Last Updated on February 12, 2022 at 6:27 pm
Many readers have asked me this common question: “Where do I enter the value of my second house in the calculator while planning for retirement?”. The answer to this “depends” on one’s circumstances.
Most people who have second property get rental income from it and would like such an income to continue into retirement. We recommend that you include the income when you plan for retirement (the robo tool allows you to include three streams of income – rent, pension, etc. with individual growth rates). In this case, one should not include the value of the second property in the calculation.
Many users argue, “but the house is worth a lot of money! I can always sell the house if I want”. True that any property (other than self-occupied) has an intrinsic value. However, if it provides rent, that is the worth/value of that property. We cannot include both the corpus we would get on the sale of the property and the income it generates. That would be double counting!
If there is no immediate plan to sell the property, only the income it generates should be included. This is because (1) our decision to keep the property or sell it can change depending on future circumstances.
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(2) The actual selling price of a house is known only when it is available for sale and would typically be much lower than the price we daily dream about based on anecdotal evidence. Once you sell, you can happily include the proceeds in a retirement calculator.
This is perhaps an extreme example, but you will be surprised how high the bid-ask spread is – Rs. 50 lakhs is quite common.
Heard of a 55 year old who lost Rs. 7.5 crores in FnO. Rs.4 crores from an inherited portfolio wiped out. Tries selling his house in a Mumbai suburb. Expects Rs. 3.5 crs. best offer on hand is Rs. 2.5 crs.
Broker has offered to take the flat at 2.5. Deficit Rs. 1 crore!— Subramoney.com (@pvsubramanyam) January 24, 2022
Even if you do not get rent from the second property, we recommend this same strategy (leave out the property from the calculation) as the future is uncertain and it is better to err on the side of caution.
If you have not yet planned for retirement, here is a simple illustration: I am 30 and wish to retire by 50 how should I plan my investments?