Investment cloning – Multiply your real estate properties without extra investment
A few months ago, there was a comment from one of the readers saying whether investment cloning in real estate is possible or not. While we could not have complete chat on this subject, this concept has been in my head for some time. Do you know that this concept evolves round the investment cloning where you can buy one property with your own investment and you can multiply several real estate properties by doing nothing? This concept could have been tested and would have been yielding results. In this article, I would tell you about the concept of investment cloning in real estate properties.
What is a real estate investment cloning?
There is no specific definition here. What I meant is using an investment option and cloning it to get high returns or multiply your money. The investment concept is Real Estate. If you can buy one residential property or commercial property with your own investment and with the rental income, you can buy subsequent properties by doing zero or minimum additional investment.
Also read: Residential Property or Commercial Property – Where to invest?
How real estate investment cloning work exactly?
I would explain this with an example
1) You have purchased a residential property for say ₹ 60 Lakhs with your own investment. Let us assume that you expect a rental income of ₹ 30,000 per month. This amount, you can invest in subsequent properties by way of EMI’s.
2) You go for second residential or commercial property by considering home loan of say ₹ 30 Lakhs. For this you would need approx ₹ 30K for a 20 year home loan. Assume that you have opted for this and purchased second house and the EMI would be paid from the rental income of 1st property. You may receive some rent for a second home. It could be say ₹ 10,000. This rental income is surplus and you can utilize this for subsequent properties.
3) Now you go for 3rd residential or commercial property by considering a home loan of say ₹ 10 Lakhs. Assume that you opted for this and purchased 3rd property and pay the EMI from 2nd residential or commercial property rental income. You may or may not get any rent in case you have opted for any residential land, hence let us stop here.
After 15-20 years, all your home loan EMI’s would get closed and additional 2 properties would be in your name along with capital appreciation of the property values. You have not paid a single rupee for these 2nd and 3rd properties beyond any down payment of home.
Do you think it is a silly concept, wait, I have not completed yet. You need to see some pre-requisites and limitations before thinking of this concept.
What are the pre-requisites before we implement the investment cloning concept?
- You should own the first residential or commercial property and you should be willing to forego the rental income of it, as this would be invested for subsequent properties.
- There should not be any home loans or personal loans in your name, else you would not get any loans to buy these properties.
- You should not expect any additional returns from such newly added properties during the process of building the real estate properties.
- You should have good cibil score to get quicker and high amount of loans at low interest rates.
- In case there is limit for you to get multiple home loans, you should take help from your spouse for getting home loans.
Also read: Fixed home loan Vs Floating rate home loan – Which is better?
Well, but what are the limitations of investment cloning concept?
- You may not get loans if you have a low cibil score. You may get stuck during building such properties.
- Real Estate prices may fall in future in the location where you invested.
- Too much follow-up for rental income and taking care of financial transactions every month
- Real estate properties could be under litigation after you purchased them.
- Interest rates can fluctuate and you may land up in paying higher EMI and the difference would affect your personal cash flow.
- In case you are taking home loans on your spouse name, Cibil score of your spouse can affect your loan eligibility and you may be charged with high interest rates.
Conclusion: Investment cloning in real estate is a good concept. As of today, I have not explored this option, but I am sure, I would do that in coming months. No doubt that real estate is one of the best investments in India, but the cloning concept would help you to build the properties faster with no extra investment.
Readers, by any chance, are you doing such cloning concept, if so, what are your experiences. Do you feel there are higher risks involved in such concept ?
If you enjoyed this article, share it with your friends and colleagues through Facebook and Twitter.
Suresh
Investment cloning – Multiply your real estate properties without extra investment
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Hi Suresh,
I have read your article on the investment cloning. Looks a good option. I have two flats on my name, one 2 Bhk for which I am getting 25000 /month rent and another 1 bhk with 8000 /month rent. Would you suggest me to go for another one with the 30k emi may be a commercial property.
I feel Yes. Consider your financial situation / commitments too before proceeding for such option
I already have 1 BHK(15 year old) for self and another 1 BHK(15 year) as investment with 10K as rent.
I am planning to buy one more new 1BHK(which will earn 8K rent) Shall purchase it or not?
Please provide your suggestion whether to take loan of 25lac to purchase it or invest this 10K in MF for long term.
Hi Sureshji,
Geetings!!! I always take my decisions only after your suggestion. I already have 1 BHK(15 year old) for self and another 1 BHK(15 year) as investment with 10K as rent.
I am planning to buy one more new 1BHK(which will earn 8K rent) Shall purchase it or not?
Please provide your suggestion whether to take loan of 25lac to purchase it or invest this 10K in MF for long term.
Excellet concept Suresh. However I do tend to agree with the comments above that this is very difficult in Indian Scenario. I have seen this work quite comfortably in a developed country scenario where the rent actually pays for teh property itself. The deposit required there is very minimal (between 10-30% of property value). In India with the escalating Property prices, low rental income and lackof clarity in regards to regularity of tenants, the above concept would be fairly difficult to implement. If we do have disposable income fromour primary source, then we could potentially use this as a backup in case all does not go to plan in the case of cloning.
Hello Suresh,
I kind of liked your example. I would like to rethink in my way:
Personal savings = Rs.60,000,00/- (Principal)
FD RoI/annum = Rs.5,55,000/- (~Rs.41,500/- per month)
Now a good idea will be to use Rs.30,000/- of the above interest to EMI the 60 Lakh residential flat. And then, the cycle could be repeated to buy other flats. So, in the end we could still end up owning 3 or more properties (with appreciated values and rent, of course!) and the 60 lakh principal will still remain. 🙂
How that does sound!!!?
Yes Arjun. This is what I explained. Try and tell me how it is working. Good motivation for me as I wanted to try
Hi suresh,
Help me decide whether to invest in real estate or fixed deposits? Can you advice on the Pros and cons
Priya
Priya, FD’s can be breaked any time and you can enjoy it. Returns are limited. Real estate is where it is long term investment, returns would be very high. But you need to have patience. I could not invest much in real estate, but regretting now. There is huge potential in growing your money thru real estate.
Hi suresh,
Is it good to take propety insurance. Suppose I had taken propety insurance for 25 years while taking loan. I repayed the loan in 5 year so will my peoprty insurance be valid till 25 years and can I claim if any natural calamity happens? Is yes then please suggest some options or company nammes.
Thanks.
Rajesh, Insurance taken thru your loan provider would close as and when you close your loan. You need to take seperate insurance after that. I have not done much analysis on best insurance available for property insurance yet.
Hello Sir,
I really like reading your articles. I wanted to invest 45-50 lacs. But I am confused where to invest. Real estate would always have been my first choice. So which city to invest in and type of proerty commercial/ residential, flat or plot. My basic moto invest is getting best returns. Thanks alot.
Hi Apoorva, One thing I could not do in my early stages of life is not investing much in real estate, which now I am realising the importance. Read some of my articles about commercial or residential, pros and cons. This is one of the best long term option to build wealth. I have slowly started now.
Hello Sir,
thanks for replying, i have read your article about commercial and residential, i would prefer to invest in residential as it is considered to be safer and according to recent trends there is a surplus in commercial properties leading to less appreciation. But i would like you to suggest me which city i should target like Banglore/ Delhi/NCR/ Pune/ Mumbai. And i should go for a flat or a plot.
Hi Apoorva, It is difficult which city would grow faster. Also the locations with city would also depend. Hence I would not be able to advice you on where to invest. You need to do some ground work that.
please dont try this one, Because it is too dangerous, This is not possible in real senario.
you buy a property and sell it, or hold it, but dont play like this.
If you are looking really making money invest some surplus in realty on a short term goals and sell it an appriciation will get double of your booking amount,
Hi Srinivas. I agree there could be some flawys in this concept. With fine tuning this, I felt we can achieve this. What you said is buy and sell is for trading purpose and to make short term profit. I am talking about creating wealth in long term without doing much or adding much as investments.
There's fallacy in one of your assumptions & that is why the whole concept gives a feeling of greatness & on practical basis, that becomes infeasible.
You told that for a property of 30 lakhs, you will get 30K rent; here's the actual problem.
In case of metros (Bangalore/Hyderabad), the average price of a 1500 sq. ft. flat in out-skirts (Electronic city in Bangalore) is around 50-60 lakhs (Based on the location) & for the same, the rent is around is around 20K/month including maintainence.
I belong to the capital city (non-metro) of a state; here the price is around 4,000/sq.feet in case of city center, 5kms radius wrt city center is 3,000/sq. feet. Close to out-skirts (15kms radius) is around 1,800-2,000/sq. feet.
Now, it's impossible to purchase new flats in city center; one can purchase flats in out-skirts as the number of under-construction properties are huge & a lot of competition is present among builders. You can get the same @1,800/sq. feet resulting to around 30 lakhs (after registration & a little bit furnishing). You will get a maximum of 7K/month for the same.
Similar ratio is applicable for 5-6 kms radius with respect to city center.
In reality, you will be able to get 1/3rd or 1/4th of the amount you predicted. I mean to say that for a 30 lakhs residential property, you will not get 30K per month but less than 10K.
Another point, in long run i.e. after 5 years, it will touch that amount. For instance, we have purchased a flat during 2007 (booked during end of 2005) @ 13 lakhs only (4kms away from city center). Now the current price is around 50 lakhs (Contribution to the way, we furnished the house) & present rent is around 15K but that time, rent was merely 4K/month.
I feel that one should invest in properties in a developing city because after some time constant, it reaches saturation. At present, we are planning to invest in another house but in a town 90kms (1.5 hours) away from my city. This will help to keep control over the house & at the same time, in few years of time, price will appreciate much faster than a house in my city
Agreed Moht. That is why I said this is a concept where some thoughts are there in my mind. In practical, it might sound theoritical or may not be practicable unless few other things are taken care.
Hi Suresh
could you please give some graphical information that can compare returns in past few years on real estates vs fixed deposits after taxation?
This could be really interesting read.
Regards Hiren
Hi Hiren, Thanks. Can you please post on suggest a topic so that it would be on my radar.
This is a good concept….. but an important practicle point missed here is in reality, housing loan which you can get is only 80% (or 90% max), rest amount you must have with you… another point is the black money asked by builders before making an agreement… which may be upto 30%……… so everytime you think of buying a property, you shuld have this much additional money in your hand……… this will not come through the rental incomes from these properties as expected in the concept……. Also the maintenance and other charges which will be due with each property, you will have to pay life long……… I think these points are totally missed here….. We should not only think of rental income and EMI of housing loan only……. other factors must be taken into consideration………….. after all this, i do not think this concept is possible in reality..
Ajit, I am 100% with you. Like I explained, there are negaives like maintenance, paying down payment etc. But the gain what you get is phenomenal in long run of 15 to 20 years. Every pain as a gain.
This article is not for salaried class, Closing first loan itself takes 15-20 years of hard earned time and money.
No Nitin. If we observe, here we need to look for eligibility of loan. The payment would be done automatically with the concept explained.