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Is buying a home bad from a logical/financial perspective. Are you planning to buy one in future but the rates are/were absurdly high. Why is buying a house a bad investment today? Anyone out there who rose above this peer pressure and investing without home loan on their radar?
If house provides you emotional stability and it’s for consumption buy it and if you can afford buy it, buy a mansion if you can afford but if you are thinking for investment just skip it. Whether to buy a house or stay on rent depends on many variables. Eg:- If someone wants their own house, then out go on rent is something to be calculated. If you don’t care about having your own house, then definitely no need to buy. In my case, I want a house to live in. I would be very stupid to spend 50-60 lakhs on rent for the next 20 years and then buy a house. Answer to whether to buy a house or rent, depends on many variables and a majority of those factors are not based on money.
Life of a Forever Renter
There are many people who want to be a forever renter. They don’t own a house and have no plans of doing it anywhere in the foreseeable future. Renting is cheaper than owning a house and the flexibility to move whenever you want to is the icing on the cake (at least for forever renters).
Forever renters usually don’t have any kids going to school. They’ve been a renter since the time they first moved out of my parents house and the lakhs paid in rent is not an useful metric. The rental yield on a property is a more relevant one and the opportunity cost of the cash locked up and increase in property prices is something to calculate.
For example the current apartment I stay in has a rental yield of just 4%. Even if I owned a property like that through inheritance I would just sell it and use the money for investments/ in my business. So far the money I have not paid in rent has been invested and I have at least made 4+ X of what I would have benefited by owning an apartment (property value increases etc.)
For me locking up capital in EMIs is a huge opportunity cost. Plus property taxes, having to remain anchored in that location even if the environment changes is not something that suits my lifestyle also I have no interest in renting my property and dealing with any potential hassle if you find a bad tenant as well. I also don’t want the hassle of having to find a tenant if I move to a different location or get bored of that area or get tired of traffic/pollution in the area where I stay (Which is inevitable in cities). people keep moving to the outskirts as the city gets bigger/busier.
Isnt it a hassle to shift houses
It might appear as a hassle/headache to keep shifting houses every 2-3 year. Cost of relocation, takes 2-3 months to adjust, damage to furniture etc. If you are just trying to figure out this perspective how rentals are better than owned homes, here are more details.
Shifting houses is a hassle, any time. The reason to shift houses is important to know.
1. Move able job – transfers to new locations for bank employees and gov employees and their families.
2. Owner asked to move
3. Want of different house ( like 1 bhk to 2, 2 to 3 or villa or high rise floor, gated community).
Bigger hassle is – renting in a different location (for jobs or schools or outgrown) while paying EMIs : isn’t it?
Ok as a investment my point of view is building house and giving for rent is not that worth Unless you get very good rental returns Vs the amount you invest. Buying land and then building house means it’s too much money and you won’t get that much of rental returns. Depends on area residential lands in prime area Would be good investments. Commercial lands might be good investment if you can have some ide about future developments / projects in those areas. If you own a commercial land then building some shops might be good option Again buying commercial land and then building shop may not be worth in terms of amount you invest. Depends on area some mid range of good apartment investment might be good option (specially for me in Kerala it’s been worth).
Low Rental Yields in Singapore
Some people in many countries like Singapore are paying 50% extra rent from due to inflation and rising mortgage interest. Average salaries are also different in India compared to Singapore so are the rent. The rental yields in Singapore are extremely low. so the amount you will pay for your EMIs in Singapore will be insane. Singapore real estate is extremely expensive and if you can afford the EMI, then the rent will hardly be a problem. The amount you pay in rent will always be much much lower than the emi for your apartment.
This is a common misconception that assumes the EMI-rent part is wasted. Unlike western countries, in India, EMI is at around 7% while rent hardly exceeds 3%. The difference can be invested. Assets are overvalued if so but Prices rose further in current low interest cycle.
Renting appeared financially attractive but then covid made owning house attractive. A person should have one house of their own, be it anywhere. In times like corona, many people faced issue. Buying real estate for investment purposes may not be good ideas these days, but for self use, one should own a house if you can afford it.
Assuming your alternative is to rent then buying your first house for your own living would be fine. If you’re trying to buy a house as an investment (i.e., to rent) then you’re better off investing in Equities. If you’re into IT and changing jobs/locations, avoid getting into the trap of real estate mafia – banker nexus. If you still buy and change location for better prospects, always prefer to sell the current one and upgrade to a new one for self use. Don’t consider residential rental as a business. This is purely my personal views.
Is Paying Rent Good or Buying a House
It is depends on lots of things. Say if you buy a 2 BHK for 60L today, you will end up paying about 1.2 crores at the end of 20 years if your down payment is 20 Lakhs. However, if you decide to stay in a similar apartment as a 60L 2 BHK. You will spend around 60L after 20 years, considering a 5% annual increase in the rent. And if you are alive after 20 years, you will still have to keep paying the rent. Not to mention that it won’t be very easy to keep moving places once you are past your prime age.
Problems become harder if you have school/college going kids. I am talking about most individuals who don’t really move around cities every couple of years. I have lived in 5 houses in 4 cities in the last 8 years. I am fed up with the constant moving and with my kid starting to go to school from this year, I have decided not to keep moving again. So I guess it comes down to each individual’s taste:).
In this example the overall rent comes to 47 lacs. That’s much less than 1.2 crores 🙂 Also there is the opportunity cost between the rent and EMI. Yes. it comes down to individual taste.
I rented studio, 1 bhk, 2 bhk, 3 bhk , now I rent 2430 sft 3 bhk apartment. I value the flexibility of upgrade / downgrade . And I don’t like spending time on bank loans , repairs , battles with builder, quality of fixtures etc. I don’t want to live in a very old home in my 70-80-90s. I don’t want to flip multiple houses. Loans and EMIs stress me. I view – buying houses on loans is no different from buying cars on loans , it’s a consumption . And I don’t connect with the emotion of owning a roof over the head, peace of mind etc. Fortunately – no owner troubled me ever, the max rent I increased ever was ~8%. I can buy roof anytime: I don’t see the need to rush / hurry and buy on a loan . So renting works for me and some folks like me.
Is buying a house a bad investment today
The saying is not one size fits all. Many such financial sayings are context-sensitive and need to be understood in the proper spirit. Also, everyone’s needs and circumstances are different. If for one tax outgo is less consideration than storing capital, an nth house may be a solution. Please check your specific case and act accordingly.
The funny part is that so, people are looking at not owning a house and staying on rent but then wouldn’t some one be owning that house. Basically, people be like: I don’t want to buy but someone should buy and rent to me! Obviously there are many kinds of people in this world. And not looking at owning is a minority. As long as people keep buying houses with all their savings and keep increasing supply high and keep rent low I will continue to happily rent 
.
For your own house-the house you will be living in, you take a call. For buying second third fourth it doesn’t make sense. Even renting the first house makes more financial sense but emotionally some people feel we need one of my own and I’m one of them. Some of the reasons to buy the first are proximity to work, school, choice of interiors acc to your taste, flexibility in drilling hanging pictures making minor changes, no fear of jumping places every 2 & 3 years and lower rate of interest at present. It may even drop further. First house on joint name gives tax benefits to both. Also I feel kids and elders cannot adjust to new houses frequently as they form a circle.
How do home buyers decide on a location
On a related note, how do home buyers decide on a location? As office locations, school, college etc might change over time. Not to mention the most value for money properties seem to be developing outside the city, so that increases commute time and expenditure. Is it like a win some lose some situation?
I currently rent 5min walking distance from the office of both spouse and myself. School bus comes to the gate of the complex and it is a 15min drive. The yield on the property is < 1.8%. There is zero chance I can afford this property, as per my financial goals, but it doesn’t impact my quality of life. I know many people like me. Many others have 40+min commutes and have purchased property 20Km away from office. It works for them.
25 years later at 5 % returns is still a good option. Paying rent at 5% increase every year only robs you of your money. Once payment term is completed you are the owner. So long term it’s beneficial. Buying a house, constructing a house etc. has both plus and minus points. It can depend in goals, ambitions, job etc. Also the type of home vs income. A person with average salary cannot afford ultra modern bathrooms and false ceiling, home theater and centralized ac kind of house. Definition of house can vary from person to person.
Some people consider buying a house due to fluctuating rent, stability in your place of stay. You move to a rented flat , next year owner comes and asks 50 percent hike as he has a couple ready to move at that rent. This can be avoided with own house. Own house has to be maintained, garden has to be trimmed etc. Buying a house is a personal decision and no amount of logical or financial perspective can beat it. If you still want to convince yourself whether it is a good financial decision or not, think of it as an asset that grows only by 5-7%.
Conclusion
I would not recommend buying home for self consumption as bad. It’s only buying home as an investment for future price sale that is being rejected. Buying an home for self use is good and in my view if you can then you should go ahead. But plan your finances accordingly.
As long as,
1. You are living in that house, and not renting it out
2. Buying it only after checking the impact on the rest of your financial goals, buying a house is perfectly fine.
