Should I develop the land or add a floor for rent?

Ans: Your real estate portfolio is diverse and well-structured, with properties in India and overseas. This portfolio offers you flexibility, but it also requires careful decision-making to maximise returns and reduce liabilities. Let us assess your current situation and evaluate both options you are considering.

Strengths in Your Portfolio
Debt-Free Indian Properties: Fully paid apartments and an ancestral landed property offer financial stability.

Income Generation: While the rent of Rs 10,000 is modest, it provides a consistent income stream.

Overseas Property: Although it has a pending loan, its Rs 5 crore valuation indicates strong equity.

Challenges to Consider
Low Rental Income: The Rs 10,000 rent from the landed property is not financially impactful.

High Loan on Overseas Property: The Rs 2.4 crore liability needs to be managed strategically.

Future Commitment: Both your proposed options require significant time, effort, and financial resources.

Assessing Option 1: Handing Over to a Builder for an Apartment Complex
Advantages
Increased Asset Value: Converting the property into an apartment complex increases its market value.

Additional Income: Renting out multiple apartments can yield higher rental income.

Minimal Upfront Investment: The builder covers most costs, reducing your financial burden.

Ownership of Multiple Apartments: Retaining three apartments ensures future flexibility.

Disadvantages
Dependence on Builder’s Offer: The deal heavily depends on the builder’s terms and reliability.

Extended Timelines: The construction period could delay income generation.

Market Risks: Renting or selling multiple apartments depends on market conditions.

Key Considerations
Assess the builder’s reputation and financial stability.
Ensure transparent legal agreements with clear terms and timelines.
Evaluate the market demand for apartments in the location.
Assessing Option 2: Adding a Level and Renting Out Units
Advantages
Control Over Property: You retain full control over the construction process.

Quicker Completion: Adding a level is faster than constructing an entire complex.

Modest Investment: Rs 30 lakh is a smaller upfront commitment compared to other options.

Steady Rental Income: Renting out two units provides immediate and predictable cash flow.

Disadvantages
Limited Growth Potential: This option adds only incremental income and asset value.

Construction Challenges: Managing permits and construction quality requires your involvement.

Upfront Cost: The Rs 30 lakh investment may impact your liquidity.

Key Considerations
Plan for the Rs 30 lakh investment without disrupting other financial goals.
Ensure proper permissions for adding another level to the property.
Research rental demand and pricing for the additional units.
Financial Implications
Loan on Overseas Property

Prioritise repaying the Rs 2.4 crore loan to reduce interest costs.
Consider liquidating underperforming assets to reduce liabilities.
Rental Income Potential

The builder option may yield higher income but involves delays and uncertainties.
Adding a level provides immediate income but limits long-term growth.
Liquidity and Cash Flow

Avoid over-committing funds to construction or renovation.
Maintain an emergency fund to address unforeseen expenses.
Alternative Investment Suggestions
Instead of solely focusing on real estate, you can consider diversifying into financial instruments for balanced growth:

Actively Managed Mutual Funds
Offer consistent growth potential with professional fund management.
Provide liquidity and flexibility to align with financial goals.
Hybrid Funds
Blend equity and debt investments for stability and moderate growth.
Ideal for generating consistent income while preserving capital.
Systematic Withdrawal Plans (SWP)
Generate monthly income from investments while ensuring capital preservation.
Provides a reliable alternative to rental income.
Regular Funds vs Direct Funds
Regular funds ensure expert guidance and portfolio optimisation by Certified Financial Planners.
Direct funds require self-management, which may lead to errors and missed opportunities.
Tax Considerations
Capital Gains Tax: Selling any property will attract long-term or short-term capital gains tax.
Tax Savings: Reinvesting proceeds in financial instruments can optimise tax liability.
Final Insights
Both options for your ancestral property have pros and cons. The builder option offers long-term growth but requires careful negotiation and patience. Adding a level provides immediate income with lower financial risk.

Diversifying into financial investments can complement your real estate portfolio, providing liquidity and consistent returns. Assess your financial priorities and future plans before committing to a decision.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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