Seeking Advice on Whether to Continue Loan on Third Property | Reader Question

Ans: Your current debt of Rs 79 lakh is significant. Selling your first flat could reduce your loan burden by Rs 50 lakh, leaving Rs 29 lakh outstanding. However, decisions should align with long-term goals, affordability, and potential returns.

Here’s a breakdown to help you decide:

Option 1: Sell the Flat and Reduce Debt
Advantages:
Lower Debt Burden: Reduces loans to Rs 29 lakh, significantly decreasing EMI obligations.
Better Cash Flow: Frees up monthly cash for other financial goals or investments.
Reduced Interest Cost: Paying off Rs 50 lakh immediately lowers overall interest payments, saving a substantial amount.
Disadvantages:
Loss of Asset Growth Potential: Real estate prices may appreciate over the years. Selling might mean losing future capital appreciation.
No Rental Income: Selling eliminates the passive income that currently covers your flat’s EMI.
Option 2: Retain Both Properties and Focus on Prepayments
Advantages:
Asset Appreciation: You retain ownership of both properties, benefiting from potential price appreciation over time.
Rental Income: Ongoing rental income can contribute to paying off the flat’s EMI, keeping cash flow stable.
Disadvantages:
High Debt Pressure: Managing a Rs 79 lakh loan requires disciplined budgeting and significant prepayments to reduce interest costs.
Interest Accumulation: Continuing with high debt over the long term increases total interest paid.
Recommended Approach
Selling the Flat May Be Better If:
You prioritise reducing stress from high debt.
You don’t foresee substantial appreciation in the flat’s value.
Clearing a large portion of your debt aligns with your financial comfort.
Retaining the Flat May Be Better If:
You can afford current EMIs and have surplus funds for regular prepayments.
The flat is in a location with strong appreciation potential.
Passive rental income is a key component of your financial plan.
Practical Advice
Evaluate Loan Interest Rates: Check the interest rates for both loans. Prioritise prepaying the one with the highest rate.
Review Budget: Assess whether prepayments are feasible without compromising financial security.
Consider Property Market Trends: Evaluate the appreciation potential of your flat before deciding to sell.
Seek Professional Guidance: A Certified Financial Planner can assess your risk tolerance, long-term goals, and cash flow needs to offer tailored advice.
Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

Ans: You have shown good intent by selling gold and clearing your debts.

Still, this new flat purchase needs careful review from all angles.

Let us assess your full situation and suggest a balanced, long-term approach.

This answer looks at every part of your current financial life.

Current Home and Existing Loan
Your current flat was bought for Rs.67 lakhs four years back.

Out of that, you took a loan of Rs.50 lakhs.

The current rental income is around Rs.20,000 per month.

This rent gives about Rs.2.4 lakh per year.

Rental yield is quite low in comparison to your loan EMI.

Real estate often gives rental returns of only 2–3% per year.

But your home loan interest is around 8%–9% yearly.

This gap creates a burden on your cash flow.

Keeping this flat only for rent may not be financially helpful.

Your Salary and Existing Loan Burden
Your total salary is Rs.1.6 lakh per month.

That is good, but needs proper budget management.

You already have one home loan and one car loan.

A second home loan of Rs.80 lakh will be a big load.

Two home loans and one car loan will stretch your EMI ratio.

Your EMI commitment may cross 60% of salary.

This makes day-to-day life stressful and risky.

Banks also limit eligibility if EMIs cross 50–60% of salary.

New Flat Plan – Is It Suitable Now?
You are planning a flat of Rs.95 lakh with Rs.80 lakh loan.

This is a big jump from your earlier flat price.

Loan EMI alone may be around Rs.65,000 to Rs.70,000 per month.

Managing this EMI along with old loan EMI and car EMI is difficult.

Plus, other expenses, bills, and savings will also need cash.

Property tax, maintenance, and interiors will need extra funds.

With your current salary, this may cause heavy strain.

And if job loss or emergency happens, the risk is high.

It is better to delay this second flat unless cash flow improves.

Keeping or Selling Existing Flat – What Is Better?
The rental income of Rs.20,000 is very low against the cost.

EMI, maintenance, and tax on that flat reduce actual returns.

Also, resale value after 4 years may not be very high now.

Selling the flat can help reduce your home loan burden.

You can use the sale amount to reduce new flat loan or invest.

Or, if you cancel new flat purchase, use funds for better financial goals.

Think about whether you need two flats at this stage.

A second flat gives low returns and blocks your liquidity.

Instead, one good home and mutual fund investments give better results.

Alternative to Property – What You Can Do Instead
With your surplus from salary, start investing in mutual funds.

Mutual funds are flexible, tax-efficient, and transparent.

Returns from mutual funds over long term are higher than rent.

You can start SIPs as per your risk level and goal duration.

Equity mutual funds help in wealth building.

Hybrid and debt mutual funds support safe and steady growth.

Please use regular funds through a Certified Financial Planner.

Avoid direct mutual funds. They give no review or correction support.

Direct funds also cause wrong asset mix and poor fund selection.

Gold Sale and Use of Funds – Was It Wise?
You sold gold worth Rs.25 lakh and cleared debts.

That was a good step. You have reduced bad loans smartly.

But don’t use all your assets for property again.

It is important to keep a balance across asset classes.

Use some gold money for liquid funds or emergency corpus.

Use part for mutual fund investments based on future goals.

Avoid repeating same mistake of taking high loan again.

Emergency Reserve and Liquidity Planning
Every family must keep 6–9 months of expenses as emergency fund.

This must be in liquid mutual funds or bank deposits.

If all money is in property, you can't access during emergency.

So, avoid locking all savings into the second flat.

Liquidity is safety. Not having cash causes problems even with assets.

Build an emergency fund of Rs.3–4 lakh minimum.

Car Loan – Should You Clear or Continue?
You also have a car loan now.

This is a depreciating asset. It does not grow in value.

Try to close this loan early if possible.

Paying high interest for car EMI reduces your savings.

Don't upgrade car or take new loan unless income rises.

Family and Future Needs – Are They Covered?
Property alone cannot secure your future.

You need to plan for child’s education, retirement, and emergencies.

Insurance protection is also needed for your family.

Take proper health insurance and term insurance.

Don’t rely only on property as financial backup.

Mutual fund SIPs and debt funds give support for long-term goals.

Important Financial Ratios to Watch
EMI to salary ratio should be under 40%.

Loan to asset value should not cross 60%.

Your current plan crosses both these limits.

Two home loans and a car loan may block your growth.

Keep your fixed obligations flexible and manageable.

What You Can Do Now – Practical Steps
Postpone the second flat purchase for now.

Recheck your actual need and affordability.

Consider selling the first flat if it has poor rental yield.

Reduce loan burden and improve monthly cash flow.

Build strong SIPs and liquid investments.

Don’t lock all assets in property and loans.

Close car loan if funds allow.

Keep emergency cash ready in liquid funds.

Do not buy any more real estate unless income doubles.

Finally
You are financially aware and want to grow smartly.

But growth should not come with pressure and debt risk.

A second flat may look attractive but may block your liquidity.

Wealth creation should focus on balance, not just ownership.

Mutual funds give better flexibility and higher long-term returns.

Keep reviewing your goals with a Certified Financial Planner.

Stay invested, stay liquid, and stay peaceful.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

https://www.youtube.com/@HolisticInvestment

Ans: You are 42 years old with in-hand income of Rs. 1.5 lakhs.

You own three real estate assets, two of them on loan.

Your plan is to retire at age 55 and create Rs. 3 crore corpus.

Bengaluru flat has no loan. Market value is Rs. 1.2 crore. Rent is Rs. 22,000.

Chennai self-occupied flat is worth Rs. 63 lakhs. EMI is Rs. 38,000 for 240 months.

Residential plot in Chennai is worth Rs. 60 lakhs. EMI is Rs. 33,000 for 220 months.

Total EMI is Rs. 71,000 per month.

Your cashflow is under pressure because of EMIs and low rent yield.

Rent Yield Is Too Low
You are getting Rs. 22,000 rent from a Rs. 1.2 crore property.

That is around 2.2% annual yield on value.

Maintenance, tax, and repairs will reduce net income further.

Real estate yields in India are mostly low. So they don’t beat inflation.

Such a low-yield asset is not ideal when you carry two big loans.

With Rs. 1.2 crore value, this can be better utilized elsewhere.

Bengaluru Property: Time to Exit?
You don’t want to live in Bengaluru.

You plan to settle in Chennai.

There is no emotional attachment to this asset now.

Exit from a city where you don’t plan to live or retire is sensible.

Better to have fewer, well-utilised assets than more underperforming ones.

Pay Off Loan with Bengaluru Sale Proceeds
You can sell the Bengaluru flat and clear one or both loans.

Clearing the Rs. 38,000 EMI for 240 months will free up cash flow.

Or clear the Rs. 33,000 EMI for the plot.

Loan interest outgo is very high over long duration.

Early loan closure reduces interest burden and improves liquidity.

Better liquidity means you can start proper retirement investments.

Tax Considerations on Property Sale
You will pay long-term capital gains tax if holding is more than 2 years.

But you can reinvest gains in another property to save tax.

You can also invest in certain tax-saving bonds to avoid tax.

Please consult your CA to plan this part properly.

Avoid Holding Too Many Properties
You already have three properties. You want to keep only Chennai home.

That is perfect if you wish to settle down there.

Too much real estate can block your money.

They don’t give enough cash flow or flexibility.

Managing and selling later also becomes difficult.

Don’t Invest in More Properties
You already have enough exposure in physical assets.

More real estate will lock capital with poor liquidity.

Don’t invest in plots or flats anymore.

Instead, build your retirement corpus in financial assets.

Start with Retirement Planning
You are left with 13 years to retire at 55.

In 13 years, you must create Rs. 3 crore retirement fund.

You need consistent and increasing investment monthly.

Create a dedicated retirement plan through proper goal mapping.

Follow A Proper Retirement Planning Framework
Step 1: Define retirement lifestyle and expenses.

Step 2: Consider inflation-adjusted monthly need after 13 years.

Step 3: Create a retirement corpus matching that need.

Step 4: Allocate money monthly to a diversified financial portfolio.

Step 5: Review once every year with clear documentation.

Mutual Funds Are Best Long-Term Vehicles
You must start or increase SIPs in diversified mutual funds.

Choose a mix of large-cap, mid-cap, and multi-cap schemes.

SIPs bring discipline and average out market risk.

Mutual funds are managed by professionals. They are transparent.

Unlike real estate, they are easy to liquidate when needed.

Avoid Index Funds
Index funds follow the index passively. They don’t adapt to market changes.

They invest in overvalued stocks too. No active stock selection.

They underperform in volatile or falling markets.

Actively managed funds beat index over long term.

They are better for your retirement and goal-based planning.

Avoid Direct Mutual Fund Investing
Direct plans don’t come with handholding or reviews.

Investors miss opportunities because of poor scheme selection.

Many people invest randomly without asset allocation.

Regular plans through a Certified Financial Planner are better.

You get goal linking, reviews, and portfolio rebalancing.

Mistakes avoided early lead to better wealth over long run.

How To Structure Monthly Flow Now
In-hand salary is Rs. 1.5 lakh.

EMI is Rs. 71,000.

Balance is Rs. 79,000.

Household and lifestyle expense could be Rs. 40,000.

That leaves Rs. 39,000 to invest monthly.

Start SIP of Rs. 25,000 to Rs. 30,000 in mutual funds.

Use balance for yearly expenses and emergencies.

Emergency Fund Is Essential
Create emergency fund of 6 months of expenses plus EMIs.

In your case, around Rs. 6 lakhs to Rs. 8 lakhs.

Keep this in a liquid mutual fund or sweep FD.

Emergency fund avoids panic during income loss or medical shock.

Buy Pure Term Insurance If Not Done Yet
Check if you have term insurance of minimum Rs. 1 crore.

Don’t mix insurance and investment.

Don’t buy ULIPs or investment policies.

Buy pure term plan only.

Avoid LIC Investment Policies
If you have any traditional or investment LIC policies, review them.

These policies give poor returns of around 4% to 5% per year.

They don’t beat inflation.

They are not suitable for retirement planning.

If your policies are more than 3 years old, you can surrender.

Reinvest the maturity or surrender amount in mutual funds.

Tax Planning Should Be Integrated
PPF is good for tax saving and stability.

ELSS mutual funds are better for long-term and tax saving.

Avoid locking too much in fixed-return products.

Create tax plan every year with investment goals in mind.

Track Capital Gains from Mutual Funds
New tax rules apply from FY 2024-25.

Equity funds LTCG above Rs. 1.25 lakh taxed at 12.5%.

STCG on equity is taxed at 20%.

Debt fund gains are added to income slab.

You need to plan redemptions with this in mind.

Work with a Certified Financial Planner
Managing debt, retirement, and investments is complex.

A Certified Financial Planner helps in goal mapping.

They ensure you invest correctly based on time horizon.

They help you avoid big mistakes.

Work with one who is experienced and unbiased.

Finally
Sell the Bengaluru flat. Repay one or both loans.

Create emergency fund before doing fresh investments.

Start monthly SIPs in diversified mutual funds.

Avoid index and direct mutual fund investments.

Avoid more real estate. Focus only on financial instruments.

Review and rebalance your plan every year.

Goal-based investing is the key to a peaceful retirement.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

https://www.youtube.com/@HolisticInvestment

Ans: You are holding three properties. One is self-occupied. Two are rented. Your total loan is Rs. 1.5 Cr. The EMI is Rs. 1.5 lakh per month. Rental income from other two properties is Rs. 1.25 lakh monthly. That is a healthy cash flow. Let us understand your situation step by step and give you a 360-degree assessment.

Family Real Estate Portfolio Overview

Property 1 is commercial.

It is valued around Rs. 1.5 Cr.

It gives you Rs. 70,000 monthly rent.

Property 2 is a residential flat.

It is valued around Rs. 1.5 Cr.

It gives you Rs. 55,000 monthly rent.

Property 3 is where you stay.

It is worth Rs. 4 Cr.

It has a home loan of Rs. 1.5 Cr.

EMI is Rs. 1.5 lakh monthly.

Cash Flow and Liquidity Status

Rental income from Property 1 and 2 is Rs. 1.25 lakh per month.

Home loan EMI on Property 3 is Rs. 1.5 lakh per month.

Net outflow is Rs. 25,000 per month.

No loan on Property 1 and 2.

That reduces overall financial pressure.

The situation is manageable but not ideal.

Key Factors to Evaluate

Before making a decision, we must analyse:

Liquidity

Risk

Taxation

Growth

Opportunity cost

Long-term comfort

Option 1: Sell Property 1 or 2 to Clear the Loan

Let us evaluate this.

Advantages of Loan Closure

Monthly EMI burden of Rs. 1.5 lakh goes away.

You feel financially relaxed.

No pressure of interest payment.

Loan-free home ownership feels peaceful.

No risk of default or bank stress.

Disadvantages of Selling Now

Property 1 gives Rs. 70,000 rent.

Property 2 gives Rs. 55,000 rent.

Combined rent is Rs. 1.25 lakh monthly.

This income may increase over time.

If you sell now, that income stops.

You lose asset appreciation potential.

If reinvested wrongly, wealth may reduce.

Option 2: Continue Holding All Three and Keep Paying EMI

Let us see this path now.

Advantages of Holding Properties

Rent from Property 1 and 2 supports EMI.

Your net monthly outflow is just Rs. 25,000.

Home value may rise further.

You retain three high-value assets.

Diversification across two asset types.

Risks in This Route

Home loan interest eats into returns.

You bear maintenance, tax, and tenant risk.

No tax benefit if loan is on self-occupied property and deduction limit crossed.

Rental yields may stagnate.

Real estate is illiquid.

Sale may not happen at ideal price when needed.

Important: Real Estate Is Not a Liquid or Efficient Investment

You cannot sell part of the property.

You cannot access money quickly.

It carries high stamp duty and tax cost.

Repairs and upkeep add hidden cost.

It is not passive.

Asset value appreciation is not guaranteed.

Hence, you must not look at real estate as primary investment.

Should You Sell and Repay Loan?

This depends on your life goals. Let’s break this down:

Sell If:

Your cash flow is tight every month.

You are approaching retirement soon.

Your risk appetite is reducing.

You don’t want liability burden anymore.

You are ready to shift surplus to other investments.

Hold If:

Your income is stable and growing.

You don’t need lump sum cash immediately.

You have other investments already in place.

You are comfortable managing properties.

You are planning to pass them to heirs.

Suggested 360-Degree Path Forward

Instead of choosing one side completely, consider this middle path:

Sell one property – preferably Property 1 (commercial).

Clear part or full home loan.

Keep Property 2 for passive rental income.

That way, your EMI pressure reduces.

You also stay invested in rental income.

Invest part of proceeds in equity mutual funds.

Build liquidity and diversification.

This is a balanced approach.
It creates mix of rental income, debt freedom, and investment growth.

Avoid Real Estate as Core Retirement Asset

It is illiquid.

No monthly drawdown flexibility.

No emergency support.

Cannot meet lifestyle funding in retirement.

So, even if you keep one property, don’t rely on real estate only.
Invest in long-term mutual funds through regular plans.
Work with a Certified Financial Planner and MFD for long-term guidance.

Avoid Index Funds for Retirement Purpose

Index funds don’t adjust for market downsides.

They follow market passively.

No manager filters bad-performing stocks.

In bear markets, losses are sharp.

For retirement, you need capital protection and steady growth.

Actively managed mutual funds offer better risk-managed approach.

Fund manager acts as a cushion in falling market.

Don’t Use Direct Mutual Funds Without Guidance

Direct plans may look cheaper.

But they don’t give personal advice.

No rebalancing.

No retirement drawdown planning.

No behavioural support in volatile times.

Regular funds through Certified Financial Planner ensure proper structure.

They add value beyond cost.

If You Have LIC or Investment-Insurance Mix Policies

If any of your assets include:

LIC endowment

ULIPs

Traditional plans

Then review those now.
Their returns are usually 4% to 5%.
That’s not enough for long-term wealth creation.
Surrender them if lock-in is over.
Invest proceeds in equity mutual funds for better returns.

Retirement Planning Should Be Separate

Repaying home loan is one goal.

Building retirement corpus is different.

Don’t mix both.

Create a retirement corpus through mutual funds.

Keep rental income only as bonus income.

Don’t rely fully on real estate in retirement.

MF Capital Gains Tax Rules

Equity mutual funds LTCG above Rs. 1.25 lakh taxed at 12.5%.

STCG taxed at 20%.

Plan your withdrawals carefully.

Debt fund capital gains are taxed as per slab.

Retirement portfolio must be tax efficient.

Keep These Points in Mind

Maintain emergency fund.

Keep home insurance and medical insurance active.

Don’t keep all wealth in real estate.

Don’t make emotional decisions with property.

Think practically, not sentimentally.

Always look at returns, liquidity, and tax impact.

Finally

You can either:

Sell one property and clear loan
Or

Keep all and manage EMI through rental

But do not keep all eggs in one basket.
Real estate is not efficient for long-term wealth.
Free up capital, reduce debt, and invest smartly.
Use mutual funds for long-term goals.
Avoid index and direct funds.
Get expert help through Certified Financial Planner.
Think with long-term lens.
That brings peace and freedom.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment