Dividend income vs rent income which has high ROI on an average?

If you had a crore Rs and you buy house with some debt and put it on rent vs buying high dividend diversified portfolio which will have higher yields on an average?

Lets Experiment!!!

Scene one: You have a lovely wife and two kids
80L home will reap you a rent of 25,000 INR / month, which means 400K per year returns as rent. Odds that you have a tenant is 1 in 5 times, which is 20% chance. Considering the odds the return is 80K inr
20L is put in FD @ 6% rate you get 120,000 INR in 6 months. Per Annum it is 240K.
So total returns on 1Cr is 320K. This is an income of a hard working entry level Engineer now.

Cut the tax of 10% on the 320 K, which leaves you 298K, which is a take home salary of a factory worker. Still, your money did the work, not you.

Razzle dazzle Management guy : Enter the companies and shares

100L invested in a share like ITC, which paid dividend of 10.15 INR / Share recently. The odds of dividend to be released is only 1 in 3, that is 33%. Lay man’s term, if 3 years pass then one year the dividend is sure to be released. (This odds are important)

ITC share LTP is 193INR, which will give 51,000 shares approx. Multiply that with Dividend of 10 inr giving per annum 510K INR. Consider the odds of 33%, then the per annum in a long run is 150K INR. The tax of 10% will give you a return of only 135K INR in a year. Which is 50% lesser than what you can get by buying the house.

Verdict:
Odds are not in our control, profits seems to be in our hand. Which is exactly the opposite. The odds involved can be calculated, our work as traders is to increase the odds of profit that we want. Not the profits themselves.

Now, which you will choose House or the Shares? What are the odds?

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Odds of tenant is high unless incases like covid

Ask yourself. Are you biased towards buying house? List down your pros and cons. If you are unable to list the CONS then, you have a confirmation bias.

If the odds were so good for buying house and renting it out, don’t you think every one will be doing just that? Do some market research on the odds of owning house and making returns.

It looks like everyone is doing that, but with “which” money are they doing? In above calculation, we are assuming 1Cr is a lying there idle. Is that assumption correct? What will happen if you add interest rate to that 1CR? Simulate it.

Ask more questions, Experiment and Simulate your answers.

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