Shivani has inherited a house from her deceased grandfather. She lives with her husband and child in Mumbai. She pays a very high rent and does not have adequate money to buy a property in the city. Her husband feels instead of staying in it, they should sell the inherited property and buy a flat. He says the EMI will be low if they make a large downpayment with the money they get from selling the house. Shivani, however, is not sure how to deal with her new inheritance.

Young investors like Shivani are unlikely to have a large amount of wealth. The inheritance makes her wealthy, but comes with its own inflexibilities. She cannot sell the property in bits and pieces to meet her need for money. It is a bulky asset that has to be sold at one go to realise its worth. Or it could earn a small rental income. Its usefulness for Shivani lies in its ability to enable her to save more than she did earlier.

By living in the inherited house, Shivani can save on rent and use the money to build assets. If she builds equity and debt assets with the savings, in a few years she will have a balanced portfolio that will be more accessible and flexible. For example, if she wants to provide for the education of her child, she may not be able to sell the house, but can liquidate the investments she makes out of the savings in rent.

Selling off the house to buy a new one might be a constraint unless the new property is of the same value. Taking on an EMI at this stage will reduce her ability to save and will further concentrate her wealth in a house. She will also incur additional costs on stamp duties, registration, fees and costs, and interiors of the new house. Shivani should use her inheritance to augment her savings. She should take on other commitment once her finances are on a firmer footing.

(The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)