Owning commercial space is assuming importance even among retail investors.  Investors look at acquiring commercial property by availing bank loans and letting out the property on long lease. One makes such investments with any eye on rental income taking care of EMIs and capital appreciation of the property leaving you with a handsome return on investment made.

However, one needs to validate if this strategy of acquiring commercial property by availing a loan, makes a viable Investment option.

Let us consider an example in the backdrop of the following:

An Investor bought ready-to-let Commercial property partly funded by bank loan.

EMI of the loan is adjusted against the monthly rent.

Let us quantify the strategy with some numbers:

Property Value5.0 crores
Loan Amount3.5 crores
Margin Money1.5 Crores
Rate of Interest10%
Assumed Rental Yield6%
Annual Rental Income30 lakhs
Average Annual Increase5%
Capital Appreciation (annual)3%
Loan Tenure10 years

With the above assumptions, Return on Investment on Commercial Property is shown in the grid below:

DatesYrs.Rental IncomeEMINet Cash Flow
Apr-19  Initial Investment(1,50,00,000)
Mar-3011Sale Consideration 6,71,95,819
Mar-3011Bullet Payment (3,60,19,366)


  1. Return on investment works out to 6.87% per annum.
  2. Risk-return is not very attractive if one considers expenses like property taxes, periodical maintenance of the property etc.,
  3. Non occupancy of the property for prolonged periods may further lower the returns.
  4. On the flip side, capital appreciation of the property beyond historic average may leave one with some handsome gains.

While such opportunities seem lucrative, one need to weigh the options with abundant caution

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