Rohan should assess realistically if it is possible for him to continue with the home loan, given the uncertainty associated with his job. Exiting the real estate investment may be a good idea to release the stress on his income. However, if Rohan can meet his EMI obligations for a few more months before he sells, he should do so, because he can then benefit from the lower taxes on long-term capital gains on assets held for at least three years. He can take a loan from his father, sell the mutual fund investments and take a loan from the PPF account to generate the funds required. Any premium that he generates on the sale of his apartment can be used to make investments that are suitable to the current profile of his income.
Rohan made the error of committing to a large, long-term and inflexible investment before his income and saving had stabilised. At the stage in his career where there still may be uncertainty of income, Rohan should only consider investments that can be made from realistic income and saving estimates. Short-term spurts in income should be invested as and when it happens, and not committed in advance. The investments should be flexible to allow him to take a break in making the investment or even discontinue it if there is a shortfall of income or saving. He should be able to do it without suffering penalties, cancellation or affecting the value of the investments already made. And if there is a requirement for funds to support his income, then it must be possible to easily liquidate the investment. Going forward, he should evaluate if the investments he is considering meet these essential features till his income achieves a degree of assurance for him to plan long-term fixed obligations such as a real estate investment.
(Content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)