[bblost]

Originally Posted by n.devdath

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.

[Guna]

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).

[SmartCat]

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.

[huntrz]

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.

[mayankjha1806]

Originally Posted by Guna

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.

[AVR]

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.

[Guna]

Originally Posted by mayankjha1806

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.

[carwatcher]

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...

[Altocumulus]

Originally Posted by n.devdath

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.

[n.devdath]

Originally Posted by HorsPwr

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?

Originally Posted by mayankjha1806

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.

Originally Posted by srishiva

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.

Originally Posted by hellmet

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.

Originally Posted by bblost

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.

Originally Posted by smartcat

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.

Originally Posted by AVR

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?

[HorsPwr]

Originally Posted by n.devdath

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.

[driverace]

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.

[alpha1]

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)

[zaveed]

Reviving the old thread and looking for some advice

How relevant are the below points in current situation given that there has been a lot of change in the RE sector and the policies.
1. Flat cost should be 1/3rd of the land cost.
2. Undivided land share.
3.240/250 rule.

I am contemplating on buying a flat in Hyderabad after staying here for rent for more than 15 years. The primary reason not buy the flat so far, was i had invested good amount of money at my native place in houses and commercial property, getting decent rent from them, which will be ok to live in the native place when i retire and go back.

Reason to look out now is thinking of having a own property and would be helpful if kids want to stay here either for study or job, they do not need to worry about the rent.

Was initially interested in a gated community flat but dropped the plan.Price of the flat is good but the add-ons cost nearly one fourth of the flat cost (amenities,club membership,2 years maintenance in advance,Corpus fund). A 2bhk flat in a gated community will be at least 70L.

There are flats for less price and these projects are far off from where i work and it would also take more time to commute.

Flat that i am keen on is in an area which is developing slowly.Its a 3bhk Flat and would cost me around 70L including registration, wood work etc. i might opt for 50L loan with an EMI of approx 42k or 45K. I am planning to close the home loan in 7-10 years.

I am currently paying a rent of 20k so the EMI would make an additional dent of 25k on the pocket per month.

Looking for inputs whether i should go ahead with buying a flat for rent it till the time i am here?

Thanks

[AltoLXI]

Caught in a big dilemma.

I am staying in my own apartment in Bangalore (small one with no frills) from the past 13 years. No home loan as I repaid it back within 4 years. The construction quality is good though from a small builder. Son's school is close by and he has two more years to get into college. Things were going on well till...

Last month the bore well ran out of water and now we are dependent on tanker. Municipal water supply is also very unreliable. As we have RWH, some people in association tell the bore well "might" get recharged. I am skeptical - as in 2006 water level was at 350 feet. In 2006 a new bore well was installed and the water was at 750 feet. This time we cannot go for more depth as the geologist has said there is no water and as there no more points to drill in apartment. So the only hope is rain water via RWH or rely on tanker.

I am scared that the apartment might not get returns from sale in future due to

i) Water scarcity
ii) Age of the building after 5-10 years.

I have a buyer who is aware of the water situation but still is willing to buy. His bank has cleared the documents and we are ready for the agreement.

Plan was to move on rent close by for two years and later move to different rental place where son joins college. Do not know in future if son stays in Bangalore or moves out.

I am tired of Bangalore life with all the pollution, traffic and potential water issues in future. I would like to construct own home out of sale proceeds in native, give on rent and use that rent to pay off here as rent. Later at the end of career, would like to stay in own home in native.

BUT wife and son are not very enthusiastic on selling as they are concerned on the large rent outgo and letting go off the comfortable living till now and moving to rental house in future.

I have rarely come across people selling own house and going on rent at later stage of life. Not sure if I am doing the right thing or not. Please help me with your views.