What to do with real estate in India?

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Topic Author
shriram
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What to do with real estate in India?

Post by shriram »

Hi,

Few years back we bought a small condo in India as an investment. The purchase price was ~ $100k (using the exchange rate at that time). Initially we rented it out for few years but found that rental yield was very low and it was a lot of hassle to manage the property from USA (had to depend on relatives in India).

Looking back, I feel it was a bad investment. why?

(a) Being a remote landlord turned out to be very hard than I imagined.
(b) The total appreciation and rental yield are not great. The property has appreciated ~20% in local currency (Indian rupee). But the local currency has depreciated significantly as compared to USD. (e.g. 1$ = Rs. 55 in 2013. Now 1$ = Rs. 78 in 2022). Hence the currency depreciation has pretty much wiped out all the gains in the property price in Indian currency. Also we need to pay significant tax if we sell this property (~20%).

Note that as compared to our other assets in USA, this investment is not significant. But I am having second thoughts if we should continue to hold on this property given that I don't want to be a landlord.

If you were in my position, what would you do ?

Here are some of the options that I could think

- Sell the property in India and use the proceeds to prepay the mortgage in USA.
- Sell the property in India and use the proceeds to invest in USA (3 fund portfolio)
- Sell the property in India and use the proceeds to invest in liquid assets in India (e.g. stocks/bonds etc.). The advantage is we don't end up taking a loss in terms of currency conversion at this point.
- Continue to hold the property even if it does not generate any income.
- Anything else (?)
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AerialWombat
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Re: What to do with real estate in India?

Post by AerialWombat »

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This post is a work of fiction. Any similarity to real financial advice is purely coincidental.
Topic Author
shriram
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Re: What to do with real estate in India?

Post by shriram »

To ne the critical question would be whether or not you have any intention of going to live in India in the future.
Currently we don't have any plans to go back to India. But even if we end up going back, most likely we will not live in that condo.
AlohaJoe
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Re: What to do with real estate in India?

Post by AlohaJoe »

shriram wrote: Fri Jul 01, 2022 8:11 pm - Sell the property in India and use the proceeds to invest in USA (3 fund portfolio)
Do this.

I live in Vietnam and know a lot of people who have the same situation you do. They are 100% reliant on relatives still in-country to manage the property. Nobody here trusts anyone except family to do it; I imagine it might be similar over there. When family members can't do it anymore -- they move to Australia or get too old or whatever -- suddenly people want to sell as soon as their current (somewhat trusted) tenant moves out. It is a bit different if the property is in a big fancy apartment complex.

We own in Vietnam and have sometimes considered buying additional property but the thought of being a remote landlord if we ever move elsewhere has, so far, kept us from buying more.
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shriram
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Re: What to do with real estate in India?

Post by shriram »

Nobody here trusts anyone except family to do it
Yup same here. The other aspect is also the possible restrictions on how a rental property can be managed (e.g. eviction moratorium during COVID lockdown etc.). So far we were lucky to not run into such issues. But I am just not comfortable to take any chances. Hence want to avoid renting the property at all. I can sleep well at night with just a 3 fund portfolio.
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calmaniac
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Re: What to do with real estate in India?

Post by calmaniac »

shriram wrote: Fri Jul 01, 2022 8:11 pm If you were in my position, what would you do ?
The simple answer: If you were magically sent back to Square One and did not now own the property but had $100,000 in cash, would you currently invest in real estate in India? If that answer is "No", then best to sell it now. Google "sunk cost fallacy".

The more complex answer: The above, plus factor in taxes, headaches, and the disincentive of being a bi-continental landlord.

My take: Owning property on another continent half the globe away is too much work for me (unless I am going to live there for months at a time). There are easier ways to invest. YMMV

Check out the Bogleheads® investment philosophy

Item 2.2 Invest with simplicity


Wealth allows you to enjoy the benefits of money. One of the most fundamental benefits of money is having agency in life. Investing with simplicity frees you to enjoy what really matters, not some condo in India.
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Sheridan
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Re: What to do with real estate in India?

Post by Sheridan »

If there's a decent chance that the rupee will get stronger in the future, I'd sell the property in India and keep it in the local currency or invest there. If it's going to keep slipping, I agree with the others here, cut your losses and get out of it. The relief of having it off your shoulders is worth something, too.
indexlover
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Re: What to do with real estate in India?

Post by indexlover »

Sheridan wrote: Fri Jul 01, 2022 11:22 pm If there's a decent chance that the rupee will get stronger in the future, I'd sell the property in India and keep it in the local currency or invest there. If it's going to keep slipping, I agree with the others here, cut your losses and get out of it. The relief of having it off your shoulders is worth something, too.
International Monetary Fund (IMF) expects the rupee to weaken past the 94 rupees to a dollar mark by FY29. currently, it is ~79 ( another new low). I don't expect things to get any better for rupee.

Since this investment is a small portion of the overall assets and is troublesome managing, I would get rid of it and move on.

Should you pre-pay US mortgage with the proceeds ? That is a behavioral question. don't know enough about your risk profile to answer. you probably have a lower rate but with the inflation to linger around, probably worth to keep the $$ and use it for a 3 fund portfolio. I don't like any debt and if you are like me then use it to pre-pay/reduce the mortgage.
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Re: What to do with real estate in India?

Post by LittleMaggieMae »

If it was me, I would sell the property - for all the reasons already mentioned. I own a rental property in another state managed by a property manager land lording remotely can be a pain - even with a paid service in place. The biggest reason I have kept this property is because it has had positive cash flow since day 1 (when I bought it when the housing market was at all time lows in 2010).

As for a "some other option" answer - it sounds like creating a Property Manager business in India (to handle out of the country rentals) could be an n entrepreneurial opportunity. :) It sounds like there is a need that is going unfulfilled. :)


ADDED: I'm NOT a big fan of paying down a mortgage - but since you are dealing with sort of similar "investment" money... (I know primary houses aren't an investment.) Would having your current mortgage paid off by a specific date in the somewhat far future: kids starting college? some special anniversay date? retirement date? something else? Would using the money from the sale of the rental property applied to your current mortgage help you to meet that date? I have watched family/friends spend time/emotional energy/stress coming up with and then implement a plan to pay off the mortgage a few years before their kids (or some other important date). Throwing money at your mortgage now (more or less a windfall) MIGHT be worthwhile if it helps to smooth out your financials in the future. ( you also save more in interest if you prepay early in your mortgage rather than later. ) Just an option that's probably more "feel good" or "avoiding future stress/drama" than math related.
Valuethinker
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Re: What to do with real estate in India?

Post by Valuethinker »

If you would not make this investment now from a clean sheet of paper then you should sell it.

I am not a big believer that one can time exchange rates. Or that the rupee will appreciate against USD for that matter.

Whilst I think India could have a very bright future (despite all the known structural problems) I don't think that necessarily means that the rupee will appreciate. Faster economic growth does not always mean a rising currency.

I would sell and reinvest via your US portfolio.
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Re: What to do with real estate in India?

Post by srt7 »

Sell it and bring the money over here before things go further down south with the exchange rates.
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Beleiber
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Re: What to do with real estate in India?

Post by Beleiber »

A different approach could be to sell the condo and donate the entire proceeds to a worthy cause in India.


Perhaps Water Management programs in rural areas, perhaps preventing farmer suicides.


A small donation to the country where you got your start.
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Watty
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Re: What to do with real estate in India?

Post by Watty »

shriram wrote: Fri Jul 01, 2022 8:11 pm - Sell the property in India and use the proceeds to prepay the mortgage in USA.
- Sell the property in India and use the proceeds to invest in USA (3 fund portfolio)
- Sell the property in India and use the proceeds to invest in liquid assets in India (e.g. stocks/bonds etc.). The advantage is we don't end up taking a loss in terms of currency conversion at this point.
Be carful about linking the two questions that you have.
1) If you should keep it or sell it.
2) What you should do with the money if you do sell it.

While it is good to have a plan for the money if you sell it the decision about what to do with the proceeds would mostly be a separate decision.
shriram wrote: Fri Jul 01, 2022 8:11 pm - Anything else (?)
How is the housing market in India? I don't have a clue but if it is strong then now might be a good time to sell it. If you keep it longer then decide to sell it you could be trying to sell it in a very bad housing market or 10 years from now the condo or area that it is in could be a lot less desirable.

If you keep the property or keep the money invested in India then you also need to consider how that will be handled when you die an your estate is dealing with it and have the paperwork and plans for that. If that is a long time from now the people that inherit it may be someone like your kids or grandkids who have always lived in the US and they may not know much about how to handle things like doing probate in India to change the name on the condo or investment account or selling a condo in India then getting the money out of the country. Hopefully that will be many decades from now but you need to have the plans in place just in case something happens like you are killed in a car accident.

Another consideration would be if you expect to need the money in India for something like visits back there or helping out relatives.
shriram wrote: Fri Jul 01, 2022 8:11 pm Note that as compared to our other assets in USA, this investment is not significant.
Just a quibble. Since it is not rented and providing good income it is not an investment is a pure speculation and I would assume that it has ongoing costs like condo fees, maintenance, and maybe property taxes. I would not recommend it but there are likely better things to bet your money on that do not have the ongoing costs.

Sell it and get on with your life.

It sounds like you must make pretty good money in your day job so spending time and energy on this is mostly just a distraction. Even if it turns out well and you somehow make $20,000+ after taxes that does not sound like a life changing amount for you.
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Re: What to do with real estate in India?

Post by Robert20 »

shriram wrote: Fri Jul 01, 2022 8:11 pm Hi,

Few years back we bought a small condo in India as an investment. The purchase price was ~ $100k (using the exchange rate at that time). Initially we rented it out for few years but found that rental yield was very low and it was a lot of hassle to manage the property from USA (had to depend on relatives in India).

Looking back, I feel it was a bad investment. why?

(a) Being a remote landlord turned out to be very hard than I imagined.
(b) The total appreciation and rental yield are not great. The property has appreciated ~20% in local currency (Indian rupee). But the local currency has depreciated significantly as compared to USD. (e.g. 1$ = Rs. 55 in 2013. Now 1$ = Rs. 78 in 2022). Hence the currency depreciation has pretty much wiped out all the gains in the property price in Indian currency. Also we need to pay significant tax if we sell this property (~20%).

Note that as compared to our other assets in USA, this investment is not significant. But I am having second thoughts if we should continue to hold on this property given that I don't want to be a landlord.

If you were in my position, what would you do ?

Here are some of the options that I could think

- Sell the property in India and use the proceeds to prepay the mortgage in USA.
- Sell the property in India and use the proceeds to invest in USA (3 fund portfolio)
- Sell the property in India and use the proceeds to invest in liquid assets in India (e.g. stocks/bonds etc.). The advantage is we don't end up taking a loss in terms of currency conversion at this point.
- Continue to hold the property even if it does not generate any income.
- Anything else (?)
When u know there are lots of disadvantages in investing in INDIA, why to ask for solutions?.. Easy answer is sell and move on. Depending on relatives is not a good option in long run (they have other things to do in life and their priorities can change overnight too).
Topic Author
shriram
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Re: What to do with real estate in India?

Post by shriram »

Thanks for all the feedback. I definitely did not think about some aspects earlier (e.g. estate planning etc.). I will get started on figuring out the next steps to sell this property.
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Re: What to do with real estate in India?

Post by Valuethinker »

shriram wrote: Mon Jul 04, 2022 3:40 pm Thanks for all the feedback. I definitely did not think about some aspects earlier (e.g. estate planning etc.). I will get started on figuring out the next steps to sell this property.
Things to note:

- it's not what you have/ have not made on the property, it's what it does in the future that matters

- exception is taxation on capital gain/ loss. The only time in Finance one really considers book cost

- you should not try to time exchange rates. They are not forecastable. A country can do well economically and have a very weak currency. On the other hand the Russian domestic economy is a complete mess (it was badly unbalanced before the Ukraine war). But the rouble is appreciating because of increased prices for natural gas and oil

- in general one should keep ones assets and one's future liabilities in the same currency as much as possible. If retirement is most like to be in USD, then that's what one's assets should be. If one isn't sure, then USD is the safest place (because it's the reserve currency for the world, and will remain a critical component of reserves for the next decades, at least). The exception is international stock investing, where normally one takes the currency risk on the chin (ie the funds don't hedge currency) because it is expected that it will all come out in the wash ie relative inflation rates will drive where the currencies get to. India generally has higher inflation than the USA, so the rupee will devalue against the dollar long run.

- maximum diversification. It's not worth just investing in the Indian stock market if one can globally diversify. Even the S&P 500 is far, far more diversified than the Indian index. India may have a bright future but that is not necessarily represented well in the components of the Indian Stock Exchange index.

- strive for simplicity. Some day you may have diminished cognitive capacity (or be travelling the world and not on the internets all the time on your phone ;-)). Or your inheritors will be trying to straighten things out. The more you can simplify now, the greater the gift to either a future you, your spouse or other person trying to wind up your estate (ask me how I know ;-)).
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shriram
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Re: What to do with real estate in India?

Post by shriram »

Thanks a lot for the detailed response ValueThinker :)
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Re: What to do with real estate in India?

Post by 400401402 »

I faced a similar situation few years ago. The indian condo was purchased with the intention of being the pirmary residence many years ago but moving back to India never happened. It was also never rented due to significant investment needed in furnishing it. The mortgage was a waste of money/expense.
Ended up selling it once the decision to not move back to India was made. The proceeds net of costs (no taxes as there was no capital gain) became part of my desired AA.

The important thing to take notice is you are classified as NRI and the process of selling is complicated for an NRI; so be prepared for that.

Thanks.
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Re: What to do with real estate in India?

Post by big_talk_small_money »

I’m curious about how one can repatriate money to the US from India. Do you mind sharing your experience?
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unclescrooge
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Re: What to do with real estate in India?

Post by unclescrooge »

big_talk_small_money wrote: Thu Jul 07, 2022 6:18 pm I’m curious about how one can repatriate money to the US from India. Do you mind sharing your experience?
It's a bit of pain.

Half the proceeds might often be cash. So converting it to official money is the first exercise. I have no answers here.

The remaining funds can be transferred, but before you do so, you will need a letter from a local chartered accountant stating taxes have been paid on these funds.
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unclescrooge
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Re: What to do with real estate in India?

Post by unclescrooge »

shriram wrote: Mon Jul 04, 2022 3:40 pm Thanks for all the feedback. I definitely did not think about some aspects earlier (e.g. estate planning etc.). I will get started on figuring out the next steps to sell this property.
I am slowly clearing up my mom's assets in India. I've been observing the rupee to dollar conversion rate since the 1980s. It has moved from Rs 18 to Rs 80. I don't think it will ever reverse over the long term.

My mom has enough cash reserves/bonds to last 2x her life expectancy, and her pension covers 200% of her expenses. All the excess gold, stocks, real estate we are liquidating, paying taxes and moving over to the US. Should be about $100-200k .

I don't need the money, but more importantly I definitely don't need the headache once she passes.
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