Recently, one of our clients, a successful businessman, wanted to redeem a portion of his long-term mutual fund portfolio to purchase a residential apartment. A significant part of the purchase was to be funded through a housing loan.
On further discussion, we learnt that the apartment was not meant for self-occupation but was purely an investment property to be rented out. That prompted us to analyse the numbers before giving our opinion.
Here's what we found:
- Housing loan cost: Approximately 8.5% per annum
- Expected rental yield: Around 4% per annum
- Business returns: Consistently 15%+ per annum
This raised an important question.
Why would a businessman earning over 15% annually in his own business divert capital into an asset generating only a 4% rental yield while simultaneously paying 8.5% interest on borrowed money?
Even if residential real estate appreciates by 10–12% annually over the long term, does that justify locking up substantial capital in a non-core asset?
Moreover, housing loan EMIs remain payable irrespective of whether the property is vacant, the tenant defaults on rent, or the business goes through a temporary slowdown.
At Naveen Rego Capital, a fee-only financial planning firm and a SEBI Registered Investment Adviser, we believe in clearly separating personal assets from passive investment assets and business assets.
Your self-occupied home, car, jewellery and other lifestyle purchases are personal assets. They are meant for comfort, convenience and enjoyment, and should be acquired only within one's cash flow capacity.
Everything else—whether it is a second home for rental income, gold, real estate, stock portfolio, mutual funds, or any other investment (called passive investment asset)—should be evaluated purely on its return on investment (ROI) and its role in achieving long-term financial goals. Emotions should not drive investment decisions.
For business owners especially, capital is a scarce and valuable resource. Any significant investment outside the core business should either:
Generate risk-adjusted returns comparable to or better than the business itself,
or
Be managed passively with minimal time and effort, allowing the entrepreneur to focus on what creates the most value.
In most cases, the highest returns are generated within one's own business or profession. Investments in passive investment assets is purely for diversification.
Invest your time, energy and capital where your competitive advantage lies. Let the remaining surplus be invested through a disciplined, diversified and professionally managed investment strategy.
The objective is not merely to own more assets, but to build greater wealth.
If you have missed any of our previous articles, please visit https://naveenrego.com/blog-grid.php?aW5pdGlhdGl2ZXNfdHlwZV9pZA=MQ
Happy Financial Planning!
Naveen Julian Rego – CFP®
MD & Principal Officer
Naveen Rego Capital
SEBI Registered Investment Adviser
Reg No: INA000019211
BSE Membership ID: 2178
Disclaimers:
1. Investment in the securities market is subject to market risks. Read all related documents before investing.
2. Registration granted by SEBI, enlistment as IA with Exchange, and certification from National Institute of Securities Market (NISM) in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.
3. Financial products recommended by us that are under the jurisdiction of other regulators are beyond the scope of SEBI’s grievance redressal mechanism.
