A second flat, priced honestly against an index fund
Buy price against sell price is not a return. Once stamp duty, maintenance, vacancy and illiquidity are counted, most residential property underperforms — here is the arithmetic.
A second property is a common milestone and one of the least examined financial decisions people make. The reason is that property returns are almost always quoted the same misleading way: bought for ₹50 lakh, sold for ₹1.1 crore, "more than doubled".
Doubling over fourteen years is a CAGR of 5.8%. Stated that way it is a considerably less exciting sentence — and it is still overstated, because it ignores everything that happened in between.
What the headline leaves out
Acquisition, 7% to 10% of the price. Stamp duty of 5% to 7% depending on the state, registration around 1%, brokerage 1% to 2%, legal and technical fees. On a ₹80 lakh flat, ₹5.6 lakh to ₹8 lakh, gone on day one.
Maintenance, 0.5% to 1% of value annually. Society charges, repairs, painting, plumbing, the periodic replacement of things that wear out. On ₹80 lakh, ₹40,000 to ₹80,000 a year.
Property tax, annually, rising.
Vacancy. One empty month in a year is 8% off the gross yield. Two months between tenants, which is common, is 17%.
Tenant costs. Brokerage of one month's rent on each new tenancy, repainting between tenants, and the occasional dispute.
Exit costs. Brokerage of 1% to 2% on sale, plus capital gains tax at 12.5% — or 20% with indexation if the property was acquired before 23 July 2024 and that produces less.
Illiquidity. Not a cash cost, but a real one. A flat takes three to nine months to sell in a normal market and considerably longer in a weak one. You cannot sell 20% of it to fund an emergency.
The rental yield problem
Residential rental yield in most Indian metros is 2% to 3.5% gross. A ₹1 crore flat rents for ₹18,000 to ₹28,000 a month, not the ₹40,000 people intuitively expect.
Net of maintenance, property tax, vacancy and repairs, the realised yield is usually 1.5% to 2.5%.
That number is the whole story. It means residential property in India is not an income asset. Whatever the total return turns out to be, it has to come from capital appreciation, because the rent barely covers the cost of holding the thing.
A full worked comparison
An ₹80 lakh flat, 20% down, a ₹64 lakh loan at 8.5% over twenty years, held ten years, appreciating at 6%, rented at ₹20,000 rising 5% a year.
Cash out:
- Down payment ₹16 lakh
- Acquisition costs ₹6.4 lakh
- EMI ₹55,500 × 120 months = ₹66.6 lakh
- Maintenance, tax and repairs, roughly ₹7 lakh over ten years
Cash in:
- Rent, net of one month's vacancy a year, roughly ₹25 lakh over ten years
- Sale at year ten, about ₹1.43 crore
- Less outstanding loan, about ₹45 lakh
- Less brokerage and capital gains tax, about ₹8 lakh
Net proceeds around ₹90 lakh, against roughly ₹71 lakh of net cash committed after rent. An IRR somewhere near 7% to 8%.
The alternative: the ₹22.4 lakh of down payment and acquisition costs, plus the monthly gap between EMI-plus-costs and rent, invested in an index fund at 11%. Over ten years that lands in a similar region — and frequently ahead, without illiquidity, tenant management, or the concentration of a large share of net worth in one asset in one city.
The comparison is genuinely close. What is not close is the version where nobody counts the ₹6.4 lakh of acquisition cost or the ₹7 lakh of maintenance.
When property does win
The arithmetic above is an average, and averages hide the cases where property is clearly right.
Genuine location repricing. A new metro line, an expressway, an airport, a large employer moving in. Property near real infrastructure change can appreciate at 12% to 15% for a decade. The difficulty is that this is known in advance by people closer to it than you, and priced accordingly by the time it reaches a brochure.
Commercial property. Yields of 6% to 9% against 2% to 3% residential, plus longer leases and tenants who maintain the space. Higher ticket sizes and higher vacancy risk, but the income actually exists. REITs offer the same exposure without the ticket size.
Leverage, when appreciation exceeds the loan rate. A home loan is the cheapest large borrowing available to an individual, and no lender will finance an equity portfolio on those terms. If appreciation runs at 10% against an 8.5% loan, leverage works in your favour. If it runs at 5%, leverage works against you, with a fixed monthly obligation attached.
Where you will actually live. A home you occupy is not an investment and does not need to justify itself as one. Security of tenure and the freedom to alter the place are worth real money; they are just not returns.
The concentration question
The argument people rarely make to themselves: a second property usually means 60% to 80% of household net worth sitting in residential real estate, in one city, in one building, financed with leverage.
Nobody would accept that concentration in a stock portfolio. It is accepted in property because the price is not quoted daily, which makes the volatility invisible rather than absent.
Before committing, work out what fraction of net worth the two properties will represent, and whether you would hold that fraction in any single asset if the price appeared on a screen every morning.
Open the real estate calculator
Published by FinClamp. This guide is information, not financial advice — see the disclaimer.