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I need a bit of a help deciding if it's better to invest in a property or ETFs. I have currently saved up a decent sum of money and I'm looking to invest it wisely. I'm 27, if that matters.

Option 1: Investing in a commercial property

Mortgage amount: £275,000
Down payment: £35,000
Property value: around £300,000
Interest: 8.5% pa 
Loan term: 20 years 
Monthly payments: £2300
Total loan amount payable: £551,935

Assuming a monthly total rental of £2500:
Property management fee of 7%: £175,
Mortgage per month: £2300 (could be around $5000 by year 10)
Remaining: £25 (only the first year, will increase every year)

After 20 years property value: ????

(scroll down for option 2 and skip background info)

I'm a British Indian and have access to emerging markets (India) because my parents were born in India, and I was able to open up a bank account (NRO). I was looking at the ETFs in the banking app and was very surprised to see that the annual returns of many funds were more than twice of what I would get in the UK.

Initially, my plan was to put down my savings as a deposit, get a mortgage and buy a commercial property to let. I have a trusted uncle in India who owns a firm that does this for other people of Indian origin. His firm manages the property, draws up the contracts for renters, manage any repairs etc. They will even help me apply for a bank loan. Last time I was in India (about 2 years ago) he took me on a small tour to show a few of the properties his firm manages. They have several properties with 2-3 floors, multiple office spaces and shops; rented to restaurants, banks, etc. He offered to help me invest in a property of my own if I were interested and help with all the paperwork. The firm charges 10% (for others but 7% for me because I'm family) of rental income as fee and the rest (if any) will be deposited into my UK bank account monthly (or can be reinvested elsewhere or do whatever I want)

Assuming this all works out, I put down £35k as a down payment + £275,000 in mortgage. Property value would be around 300K and another 10 for registration / tax etc. Comparing it to the other properties that this firm manages, the rental income from such a property will be anywhere between £2.5k - £3K every month. The mortgage will be around 8.5% pa (best case).

I was trying to do some math around this and I've put down what I came up with at the top in grey box.

I know £25 a month is not a lot, and it doesn't make any sense to wire that across to UK because of exchange rates and commissions, but the way it was presented to me, this is only a starting thing. Things will improve after some time. Say, after 5 years, the rental prices will go up (by at least 5% each year) and eventually the monthly mortgage payments will lower... not to mention the prices of the property itself will go up.

Option 2: Investing in ETFs

Initial Deposit: £35,000
Monthly investment: £1000
Average interest rate: 20%
Amount after 20 years, compounded: £3,100,000 (!?)

On the other hand, I have been looking around what my bank account in India provides in terms of investments. Though I am not eligible for every type of investment, the ones available to me are pretty interesting. For example, HDFC Flexi Cap fund[1] shows 43.4% returns in the last year, and a 19.67% in the last 5Y. There are several others that are performing well like this (Quant flexi cap fund [2]: 61.31% Y2D returns, 30.00% 5Y).

This got me thinking, I could drop in my savings of £35K now into one of these funds. I am able to save around £1000 a month at the moment, after all my bills are paid (as well as some money put aside for travelling etc). Even if I take an average of 20% returns per year and do this for the next 20 years (term of the mortgage). Rough math says I should have around £3 million (with compounding the interest). That sounds way too good to be true. Am I calculating this wrong?

Do Index funds in India really yield these kinds of returns? I have a bank account with one of the top private banks and they seem to have a very good customer support and reputation, so I think they can be trusted.

I know I probably won't be able to save £1000 a month for the next 20 years. Rental prices in London are increasing, I could get married (though both me and my girlfriend want to be childfree forever so no children for us), lose a job, or anything else might happen to change my situation. Maybe I could average it to £500 a month which means it'll still be worth 2.46 million... which again seems too high and too good to be true.


So in the end, A property is a good risk free investment and seems like real estate investment cannot go wrong. On the other hand, EFTs require some of my time to manage, and they are pretty risky - but seems that they are doing okay and is a good solution too...

What should I prioritise? Am I looking at this wrong? Is ETF better than investing in property?


[1] https://www.moneycontrol.com/mutual-funds/nav/hdfc-flexi-cap-fund-growth/MZU001
[2] https://www.moneycontrol.com/mutual-funds/nav/quant-flexi-cap-fund-direct-plan-growth/MES041

note: I am not affiliated with any of these websites, I just use them to look at performances of indices.

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  • Have fun moving hard currency out of India!
    – AakashM
    Commented Apr 22 at 19:22
  • You are kind of comparing oranges and apples. If you can save and invest 1000 per month in etfs, you can do the same if you bought the property, which, according to your numbers, doesn't need any additional money apart from the downpayment. So the only difference is if you invest 35k into a property or into an etf. The 1000 per month you can invest into an etf.
    – Solarflare
    Commented Apr 22 at 21:43
  • @AakashM what do you mean? Commented Apr 23 at 7:35
  • Does this answer your question? investing in mutual fund vs. rental property over 10 - 15 years
    – keshlam
    Commented Apr 23 at 14:17
  • @keshlam only partly. I also want to look at managing these from a different country and the complications that come with it Commented Apr 23 at 14:32

2 Answers 2

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So in the end, A property is a good risk free investment and seems like real estate investment cannot go wrong

No it's not "risk free" - you're just not evaluating the risks properly. What if the property goes unrented for months at a time? How long before you couldn't afford the mortgage anymore and would lose the property all together? What happens if the renter is injured you and sues you? Those are real risks that must be accounted for.

On the other hand, ETFs require some of my time to manage, and they are pretty risky

How much time do you expect to spend managing ETFs? A few hours a month looking at your portfolio and deciding what to invest in? That seems a lot better then the multiple hours a month you might spend dealing with renters, property issues, etc.

Rental real estate is not passive income by any means, and much less so in another country. I'll admit that I have no direct experience with the Indian real estate market, but I highly doubt that it is completely risk free.

Is ETF better than investing in property?

It's not that simple of an answer. They are completely different investing paradigms. Real estate can be a very lucrative investment, but when you use leverage (borrowing money to invest) you increase risks greatly. ETFs are much more passive but have lower expected returns in exchange for that lower volatility. So long as you can properly manage the risks in foreign real estate, it might be a better choice for you.

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Deciding on it depends on three factors for you: your financial goals, risk tolerance, and investment horizon.

When deciding whether to invest in commercial property or ETFs, consider your risk tolerance. Real estate is typically less volatile than stocks; it is, hence, a more stable investment. However, it is also less liquid, meaning it can be hard to sell when an urgent need arises. If you prefer stable investments, then real estate may be a good choice. On the contrary, if you can handle a higher risk for potentially larger returns, then the ETF may be more appropriate.

Another major factor that you must consider is the level of management time and effort required for your investment. Real estate typically requires more active management, and that is even if you hire a property manager. There are also continued obligations regarding maintenance, tenant issues, and other management tasks. On the other hand, once you set up the ETFs, they generally require less day-to-day involvement.

Another thing you need to consider is diversification. When you put your money into an ETF, you have the chance to spread your investments across a wide array of assets, thus reducing your overall risk. This is harder to do if you are putting your money into just one property investment, which concentrates your risk in one asset.

Lastly, think about your financial goals. Consider what you are striving for—whether it be steady income, long-term growth, liquidity, or a bit of each. Real estate can provide a reliable, albeit smaller, income stream that can appreciate over time. An ETF, especially in high-growth markets, offers the possibility of larger returns, but it comes with higher risk and market volatility.

Therefore, in conclusion, there is no single best answer. If you are someone who seeks a steady income and who is willing and able to manage a property, real estate may be the best bet. However, if you see that the returns could be higher and the risk is worth the reward, an ETF could be very attractive.

A Pro Tip: You could opt for a more balanced approach. In other words, you could diversify your portfolio by placing some of your investments in property and some in ETFs. This strategy can help you build a more resilient portfolio that positions you for long-term success.

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