Returns on Real Estate

I know a person who bought a flat in Pune 5 years for the all inclusive price of around 42.9 Lakhs and sold it recently for 78 Lakhs.

The gains work out to a return of 12.69% (annual).

However that assumes that everything was paid up front and no loan was involved.

Assuming that the person paid 20% upfront and took a loan for 80% at a rate of 10% for 15 years, what is the return?

In this case, along with stamp duty, registration, vat etc. and 20% of agreement value, an up front payment of 10.68 Lakhs was made.

A loan of 32.23 Lakhs was taken at 10% for 15 years and that works out to an EMI of 34635 p.m. (=4,15,625 per year).

Discounting the payments of 4,15,625 for 5 years at 8%, the NPV of the outflow at start comes to around 16.6 Lakhs

At the end of 5 years, the loan balance is 26.2 Lakhs and this needs to be paid off from 78 Lakhs received.

Therefore notional initial payment = 10,68,599 + 16,59,470 = 27,28,069

Final value in hand = 78,00,000 - 26,20,900 = 51,79,100

In this case the return works out to 13.68%.

Looks like I have made a mistake as the returns with loan come out higher that paying cash upfront.
It's still much better than usual fixed deposits correct ? Yes, I think you have made a mistake really with calculations. But to get all of this you really should be on pulse with the market and be able to sell it much higher, otherwise you could be in loss for a big time.