I would like to take the authors attention to couple of things.
First of all the author assumes that a 25 lac worth property yields a monthly rent of Rs.13.5k. In my opinion its a too aggressive assumption given the current levels of Real estate prices.
Secondly, the author has completely ignored the concept of present value. Remember Re.1 received today is more valuable than Rs.2 received 20 years latter.
The perfect approach lies in valuing a real estate using prudent with the realisable rent as the returns from the property. If the real estate price is above the value of the property so determined then better rent a home and if the prices is less than the value then buy it.
RE:Questionable Assumptions and has ignore the Present Value
by Arun Kumar on May 08, 2007 12:37 PM Permalink
Your point on the 'realisable rent' and the questioning the assumption (will 25 lakhs worth home, can help realise a rent of 13,500) make good sense to me.
And of importance is the Present/Future value of money which should have been taken into account. Probably the author did not want to complicate things much by talking about PV/FV. An excel sheet comprising all calc including the PV/FV would be welcome for the readers to experiment.
