Skip to main content

Rationale Buy v/s Rent comparison

Planning to buy your dream house? Take a look at rental rationale as well

BUYING a house is “simple”. All you have to do is to ask for an advice. And voila, they come in dime-a-dozen. Besides, if you look around, you’ll find real estate portals, hoardings and various self-styled real estate gurus advising you where and how to buy your dream house. But in this commotion, you may often overlook a simple calculation — the buy v/s rent comparison. Here’s a reality check on what should really influence your decision.

ARE YOU READY TO BUY?

Personal finance experts believe that emotions, family and personal reasons all come into play in any home-buying decision. Also, there are lots of non-financial factors that affect this decision, including your hobbies, lifestyle, and personal psychology. Even before you plan to buy a house, it’s better to assess if you want to live in that city. If it’s your first house, then you should see it as a long term investment. After all, you want to spend your rest of the life there feels that renting can be a better option if you are at an early stage of your career and you need temporary accommodation until you’re well settled in your professional and personal life. “Renting is also suitable for a frequent traveller as moving in is easier as well as cheaper. Also, the maintenance and repair of the apartment is the landlord’s responsibility. Renting also provides simplified budgeting as the monthly expense (rent) is fixed. The scope for loss of investment is minimal,” he adds.

FUND YOUR DREAM

Despite these non-financial considerations, often the choice comes down to money and what makes the most financial sense. To get a clear picture, it’s pertinent that you should do a cost-benefit analysis before buying a house. It’s better to buy a house in the first year itself, rather than to pay rent for the first few years and then buy a house, since the total value of financial assets created is higher in the first case. Rental yields are currently low, at 4-5% of a property’s value. But if you’re paying rent as high as 10-11%, the rental option is not feasible. It’s better to buy a house instead.

Experts say you have two routes to get your dream house. First, you invest prudently for a given timeframe and use accumulated funds to buy the house. The second is to secure a loan and pay EMI (equal monthly installments) for a given time period. When choosing between the above two options, one should not only look for affordability but also consider the impact of decision on his other financial goals. Buying a property, which is way beyond your price range, could affect your financial planning for other important aspects of life such as retirement, children’s marriage/ education.

OWNERSHIP CHARM

Home ownership gives you a great sense of achievement, pride and security but it can often lead you into a debt trap. Analysts hold the view that higher repayment of loans can lower the liquidity for your household and other expenses. You should avoid considering a loan which extends beyond 50 years of age so that all the debts shall be repaid before retirement. It is important that you should also figure out the cost of maintenance, repairs, insurance and utilities, which were not there when you stay on rent. “In the current scenario, the real estate market is highly overpriced and when you’ll do the cost-benefit analysis, staying on rent may work out to be cheaper. It is important that you should stretch only to the extent where you realistically foresee your financial position improving in a given time frame. “Home-buying mentality is something we’re deeply ingrained with, and is the number one financial goal for most people. We pay a big premium for feeling that pride of home ownership after all.

Well, if you don’t want your dream to turn into a financial nightmare, it’s advisable to do a reality check before you venture into realty.

Popular posts from this blog

Atal Pension Yojana contribution Tax Benefit for spouse

Contributions to Atal Pension Yojana (APY) are eligible for the same tax benefits as the NPS. This means that the contributions can be claimed under Section 80CCD (1B). The current limit for Section 80CCD (1B) is   Rs   50,000, over and above the   Rs   1.5 lakh limit under Section 80C. Section 80 CCD (1) is a different one, meant to cover employers' contribution towards NPS . You cannot get tax benefit by investing in the name of your spouse under Section 80 CCD . ------------------------------ ----------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in India for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Religare Tax Plan 4. DSP BlackRock Tax Saver Fund 5. Franklin India TaxShield 6. ICICI Prudential Long Term Equity Fund 7. IDFC Tax Advantage (ELSS) Fund 8. Birla Sun Life Tax Relief 96 9. ...

Avoid NFOs

  Don't get taken in by the flurry of new fund offers. You will be better off sticking to the tried and tested schemes.   For the past one year, to cash in on the bull run in equities, mutual fund houses have gone on a new fund offer (NFO) overdrive. But experts are unanimous in their advice: avoid NFOs . While past performance is not an indicator of how a fund will fare in the future, it does tell the investor how skilful the fund manager is. This crucial information is missing in an NFO. Not only is there no track record to judge an NFO by, many NFOs are similar to funds that already exist. If the new fund is similar to existing funds, you are better off investing in the latter. Around 67% of the new launches in 2014 were closed-end products. Investing in the NFO of a closed-end fund is doubly risky. In case the fund's performance is lacklustre, a closed-end fund does not allow you to exit. Even though closed-end funds are listed on the stock...

Franklin India High Growth Companies Fund

Franklin India High Growth Companies Fund Online One of the key developments that the Street is keenly waiting for is a cut in interest rates by Reserve Bank of India . With demand rising gradually, a rate cut is expected to boost earnings growth for companies. In such a situation, schemes which invest in high growth companies are best suited, especially when seen from a long-term perspective. One such scheme is Franklin India High Growth Companies Fund. Fund managers Anand Radhakrishnan, Roshi Jain and Srikesh Nair strictly follow valuation parameters when it comes to choosing stocks.Valuation parameters, such as enterprise value, price-to-earnings growth ratio, forward price-to-sales ratio and discounted earnings per share, play a critical role in selecting companies for investments. Taking into account these parameters, the fund managers invest in companies which are poised for high growth in their respective sectors. This approach has been in favour of the scheme and it has perform...

Debt Mutual Fund Dividends are Taxable

DDT is deducted when a non-equity fund declares dividends. Equity and balanced fund dividends are tax-free The AMC is correct to deduct the dividend distribution tax (DDT) as it is mandated by tax laws. DDT in mutual funds is deducted every time a non-equity fund declares dividends. Equity fund and balanced fund dividends are tax-free . It is possible that you have invested in a non-equity fund for the first time or have received the dividend under a non-equity fund for the first time. That is why this is the first occasion when you have come across DDT.   The rate at which non-equity schemes deduct DDT has also gone up after the July 2014 budget. This is due to a change in calculation methodology. Earlier, if the fund has to declare a dividend of R 100, it used to make a provision for R 128.3, paying R 28.3 to the taxman and distributing the balance to the investor. This allowed the investor to bear less tax since the effective tax rate was 22.07 per ce...

Mutual Fund Exit Load Changes

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 Mutual Fund Exit Load Changes AMCs don't communicate about any change in exit load directly with investors, but do update on their website   The exit load applicable to your investments is the load which existed at the time when you invested in the particular fund. Any subsequent changes in the exit load will not be applicable to your investments.   However, Asset Management Companies ( AMCs ) periodically publish addendums in the newspapers, which state any change in exit loads of specific schemes managed by them. Such changes are also posted on their websites. However, a direct communication to an investor is not made, considering the costs involved in doing so. In their own interests, investors should not only track the performance of the funds they i...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now