What you will learn: how to compare buying an investment flat with keeping the same money in a liquid portfolio by looking at the whole household: its balance sheet, ten-year outcomes under good and bad assumptions, what happens in a cash emergency, and how concentrated its wealth becomes.
Rohan and Shruti Patil (the illustrative couple from property as an investment) are 44 and 41, live in Pune with their 12-year-old son and spend about ₹1.2 lakh a month. Rohan works for an auto-components company in Pune; Shruti is a school counsellor. They own their home, worth about ₹1.5 crore with no loan, have ₹1.2 crore in liquid investments and ₹40 lakh in EPF and PPF. The flat they were shown would take ₹88.4 lakh of the liquid money, all-in. Their real question: it is not only "what does the flat earn?" but "what does buying it do to our family's finances?"
This lesson compares two choices on stated assumptions. It does not recommend either; the method is what carries over to your own decision.
Step 1: the balance sheet before and after
Start with what the family owns, at today's values. The flat is shown at its ₹80 lakh price; the ₹8.4 lakh of stamp duty, registration, legal fees, brokerage and furnishing is spent and does not appear as an asset.
| Item | Today | After buying the flat |
|---|---|---|
| Own home | ₹1,50,00,000 | ₹1,50,00,000 |
| Investment flat | – | ₹80,00,000 |
| Liquid investments | ₹1,20,00,000 | ₹31,60,000 |
| EPF and PPF | ₹40,00,000 | ₹40,00,000 |
| Net worth | ₹3,10,00,000 | ₹3,01,60,000 |
| Share in Pune residential property | 48.4% | 76.3% |
| Share that can be turned into cash within days | 38.7% | 10.5% |
| Liquid money in months of spending | 100 months | 26 months |
Two things change at once. Net worth falls by ₹8.4 lakh on the day of purchase, before any rent or price change. And three-quarters of the family's wealth ends up in two flats in one city, where Rohan's job also is. A slowdown in the local economy could hit his income, the rent and both property values together. How to draw up your own version of this table is in your household balance sheet.
Step 2: ten years under two sets of assumptions
Option A, buy the flat. Exactly as in the property lesson: rent of ₹22,000 a month rising 5% a year, vacancy, running costs, tax on rent at 31.2%, sale after ten years with 1% brokerage and 12.5% tax plus cess on the gain. The post-tax rent each year is reinvested in deposits or debt investments earning 7%, taxed each year at 31.2%, so about 4.82% after tax.
Option B, keep ₹88.4 lakh invested. 60% in diversified equity funds assumed to earn 10% a year, 40% in debt funds assumed to earn 7% a year, nothing withdrawn, sold after ten years. Equity gains are taxed at 12.5% above ₹1.25 lakh and debt-fund gains at the 31.2% slab rate, all in year 10. Fund expenses are assumed to be inside the return figures.
| Case | Option A: flat | Option B: 60/40 portfolio |
|---|---|---|
| Base case (flat +5% a year; equity 10%, debt 7%) | ₹1,45,37,635 (5.1% a year) | ₹1,85,63,398 (7.7% a year) |
| Adverse case (flat +2% a year; equity 6%, debt 6.5%) | ₹1,17,13,259 (2.9% a year) | ₹1,46,39,473 (5.2% a year) |
On these assumptions the portfolio ends ahead in both cases. To match Option B's base case, the flat's price would need to rise by about 8.3% a year for ten years, every year's costs and taxes included. That number is the useful output: it turns a vague belief ("property always goes up") into a specific question ("do we expect this suburb to beat 8.3% a year for a decade, after buying at today's price?").
The comparison has limits. Equity returns are far more volatile from year to year than the smooth 10% assumed, and a bad decade for equities is possible; the flat's value is not quoted daily, which makes it look steadier than it is. Real returns matter too: with inflation at 5%, Option A's base case is about 0.1% a year in real terms and Option B's about 2.6% (see inflation and real returns). Change any assumption and the gap moves, which is why it is worth running your own numbers rather than borrowing these.
What would tilt the result towards the flat? A higher net rent relative to price, lower purchase charges, a genuine reason to expect faster local price growth than the city's past (new transport links, for example, that are not already in the price), or a firm plan to live in the flat later and save rent. What would tilt it further away? A loan at a high rate, a long vacancy, a large repair, or equity returns better than the modest 10% assumed. Listing these turns a debate about property in general into a check on this flat and this family.
Step 3: the emergency test
Suppose that in year 3 the family needs ₹40 lakh within two months: Rohan loses his job during an industry slowdown at the same time as a family medical emergency. They want to keep at least six months of spending, ₹7.2 lakh, untouched.
- Option A. Liquid money is the remaining ₹31.6 lakh (growth on it is ignored here, as in Option B) plus about ₹4.7 lakh of reinvested rent, so about ₹29.1 lakh is available above the reserve, about ₹10.9 lakh short. The choices are to borrow against property, run down the reserve or sell the flat. If the flat is worth ₹92.61 lakh at that point (5% a year) but must be sold quickly at 8% below that, it fetches ₹85.20 lakh, or ₹84.35 lakh after 1% brokerage: ₹4.05 lakh less than the ₹88.4 lakh put in three years earlier. Post-tax rent of about ₹4.47 lakh received over those years barely covers the gap, and the sale may take months. A loan against property brings an EMI just when income has stopped.
- Option B. On the base-case path the ₹88.4 lakh portfolio alone is worth about ₹1.14 crore in year 3 (the other ₹31.6 lakh is still there too), with ₹43.3 lakh in debt funds. Even if equity markets have just fallen 25%, the portfolio is about ₹96.3 lakh and the ₹40 lakh can come from the debt part within days, without selling equity at a low.
Liquidity is not a return number, so it never shows in an IRR. It shows up when life does not follow the plan. The reserve itself is sized in emergency reserve vs sinking funds.
Step 4: other ways to hold real assets
Choosing a liquid portfolio does not mean holding no real assets. The same exposures come in other forms with different trade-offs:
| Route | Smallest practical amount | Time to cash | Cost in and out | Income and its tax | Concentration |
|---|---|---|---|---|---|
| Investment flat | Tens of lakhs | Months | High: stamp duty, registration, brokerage both ways | Rent, taxed at slab after the 30% deduction | One building, one city |
| REIT units | One unit on the exchange | Days, if traded actively | Brokerage and spread | Distributions; interest and rent taxed, dividend part generally exempt | Several commercial properties |
| InvIT units | One unit on the exchange | Days, if traded actively | Brokerage and spread | Distributions; part may be capital coming back | Often one sector and few customers |
| Gold ETF or gold fund | One unit, or a small fund purchase | Days | Low, plus yearly expenses | None; gain taxed on sale | One commodity |
Each of these has its own risks, explained in REITs explained, InvITs explained and gold in its different forms. None of them is a safe substitute for an emergency reserve. How much of a portfolio any of them should be is a whole-portfolio decision (see risk, diversification and asset allocation).
Step 5: the reasons that are not about return
Families buy property for reasons beyond money: a home for a child later, a place for ageing parents, a wish to own something tangible. These are legitimate. Put them on paper next to the numbers so you know what price you are paying for them: in the Patils' base case, roughly ₹40 lakh of ten-year value on the stated assumptions, a large fall in liquid reserves and more dependence on one city.
Try this: run the five-step test on your own decision
- Draw up your balance sheet today and after the purchase. Note the share in property, the share in one city and the liquid money in months of spending.
- Estimate the property's post-tax IRR as in the property lesson, with a base and an adverse price path.
- Estimate the alternative's value with the asset mix you would actually hold, using conservative return assumptions and the right tax.
- Work out the break-even price growth the property needs to match the alternative, and ask whether you would bet on it.
- Write down the largest cash need you can reasonably imagine in the next five years, and how each option would meet it.
Common questions
Isn't property safer because its price does not fall like shares?
It does fall; it simply is not priced every day. A forced sale in a weak market, a long vacancy or a legal dispute can cost a property owner as much as a market fall costs a fund investor, and it is harder to sell part of a flat than part of a portfolio.
What if we buy the flat with a loan instead of cash?
Liquid money stays higher, but the family takes on a fixed EMI that must be paid even if the tenant leaves or income stops, and borrowing magnifies the effect of the flat's price on your own money. Re-run Step 3 with the EMI included before deciding.
Do our home and EPF count in this comparison?
They count in the balance sheet and in concentration, which is why Step 1 includes them. They do not usually count as money available in an emergency: you live in the home, and EPF and PPF have withdrawal rules.
Could REITs give the Patils property exposure without the concentration?
REIT units spread money across several commercial properties and can be sold on an exchange, but they bring market price swings and are commercial, not residential, property. They are one input to the asset mix, not an answer by themselves.
Where to go next
- Juggling multiple goals: fitting a property purchase alongside education and retirement.
- Buying a home: if the flat is really meant to be lived in later.
- Risk, diversification and asset allocation: setting the mix across all assets.
- Further reading: real estate vs mutual funds for your next ₹20 lakh; loan against property: costs and risks.