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View Poll Results: Home Loans in today's times: Are they worth it?
Do Not take a Home Loan, invest in retirement savings plans, etc. 10 19.61%
Take a Home Loan for a well developed area, it makes financial sense in the long run. 16 31.37%
Take a Home Loan, but not for a well developed, inflated area. 21 41.18%
None of the above, there are other ways of safe guarding your future. 4 7.84%
Voters: 51. You may not vote on this poll

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Old 6th April 2012, 22:24   #61
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Default Re: Home Loan Vs Rented House. The quitessential debate.

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Originally Posted by n.devdath View Post
Is taking a Home Loan and repaying it for 15 years a sensible investment today?

That is a sensible option. But the smarter option is to use the prepayment option.

Pay up as much as you can so you close the loan within 5-7 years.

As per the latest RBI rules, there is no limit nor penalty for prepaying your home loan.

I remember checking out a calculation that showed paying just 2 EMI's extra per year reduced the term of a loan from 20 to 11 years.

Do not buy a home for the tax benefit. The tax savings for HRA are better than a home loan.

However, if you take a home that is far away from your office, then you can claim your home loan tax savings and also your HRA (if staying in a rented house)
Exactly how far away is accepted, I don't know.
But you would need to declare the rent received on your house as a income and pay tax on it.

Just this weekend, I left my rented house and moved into my own home.
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Old 6th April 2012, 23:31   #62
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Default Re: Home Loan Vs Rented House. The quitessential debate.

I think the equation has changed today. 7-8 years back when I took home loan, the EMI I was paying was about 1.5 times what I would have payed as a rent in the similar property (in fact now the EMI I am paying is equal to the rent that is running).
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Old 7th April 2012, 01:25   #63
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Default Re: Home Loan Vs Rented House. The quitessential debate.

If you have a habit of saving and investing in equities, then stay in a rented house.

If you have a habit of saving & investing in FDs, then buy a site somewhere in the outskirts of Bangalore. Nelamangala area might be a good choice - current rates are around Rs. 600 per sq ft with long term appreciation potential of around 18% per annum every year.

If you have a habit of blowing up your entire salary every month, you definitely need to buy a house - that will automatically force you to save. And you will have an appreciating asset at the end of the loan tenure.

Last edited by smartcat : 7th April 2012 at 01:33.
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Old 7th April 2012, 11:08   #64
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Default Re: Home Loan Vs Rented House. The quitessential debate.

You are right in pointing out that even triple the rent will be less than the EMI for the house you are living in. One can always afford to rent a bigger home than one can buy. So moving to own home could be a cut back in your lifestyle. In the unfortunate case where you are no more your family will still have a home for them(in case of an insurance covered home loan) which is a very big support during difficult times like those. If you close your loan you have a property which will pay you a return that increases with the inflation if rented out. Hence even if it means a cut in you existing lifestyle its worth it.

On the other hand if you have accumulated corpus large enough that generates a return to take care of you current expenses for an year then you are wealthy by definition and need not worry about future and your family will be as secured in a rented accommodation as in an owned one. But the key here is one should not buy a home that one can't afford, personally I have figured out that monthly EMI out go should not be more than a third of your salary in order to have a comfortable financial condition.

Last edited by huntrz : 7th April 2012 at 11:14.
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Old 7th April 2012, 11:59   #65
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Default Re: Home Loan Vs Rented House. The quitessential debate.

Quote:
Originally Posted by Guna View Post
EMI I was paying was about 1.5 times what I would have payed as a rent in the similar property (in fact now the EMI I am paying is equal to the rent that is running).
Not sure in this case but generally speaking if you were to purchase a property today the rent would in most probability be ~half of the EMI outgo. You could take a look at any 70L apartment (EMI would be closer to ~50K) and the rental that one gets from these apartments would be about 25K.

All the above quotes figures are approximates.
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Old 7th April 2012, 12:44   #66
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Default

Interesting topic.
With real estate you will usually either regret not buying when prices were low or selling when prices weren't high enough. Take a house. Period. The Emi hurts for a few months but then your mind will adjust to a lower net take home salary. Rent is almost like dead money which doesn't appreciate in any form. It's a liability on your personal balance sheet while a loan helps you build an asset. So it's clear that you should build assets and not liabilities. Find a house you can afford, ensure the papers are good and go ahead.
When I was in college, I used to think that as soon as I have money I'll buy a new Safari and am all set. What I ended up doing was buy a used Safari and invest in a house. 3 years down, the depreciation in the Safari has not been as bad as a new would've been while the money invested in the house has multiplied. Heck, I have lesser bhp but more assets. Lol.
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Old 7th April 2012, 13:17   #67
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Default Re: Home Loan Vs Rented House. The quitessential debate.

Quote:
Originally Posted by mayankjha1806 View Post
Not sure in this case but generally speaking if you were to purchase a property today the rent would in most probability be ~half of the EMI outgo. You could take a look at any 70L apartment (EMI would be closer to ~50K) and the rental that one gets from these apartments would be about 25K.

All the above quotes figures are approximates.
What I said is, since I purchased a property 7-8 years back (which was costing half of what it would cost today) the rent that is running is equal to the EMI I am paying.
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Old 7th April 2012, 14:10   #68
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Default Re: Home Loan Vs Rented House. The quitessential debate.

I must say that there is No single solution or answer that is applicable to all the situations.
There is surely some amount of Luck or Destiny involved too in such decisions.
But the best solution (or least risky and having more chance of success) is to buy a plot in the underdeveloped (suburb) area and save (and invset) so at the right time you can build a house or buy an apartment/house with the savings+selling the plot+any small home loan (if required).
Though Equities, MFs, etc give better returns on paper but from my personal experience, I can surely say that No one can time the market and if you really need money, you have to sell them at whatever price available, while in real estate, you can avoid such losses.
One more thing to do is always keep your eyes and ears open, that is whenever you come across a deal where there is any distress sale happening of any flat/house/plot, etc. for which you are sure about its price, don't think twice and go for it, you will never regret your decision but will thank your stars. For that you should have some contacts with trustworthy brokers. I am sure that these kind of sale happens once in a while.
If you see the trend, the rental income was 1% of House/Flat value few years ago, then it became 0.5% and now it is even less than 0.25% in most cases. The only saving grace is the appreciation in market value which is too high to be ignored.
One more advantage in buying a plot is that whenever you construct extra rooms, floor, you have to incur only on construction cost and as the land cost would be zero, the net result in increase in rental income would be awesome.
Similarly, the rental income in flats in decent society would be higher as compared to independent house and letting out would be easier.
Just my 2 cents...

Last edited by carwatcher : 7th April 2012 at 14:17.
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Old 7th April 2012, 22:14   #69
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Default Re: Home Loan Vs Rented House. The quitessential debate.

Quote:
Originally Posted by n.devdath View Post

The options that come to my mind are:

1. Do Not take a Home Loan, invest in retirement savings plans, etc.
2. Take a Home Loan for a well developed area, it makes financial sense in the long run.
3. Take a Home Loan, but not for a well developed, inflated area.
4. None of the above, there are other ways of safe guarding your future.
This is a debate I always have with my friends. I am always in for the first option though I unfortunately haven't started saving yet thanks to 2 auto loans, rent and sending money home. However I always ended up settling for the first option.
One of the things which scares me in the floating interest rates. I have a few friends who took home loans for 15 years. The interest rate went up twice. The first time his tenure increased by 5 years just like that, and the next time his EMI went up by around 7k because the tenure can't go up because of the the maximum age limit. Now he is bleeding through his nose to pay it.
What I have decided is to rent a place, invest well and if and when I have some extra dough buy a place in some less posh area for the retirement days to relax and travel around.
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Old 10th April 2012, 14:36   #70
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Default Re: BUY a flat or stay on RENT?

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Originally Posted by HorsPwr View Post
Having had the experience of building a house without taking a home loan, I can tell you that do not go for huge loans running into 20ish years because you cannot foresee the future and cannot be certain that your earnings are not going to diminish over a period of time (20 years is a very long period - lives can change). Of course, the pleasure of owning a house surpasses all the hardship that we go through.

1. Do not go for any sort of loans without a strong backing.
2. Do not commit for an EMI of more than 10% of your monthly income.
3. Be patient and try to build up a strong base for you to take calculated risk of taking a loan.
4. Invest in sectors which will for sure fetch you a certain amount after a stipulated period of time, unlike mutual funds.
4. Allow your money to grow to a point where at least you have 70% of the amount required to purchase/construct a house.
Thank you, that makes a lot of sense to me as well but 70% of own funding for a site + house would approximately be around 40 lac INR at the least. Do you think it is possible to save this kind of money, at least in the near future?

Quote:
Originally Posted by mayankjha1806 View Post
An apartment today in a decent locality costs north of 70L and in most probability generates rent of ~25K. Now to recover 70L with this kind of rent would take ~23 years (and we have not yet included maintenance cost). This is far-far on the higher side. Usually if its somewhere around 15years it would be considered good buy. All this means the cost of property have gone too much north too fast.
Which is why I dread apartments. They are expensive, depreciate and do not yield satisfactory returns, most of the time. Also, my being weak in numbers makes the decision all the more difficult.

Quote:
Originally Posted by srishiva View Post
Cost of construction remains same everywhere, its the cost of the site that depends on the area. I had bought sites in RR Nagar 6 years ago and has given me the flexibility of waiting to construct the house at a time I find convenient (although costs go up 5% every year:( )
Which is more or less my plan and I too am looking at RR Nagar if possible. Do you know of any good sites there for sale affordably? I somehow like the layout a lot due to its self sufficiency and calm surroundings.

Quote:
Originally Posted by hellmet View Post
If you're trying to buy a retirement house, I'd recommend buying it in a town from where you belong, unless you see yourself living in the crowded polluted city of Bangalore (or any other large metro) after retirement having to push yourself through the crowds and drive yourself in the traffic.
Apartments are out of question, at least for me. Also, I had this discussion with a friend who is from a small town in Odisha and he said."Today it takes an hour from my house to MG Road, do you think it will take 3 hours when we retire? Things would have changed,drastically then and moreover, the kind of convenience, the medical facilities, crucial during old age etc would be much better in a city."
I somehow felt he had a point.

Quote:
Originally Posted by bblost View Post
That is a sensible option. But the smarter option is to use the prepayment option.
I remember checking out a calculation that showed paying just 2 EMI's extra per year reduced the term of a loan from 20 to 11 years.
Just this weekend, I left my rented house and moved into my own home.
Congrats.. I, at this moment, cannot afford to buy a completely built up house since I do not want to buy a site smaller than 30X40ft and apartments do not interest me at all.
What I am thinking of, is to buy a site and leave it aside for a few years so that I can construct a house of my taste and liking afterwards, however if I buy a site on loan, I will not get income tax exemption and I need to stay at the currently rented place as well.

Quote:
Originally Posted by smartcat View Post
If you have a habit of blowing up your entire salary every month, you definitely need to buy a house - that will automatically force you to save. And you will have an appreciating asset at the end of the loan tenure.
Oh yes, I m a very big spender and need to urgently rein in my spending, big time.

Quote:
Originally Posted by AVR View Post
Interesting topic.
With real estate you will usually either regret not buying when prices were low or selling when prices weren't high enough. Take a house. Period. The Emi hurts for a few months but then your mind will adjust to a lower net take home salary. Rent is almost like dead money which doesn't appreciate in any form. It's a liability on your personal balance sheet while a loan helps you build an asset. So it's clear that you should build assets and not liabilities. Find a house you can afford, ensure the papers are good and go ahead.
Well, like I told bblost, I do not want to buy a house/site smaller than 30X40 and I currently am not eligible for that big a housing loan (Around 60lac INR). Hence the only option I have is to buy a site, continue staying in the rented place and then when my income grows, take a housing loan and construct a house on that site. Do you think it makes sense?

And yes, from what I understand, the max EMI that one is eligible for is 50% of the Gross Salary with all the EMIs combined, right?
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Old 10th April 2012, 14:44   #71
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Default Re: BUY a flat or stay on RENT?

Quote:
Originally Posted by n.devdath View Post
Thank you, that makes a lot of sense to me as well but 70% of own funding for a site + house would approximately be around 40 lac INR at the least. Do you think it is possible to save this kind of money, at least in the near future?
I know its not at all easy by any standards. If you really want to avoid any sort of loans, take small steps, one at a time. Maybe, a small site at once, then maybe some money to start off with the foundation for the house, etc, very unconventional I know, but getting your own flat/house and also not getting into a loan and also at the earliest cannot all go together.
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Old 4th June 2013, 20:29   #72
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Default Re: BUY a flat or stay on RENT?

Hello All,

wish to revive this topic -
Considering - there is lot of crowd now onboard ( which I'm sure is thinking of buying a house soon! )
I am myself thinking of the upsides & downsides of Renting Vs Buying.

I have gone through this thread since post #1 and the math is indeed interesting!

Sharing these videos ( 3 videos giving some good in depth break up calculations on Renting Vs Buying - but has a US_base reference )-
Renting Vs Buying a house - khan academy

Questions-

1. How do we see/foresee Inflation here in India?
I mean - somewhere it is going to breach the "purchase capacity" of the majority folks!

2. Is the demand n supply coming anywhere close to what it is explained in the videos? It sure looks like it is barely-catching up in some towns/smaller cities

3. I am 28 and thinking of waiting to see the "delta" between the growth of flat prices & comparable rents for 2 more years.
I am prepared to risk it a little.
Just getting married - feel like living it up a bit before we move in the "EMI" cycle - if at all we have to!

What are other folks thinking about it?

Ace.

Last edited by driverace : 4th June 2013 at 20:30.
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Old 5th June 2013, 13:17   #73
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Default Re: BUY a flat or stay on RENT?

The returns on investment are eaten away by the loan interest.
This means that if your flat's value doubles in 4 years. It has fetched about 18% returns. (Rule of 72)

But you have also paid about 10% as interest. So effective returns are only 8%. Of course a more rigorous analysis should be done based on the Net present value of summation of all cash flows.

Now unless you stay in heart of Mumbai where maddening crowd propels the rates of property upwards every year for their status appeal, in most cities the heart stagnates after a while. It is the periphery which tries to reach the price levels of the heart. This is where you can expect a better rate of return (after accounting for the loan interest).

The wider the gap between the rent and EMI, the less sense it makes to invest in flats.


Property is altogether a different beast, what I am talking about is the projects by builders who monopolize the prices (especially the township and the mini city projects)

Last edited by alpha1 : 5th June 2013 at 13:18.
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