flexibility: Reinvesting allows for greater flexibility in adjusting your investment strategy based on market conditions and personal financial goals.
Cons of Selling and Reinvesting:
Loss of Rental Income: Selling the property means forfeiting the steady rental income it generates, which may impact your monthly cash flow.
Transaction Costs: Selling property incurs transaction costs, including brokerage fees, taxes, and legal expenses, which reduce the net proceeds from the sale.
Market Risks: Investing the sale proceeds in market-linked instruments exposes you to market risks, including volatility and fluctuations.
Conclusion and Recommendation
After careful consideration, I recommend evaluating both options based on your specific financial goals, risk tolerance, and liquidity requirements. If your primary objective is to achieve a corpus of 5 crores in the next 10 years, selling the property and reinvesting the proceeds in a diversified portfolio of high-return investments may offer better growth potential and liquidity.

However, it's crucial to conduct a detailed analysis, considering factors such as tax implications, transaction costs, and investment strategies. I recommend consulting with a Certified Financial Planner to create a tailored plan that aligns with your long-term financial objectives.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Assessing Your Current Financial Situation
Income and Savings
Your combined monthly take-home income is Rs. 2 lakhs. Your current savings include:

Mutual Funds: Rs. 85 lakhs
Public Provident Fund (PPF): Rs. 18 lakhs
Employees’ Provident Fund (EPF): Rs. 32 lakhs
Other Investments (FD, Savings, Shares): Rs. 25 lakhs
Your monthly savings distribution is as follows:

SIP in Mutual Funds: Rs. 75,000
PPF: Rs. 18,000
EPF: Rs. 25,000
You live in a rented house with a rent of Rs. 14,000 per month.

Evaluating the Decision to Buy a New Flat
Current Housing Situation
Living in a rented house at Rs. 14,000 per month is relatively affordable, especially given your high monthly income. Renting provides flexibility and lower maintenance costs compared to owning.

Financial Impact of Buying a New Flat
Purchasing a new flat would involve a significant financial commitment, including a home loan, maintenance costs, property taxes, and other associated expenses. This would reduce your investable surplus and potentially impact your ability to meet your financial goals.

Comparative Analysis: Rent vs. Buy
Renting: Offers flexibility, lower upfront costs, and avoids long-term debt.
Buying: Provides stability and potential appreciation in property value but requires a large financial commitment and ongoing expenses.
Long-term Financial Goals
Target: Rs. 15 Crores by Age 60
To achieve your target of Rs. 15 crores by age 60, you need to focus on maximizing your investments' growth while maintaining a balanced risk profile.

Current Investments and Growth Potential
Mutual Funds: Your Rs. 85 lakhs in mutual funds can grow substantially with continued SIPs and market performance.
PPF and EPF: These provide stable, long-term growth with tax benefits, contributing to your retirement corpus.
Other Investments: FDs, savings, and shares add diversification but should be reviewed for optimal growth potential.
Investment Strategy
Enhancing SIP Contributions
Continuing and potentially increasing your SIP contributions will leverage the power of compounding. Focus on a mix of equity and debt funds to balance growth and risk.

Recommendation: Consider increasing your SIP by a percentage each year to keep pace with inflation and maximize returns.
Diversification and Rebalancing
Ensure your portfolio is diversified across various asset classes to minimize risk and optimize returns. Periodically review and rebalance your portfolio to stay aligned with your financial goals.

Recommendation: Include large-cap, mid-cap, and multi-cap funds for equity exposure. Balance with debt funds for stability.
Utilising Tax-efficient Investments
Maximize your contributions to tax-efficient instruments like PPF and EPF. These not only provide stable returns but also offer significant tax benefits.

Recommendation: Continue maximizing your PPF contributions and ensure your EPF contributions are optimized.
Emergency Fund Management
Maintaining a robust emergency fund is crucial. Your current Rs. 25 lakhs in FD and savings can be used to cover unexpected expenses.

Recommendation: Keep at least 6-12 months of living expenses in easily accessible liquid assets.
Estate Planning and Insurance
Life and Health Insurance
Ensure adequate life and health insurance coverage for your family, especially considering your elder son's needs. This will protect your family's financial stability in case of unforeseen events.

Recommendation: Opt for a comprehensive health insurance plan and term insurance for sufficient coverage.
Estate Planning
Create a comprehensive estate plan, including a will, to ensure your assets are distributed according to your wishes and your family is taken care of.

Recommendation: Consult a legal expert to draft a will and set up any necessary trusts.
Education and Future Planning for Children
Special Needs Planning
Given your elder son's Down syndrome, consider creating a financial plan that ensures his long-term care and support.

Recommendation: Look into setting up a special needs trust and explore government schemes and benefits available for children with disabilities.
Education Fund for Younger Son
Start a dedicated investment plan for your younger son's education. This can include child-specific mutual funds or education-focused investment plans.

Recommendation: Allocate a portion of your monthly savings towards an education fund.
Final Insights
Given your strong financial position and disciplined saving habits, you are well on your way to achieving your long-term goals. However, buying a new flat at this stage might not be the best financial decision if it significantly impacts your investment capacity.

Focusing on growing your investment portfolio and maintaining a balanced, diversified approach will help you accumulate the desired Rs. 15 crores by age 60. Ensuring adequate insurance coverage and planning for your elder son's special needs will further secure your family's future.

Stay disciplined with your investments, periodically review your portfolio, and make adjustments as needed to stay on track. Consulting with a Certified Financial Planner can provide personalized advice and help optimize your financial strategy.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Yes it is advisable that you exit that non growing property investment and reinvest the proceeds in mutual funds for long term horizon.

*Investments in mutual funds are subject to market risks. Please read all scheme related documents carefully before investing.

Happy Investing