‘2nd flat illusion’: Financial advisor breaks down why buying property for tax savings may backfire
The finance expert breaks down how a second home on loan often bleeds cash instead of creating wealth — and why smart investors should focus on liquidity and compounding.
- Oct 5, 2025,
- Updated Oct 5, 2025 10:07 PM IST
In a detailed post on X (formerly Twitter), chartered accountant Nitin Kaushik debunked one of the most common financial myths among Indian investors — that buying a second flat is a smart tax-saving and wealth-building move.
Titled “The ‘2nd Flat for Tax Saving’ Illusion,” Kaushik’s thread used a real-life example to show how this approach often results in negative cash flow and poor long-term returns.
Math behind the myth
Kaushik shared the story of a friend who bought a second apartment in Pune worth ₹85 lakh, expecting to “save tax” and “create wealth.”
On paper, the logic seemed sound. But Kaushik broke down the numbers to reveal a different picture:
- Loan EMI: ₹42,000/month → ₹5.04 lakh/year
- Rental income: ₹18,000/month → ₹2.16 lakh/year
- Maintenance + Property tax: ₹65,000/year
- Net annual outflow: ₹3.53 lakh
“While he’s collecting ₹2.16 lakh in rent, he’s paying ₹3.53 lakh to keep it alive,” Kaushik wrote, adding that for such an investment to make sense, the property would have to appreciate at 10-12% CAGR for the next 10-15 years.
In reality, residential property prices in India’s top cities have averaged just 6-7% CAGR over the past decade, he noted.
Smarter alternative: Compounding, not concrete
Kaushik compared this with investing the same annual outflow — ₹3.5 lakh or roughly ₹29,000/month — into a Systematic Investment Plan (SIP) at 12% CAGR.
That approach, he calculated, could yield:
- ₹70 lakh in 10 years
- ₹2 crore+ in 20 years
- ₹7 crore+ in 30 years
“That’s pure liquidity and compounding magic,” he wrote, emphasizing how financial discipline and patience can outperform emotional investing.
Borrowing at 9% to Earn 2-3%
Kaushik pointed out a simple but often-overlooked equation:
“Rental yield in India is around 2–3%, while home loan rates are 8–9%. You’re borrowing money at 9% to earn 2–3%. The math just doesn’t work.”
He clarified that real estate can still make sense when it’s for self-use, bought without loans, or located in an early-stage growth area. But for most salaried buyers taking a second home loan, the decision is driven by ego and status rather than sound financial logic.
Kaushik’s message is clear, “Tax savings are temporary. Cash outflows are permanent. Don’t buy assets that drain you every year just to ‘feel wealthy.’ Smart money compounds silently, not emotionally.”
In a detailed post on X (formerly Twitter), chartered accountant Nitin Kaushik debunked one of the most common financial myths among Indian investors — that buying a second flat is a smart tax-saving and wealth-building move.
Titled “The ‘2nd Flat for Tax Saving’ Illusion,” Kaushik’s thread used a real-life example to show how this approach often results in negative cash flow and poor long-term returns.
Math behind the myth
Kaushik shared the story of a friend who bought a second apartment in Pune worth ₹85 lakh, expecting to “save tax” and “create wealth.”
On paper, the logic seemed sound. But Kaushik broke down the numbers to reveal a different picture:
- Loan EMI: ₹42,000/month → ₹5.04 lakh/year
- Rental income: ₹18,000/month → ₹2.16 lakh/year
- Maintenance + Property tax: ₹65,000/year
- Net annual outflow: ₹3.53 lakh
“While he’s collecting ₹2.16 lakh in rent, he’s paying ₹3.53 lakh to keep it alive,” Kaushik wrote, adding that for such an investment to make sense, the property would have to appreciate at 10-12% CAGR for the next 10-15 years.
In reality, residential property prices in India’s top cities have averaged just 6-7% CAGR over the past decade, he noted.
Smarter alternative: Compounding, not concrete
Kaushik compared this with investing the same annual outflow — ₹3.5 lakh or roughly ₹29,000/month — into a Systematic Investment Plan (SIP) at 12% CAGR.
That approach, he calculated, could yield:
- ₹70 lakh in 10 years
- ₹2 crore+ in 20 years
- ₹7 crore+ in 30 years
“That’s pure liquidity and compounding magic,” he wrote, emphasizing how financial discipline and patience can outperform emotional investing.
Borrowing at 9% to Earn 2-3%
Kaushik pointed out a simple but often-overlooked equation:
“Rental yield in India is around 2–3%, while home loan rates are 8–9%. You’re borrowing money at 9% to earn 2–3%. The math just doesn’t work.”
He clarified that real estate can still make sense when it’s for self-use, bought without loans, or located in an early-stage growth area. But for most salaried buyers taking a second home loan, the decision is driven by ego and status rather than sound financial logic.
Kaushik’s message is clear, “Tax savings are temporary. Cash outflows are permanent. Don’t buy assets that drain you every year just to ‘feel wealthy.’ Smart money compounds silently, not emotionally.”