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Should I buy out my brother's share in our inherited property or invest the money?

Ramalingam

Ramalingam Kalirajan  |8192 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jan 16, 2025

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more
Asked by Anonymous - Dec 18, 2024Hindi
Money

We two brothers have inherited a property on 200 sq yard by registered will of our father in 2020. The property was purchased by our father in 1970 and redeveloped in 1990 into three story building. Ground floor is with my brother and first floor. Third floor without roof rights was sold by our father at the time of redevelopment . Me and my brother have terrace rights as per registered will of our father ( each has 50% roof/ terrace rights). My brother is US citizen and want to sell his share for four crores. The expected rental income from the ground floor will be Rupees 60 thousand per month. The circle rate of the property is Rupees 7 lakh per yard. My interest in the ground floor of the property is mainly to live peacefully without any interference by unknown new buyer. I am 65 and my question is from financial point should I purchase from my brother by paying Rs. 4 crore or keep the amount in bank as fixed deposit/ RBI bonds at around 8 percent per year. Second question is if he sell it to other buyer how he will sell terrace as the terrace is undivided and we both have inherited it by registered will. Thirdly there are many builders who want to redevelop the property into four floor with basement and stilt parking. What will be the right option . I have only son .

Ans: Given your situation and your priorities, buying your brother’s share in the property involves both financial and personal considerations. Let’s break it down:

Financial Consideration: Purchase for Rs. 4 Crore
Investment Potential:

If you purchase your brother's share for Rs. 4 crore, this is a significant outlay. This amount would be locked in the property, and you will not have liquidity for other investments.
The potential annual rental income of Rs. 7.2 lakh (Rs. 60,000 per month) from the ground floor would give you around 1.8% return on your investment (before expenses).
While the property provides rental income, it is important to evaluate whether this income is enough to justify tying up such a large sum in real estate. With Rs. 4 crore in fixed deposit or RBI bonds, you could earn around Rs. 32 lakh annually (at an 8% interest rate), providing better liquidity and diversification.
Liquidity:

Investing in property reduces your financial flexibility. If you need funds quickly, liquidating property could take time and may not be as efficient as keeping cash in a fixed deposit or bonds.
Fixed deposits or bonds would offer guaranteed returns and the flexibility to access funds without the complexities associated with property ownership.
Peace of Mind vs. Financial Flexibility:

Your main concern about purchasing the property is to ensure peaceful living. While this can be a valid reason for staying in the property, from a financial perspective, an alternative investment like fixed deposits or bonds might provide a better balance of risk, return, and liquidity.
Comparing Bank Fixed Deposit vs Property Investment
Bank Fixed Deposit:
Interest income of Rs. 32 lakh annually (assuming 8% return on Rs. 4 crore).
High liquidity, no maintenance hassles, no risks associated with property market fluctuations.
You can invest in RBI bonds, which also provide tax benefits and security.
Property Investment:
Rental income of Rs. 60,000 per month (Rs. 7.2 lakh per annum).
Long-term capital appreciation potential, but not guaranteed.
High investment lock-in (Rs. 4 crore) with limited liquidity.
Property maintenance, taxes, and the possibility of tenant-related issues should be factored in.
Legal Question: Selling the Terrace Share
Your brother wishes to sell his share in the property, including the terrace rights. Here’s the challenge:

Undivided Rights:
The terrace is an undivided right shared between you and your brother. This makes it more difficult to sell it separately unless both parties agree to sell the entire property or agree to transfer the right to one party.
Selling Procedure:
Since the terrace is an undivided share, your brother cannot sell it without your consent unless there is a formal agreement. You both need to either:
Execute a separate agreement on the share of terrace rights.
Decide whether the property sale includes the terrace rights, or if he will only sell his ground-floor rights.
Recommendation:
If your brother is serious about selling, you may want to get a lawyer’s opinion on how best to formalize the sale of terrace rights. If you wish to maintain control, you might want to agree to a sale that retains your joint ownership of the terrace.
Redevelopment Proposal
There are multiple builders interested in redeveloping the property, which presents a few options:

1. Redevelopment for Additional Floors
Pros of Redevelopment:

Redeveloping the property into a four-floor building with basement and stilt parking could significantly increase the value of the property.
New, modern construction could offer higher rental income and capital appreciation in the future.
If the builder offers you a share of the redevelopment or compensation for temporarily moving out, it might be an attractive deal.
Cons of Redevelopment:

The process of redevelopment can take years and may cause inconvenience, especially if the work is happening around your existing residence.
Redevelopment may lead to uncertainty about the final outcome, as builders may face delays or changes in plans.
You may be asked to move temporarily, which can be uncomfortable and time-consuming.
2. Selling the Property
Selling the Property:
If you prefer peace of mind and less involvement with the property, selling to a third party may be a better option.
The sale could generate significant liquidity (Rs. 4 crore), which you could invest in financial instruments, giving you higher flexibility and more options for growth.
However, this would mean losing the rental income and potential capital appreciation from the property.
3. Keeping the Property As Is
Keep the Property:
If you are satisfied with the current rental income and your primary goal is a peaceful living environment, keeping the property could be the best choice.
This option avoids the disruption of redevelopment or selling but may limit future financial growth if the property does not appreciate much in the coming years.
Recommendations and Final Insights
Financially, Based on Your Situation:
If You Prioritize Peace and Stability:

Purchasing your brother’s share might be a good option for ensuring peace of mind. You would secure full control over the property and avoid interference from new buyers. However, the financial return on investment is modest when compared to other options.
However, this comes at the cost of reduced liquidity and potential for more efficient investments in fixed deposits or bonds.
If You Prioritize Higher Returns:

Keeping the Rs. 4 crore in fixed deposits or RBI bonds would generate better returns (Rs. 32 lakh annually), with much higher liquidity and safety. You can continue to live in the property as it is and enjoy stable rental income.
Selling the property (or your brother selling his share) could allow you to reinvest in higher-return investments, but it would also mean giving up the peace and stability that comes with staying in the inherited property.
Legal Considerations:
For the sale of the terrace, you must have a clear agreement between both parties on how to handle the undivided rights. This could involve getting a legal professional to create a formal agreement if your brother decides to sell his share to a third party.
Redevelopment Options:
If you and your brother are both open to redevelopment, carefully assess the offers from builders. Consider the long-term benefits of redeveloping the property into a four-floor building with basement parking. However, you need to weigh the inconvenience caused by redevelopment and the potential risks.

Alternatively, if you prefer stability and don’t want the hassle of redevelopment, keeping the property and enjoying the rental income might be a more comfortable choice.

Finally, given your specific situation, it would be helpful to discuss this in greater detail with a certified financial planner to ensure that the right option aligns with your overall financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Dear Sir, We have inherited a property in Bangalore. The property was in my Mother's name who attained lotus feet last November. This is a bit complicated situation. 1) The actual payment for the property was done in 1998. 2) The property registration in My Mother's name was done in 2016. The value of purchase in 1998 was 6 Lacs. Renovation and modest addition is approx. 6 Lacs. 3) The property in now co owned by self and Brother. 4) We have a sister who has signed release deed. 5) The current market rate is approx. 1.7 Cr. My question is, 1) If we sell, can we ask the buyer to make separate payments to the two of us? 2) We intend to pay our Sister (resident of Australia) some portion of the recievables. Can we ask buyer to make separate payment to her? 3) We have an existing home loan which we intend to close using the money. 4) How will the LTCG role out in this situation? Also as of today there is an amendment that we can chose either 20% with indexation or 12.5 without indexation. Which is the right one to chose? Request your valuable guidance, please.
Ans: I offer my following suggestions for your points of concern :
01. The Buyer will make payment to the owner of property. Has property been transferred in favor of both of you ?
If Yes, then he shall make payment to both of you, separately, as desired by you.
02. The buyer should not make any direct payment to your sister.
After receiving the sale proceeds, both of you, may Gift some amount to your sister. It will be a separate transaction. Please note that your sister will not have any income tax implications, in case of gift from brothers.
03. You are free to use the sale proceeds of property in any way, even for re-payment of housing loan.
04. You need to work out LTCG in both ways, i.e., 20% with Indexation & 12.50% without Indexation. You may choose the option, in which you tax liability is minimum.
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Nitin

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Asked by Anonymous - Dec 01, 2024Hindi
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We two brothers have inherited a property on 200 sq yard by registered will of our father in 2020. The property was purchased by our father in 1970 and redeveloped in 1990 into three story building. Ground floor is with my brother and first floor. Third floor without roof rights was sold by our father at the time of redevelopment . Me and my brother have terrace rights as per registered will of our father ( each has 50% roof/ terrace rights). My brother is US citizen and want to sell his share for four crores. The expected rental income from the ground floor will be Rupees 60 thousand per month. The circle rate of the property is Rupees 7 lakh per yard. My interest in the ground floor of the property is mainly to live peacefully without any interference by unknown new buyer. I am 65 and my question is from financial point should I purchase from my brother by paying Rs. 4 crore or keep the amount in bank as fixed deposit/ RBI bonds at around 8 percent per year. Second question is if he sell it to other buyer how he will sell terrace as the terrace is undivided and we both have inherited it by registered will. Thirdly there are many builders who want to redevelop the property into four floor with basement and stilt parking. What will be the right option . I have only son .
Ans: Dear Friend,
If you’re considering whether to purchase your brother’s share of the inherited property for ?4 crore, weigh peace of mind against financial returns. Buying his share gives you full control, eliminates potential disputes with a third-party buyer, and ensures no interference in your peaceful living. However, the rental yield of ?60,000/month (~1.8% annual return) is significantly lower than the ~8% return you could get by investing ?4 crore in fixed deposits or bonds, which would generate ~?2.67 lakh/month.

Regarding the terrace, your brother cannot sell his 50% share independently since it is undivided and jointly inherited. Any sale requires your consent, limiting his ability to transfer full terrace rights to a new buyer.

Redevelopment of the property is an excellent option, offering increased value and rental income. Builders are likely to provide additional floors or cash components in exchange for development rights, enhancing long-term financial benefits and ensuring modern amenities.

If your priorities are peace of mind and control over the property, purchase your brother’s share. Otherwise, invest in safer financial instruments and consider redevelopment to maximise the property’s potential. Consult a lawyer and financial advisor to ensure the best decision. Your Financial adviser can deeply evaluate all your assets and liabilities and provide a solution which will give you more leverage.
Regards, Nitin Narkhede -Founder Prosperity Lifestyle Hub,
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Ramalingam

Ramalingam Kalirajan  |8192 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Mar 24, 2025

Asked by Anonymous - Mar 16, 2025Hindi
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We brother and sister have inherited a property on 400 sq yard by registered will of our father in 2014. The property was purchased by our father in 1970 and redeveloped in 1990 into three story building. NOW Ground floor is with my brother and first floor with me. Second floor was sold by our father (WITHOUT Roof/Terrace Rights) at the time of redevelopment along with the proportionate, impartible, undivided and indivisible share of land ownership rights . Me and my brother have terrace rights as per registered will of our father ( each has 50% roof/ terrace rights). There are many builders who are interested to redevelop the property into four floor with basement and stilt parking. My question is regarding the proportionate rights of the land underneath in the present building for me (First floor owner with 50% Terrace rights), my brother (Ground floor owner with 50% Terrace rights), present second floor owner(WITHOUT Roof/Terrace Rights). Secondly if we redeveloped the property into basement, stilt parking, Ground floor, first floor , second floor, third floor, roof rights; what should be my and others right in the redeveloped property with proportionate rights of the land underneath.
Ans: You have built a strong financial foundation. You own a bungalow and a flat in Gujarat. You have Rs. 3.5 crore in NRI fixed deposits and Rs. 20 lakh in mutual funds. You also invest Rs. 3 lakh annually through SIP. Your daughter is studying in the U.S.A.

You want to retire and travel the world with your wife. Your focus should be on financial security and sustainable cash flow.

Retirement Readiness
Your annual income is Rs. 35 lakh.

Your assets generate passive income, but some are not inflation-protected.

You must ensure stable cash flow to fund travel expenses.

Your investments should balance liquidity and growth.

Expense Planning
Estimate yearly travel expenses, including flights, stays, and experiences.

Maintain an emergency fund for unexpected medical or travel needs.

Adjust lifestyle costs based on your preferred travel style.

Account for healthcare costs in India and abroad.

Income from Existing Assets
Fixed deposits offer stability but generate taxable interest.

Mutual funds can provide inflation-adjusted returns.

Rental income from your properties can add to cash flow.

SIPs should continue for long-term financial health.

Investment Restructuring
Reduce exposure to fixed deposits gradually.

Increase allocation to balanced and growth-oriented mutual funds.

Keep a portion in liquid funds for easy withdrawals.

Use systematic withdrawal plans (SWP) for monthly cash flow.

Tax Considerations
Review tax liabilities in both India and your country of residence.

Optimise withdrawals to minimise tax impact.

Check mutual fund taxation as per new rules.

Consider the best way to repatriate funds if needed.

Final Insights
You are financially well-positioned to retire and travel. Ensure a mix of liquidity, growth, and passive income. Regularly review investments and expenses for long-term sustainability.

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K. Ramalingam, MBA, CFP,

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

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