What I told a Frustrated Guy in Job. At 37, He Retired few Months Back – Part 3

This post was long due after I did Part 1 and 2 in April this year. Though the story of this guy was covered in first two parts, I wanted to do a follow up post highlighting some of the important points raised in comments of the post.
Readers like Krish, Bharat and many others made some noteworthy points, which I feel need to be shared with a larger audience and hence this post.
You can either read the complete story in detail in Parts 1 and 2;Or just go through the broad outlines below:
This person had a big home loan, was earning decently, but just sufficient to make ends meet (after paying his monthly loan EMIs), had very little savings and investments and more importantly, was frustrated with his job and financial situation.
Luckily, he inherited a plot of land which till a few months back, he did not know what to do with. 
What he does afterwards, is what changes his life:
Step 1: Sold off the land plot for Rs 9 Crores (post tax).
Step 2: Closed his home loan of Rs 70 Lacs.
Step 3: Created an Emergency Fund of Rs 30 Lacs (which covered his family’s expenses for next 2 years).
Step 4: Put Rs 4 Crores in Fixed Deposits, which provide approximately Rs 1.75 Lacs every month in interests (post tax).
Step 5: Bought 7 flats for Rs 3 Crores
Step 6: Bought a small warehouse (godown) for Rs 1.1 Crore
Step 7: Put 5 (now 6) of these flats on rent for a total of Rs 1 Lac a month.
Step 8: Put Godown on rent of Rs 60,000 a month.
Step 9: Quit his day job
Note – Actually he quit his job before the godown went on rent.
To summarize, he used proceeds of selling his inheritance to create a monthly income stream of more than Rs 3 Lacs. His average monthly expenses are between Rs 50K to 60K.
Now this is the current situation. And we do not know what might happen in future.
But few readers raised concerns about this approach and shared some different approaches. I share their concerns and ideas below:
Point 1: Cashflow is great in terms of interests, rents etc., but over the years expenses also rise. Not only because of inflation, but also because of altogether new expenses like kid’s education, medical bills, renovations, etc.
Point 2: If investment in properties (flats) is made for capital appreciation, then one should understand that it is not that easy to sell off properties. Banks are generally skeptical about lending to buyers for older properties.
Point 3: Once again if investment in property is made for capital appreciation, it makes sense to buy in relatively undeveloped areas. Then wait for 3-5 years and sell them off. In this way, one can cash out on overall upgradation (read: development) of that area, and the increase in desirability quotient of that area. If one waits for more than 5-7 years, there’ll always be a problem of “Old Flat” perception.
Point 4: In rental properties, each time a tenant vacates, it requires big expenses in form of painting, cleaning, plumbing, unsolicited breakdown of utilities, etc to get the flat ready for next occupant. This eventually reduces the actual rental income coming from the property.
Point 5: Dependency on rental income often proves to be fickle and it does not even beat inflation. Since chances of real estate markets being in bubble currently are high, expectations of very high capital appreciation would be wrong.
Point 6: There is an increase in people seeking help / donations / loans when they realize that you are flush with funds and living off without working for anybody else.
Point 7: With so much money coming in every month, life style changes and expenses on luxuries like foreign trips, electronic gadgets tend to increase. These eventually reduce the surplus every month.
Point 8: Could have chosen not to close the home loan and continue getting tax benefits. The money could have been used to earn hefty interest.
Point 9: Plan of taking another loan (>2 Crores) and use the monthly surplus to pay EMIs can be a big risk as it greatly reduces the free cash available every month.
Point 10: Plan of starting a money lending business is a big no-no if one gives any weightage to peace of mind.
Point 11: All the proceeds from sale of property could have been put in debt funds (50% Growth, 50% Quarterly payout). After decent quarterly payout accumulation, the money could have been invested in Equity Mutual Funds and Residential plots in small towns as in long term, only MFs, Direct stocks and Land are game changing wealth creators.
Point 12: This person should not have quit his day job until his planned business had kick started. Any business started after inheritance is more of a time-pass and chances of it succeeding are pretty low.
These are few of the major points which came out of the discussion which took place in comments of the post. I personally do not subscribe to quite a few like not paying off loan (I love being debt free). But I also think that few of points like expenses related to properties are quite valid.
Overall, I think the approach taken has been quite prudent, driven by common sense and most importantly focused on generating cashflows. But finally, only time will tell whether its correct or not.


  1. Nice follow up article…

    When you have a windfall of such proportions, I believe that one should rise above the usual reptilian “survival of the fittest” mentality, and become more human, humane.

    Point 6: people soliciting for donations… My personal view is that at least 5% of your yearly earnings (be you a millionaire, or a salaried employee) should be donated to *worthy* causes. At least 5%… Any special windfalls that happen, again the same thing… This is because I firmly believe in Dharma, Artha, Kama, Moksha philosophy. If you've received the grace of good fortune, you should be very keen to share it with others who are less fortunate. Think of it as trading material wealth for spiritual progress, in a way, ensuring that Lakshmi does not become all important, one has to be detached to a certain extent from it.

    Don't worry about how this donation will bring fame, glory. Don't even worry if it will reach the intended person (do your homework on the organization you're donating to though!).. Neki Kar, Dariya mein daal.

    Point 7: What's the use of earning so much, if you are still chained to the mill? Enjoy your remaining life… Don't leave such a fortune for your children that they don't know the value of hard work! Leave a legacy of knowledge, love and charity along with a little bit of wealth, rather than a legacy of only wealth.

    Point 8,9: Be debt-free… Your life will be longer and happier for it!

    Point 10: How much wealth is enough for a person? Money-lending business?? If this is done ethically – micro-finance for poor people without a way out of their poverty, where your loan helps them win in life, AWESOME! If this is being done only for your gain, why?? God has given you enough, now make it count!

    Point 11: Totally agree with this. Diversify, ensure that no particular investment is too concentrated in one sector. Balance liquidity with returns.

    Point 12: Actually, if I had a windfall like this, I'd be quite happy to do “nothing”! I don't mean become an invertebrate, flopping on the sofa. Do all the things which you always wanted to do, and never could. See if you can explore new areas of interest, travel, innovate, and also see if you can help others become self-sufficient. Take up education of poor, kick-start businesses which help employ people etc etc…

    Wistfully wishing that I was the recipient of such a windfall! 🙂

  2. Dev, Nicely captured all the comments and you have a wonderful writing style. Just curious to know, whether the discussed inherited guy is going/gone ahead with his plan or picked up any points from your article/comments?

  3. Thanks Krish for your kind words Krish
    The person has currently decided to wait for sometime before taking any decision. And as mentioned in post above, another flat and godown have started generating rental income.

  4. Interesting thoughts Bharat…
    And I totally relate to the two points related to Diversification and being Debt-Free. Better have lower returns than spend sleepless nights.

    I have always advocated the philosophy of 3 Cs – Cash, Courage & Crisis
    You have added another dimension with 3 Ds – Diversification, Debt-Free & Donation
    🙂 Brilliant

  5. These days the stock price is as low as it was during mid of 2009, below 210. Are you guys thinking of buy it now or no fresh purchase because of ongoing administration issues ?

  6. Hey Dev. Just stumbled on this post while researching for Cairn. I do hold Cairn.. 4% of my portfolio. It's taken quite a beating off late, but all the financials and valuation looks very rosy. What's your view on Cairn now? I'm torn between averaging it out and selling 50% of it. All the reading on “holding long term” doesn't prepare one for 40% dips!!

  7. Yes…its tough to take that kind of a hit. But one of the primary concerns with Cairn now is less about the oil and more about the management and how it might use this cash cow.

  8. Hi Dev,

    I have bought Cairn almost an year back when the valuations seemed lucrative but the recent merger decision of the management with the parent company- Vedanta has ruined all my long term plans on Cairn. Although I'm still holding it with a downside of around 30% believing the fortunes will revive as LIC is still against the merging decision and is now the only hope of several small investors. However, a big lesson to learn out of the whole scenario is never to go out for opportunities if the management is not trustworthy. Would like to know your take on Cairn?

  9. Agreed Kailash. This episode of Cairn-Vedanta is a case study to learn from. Though there is still a ray of hope that merger might not go through, the point is that when evaluating a stock, even though it might be of an amazing business, a more than average weightage should be given to management.

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