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

Understanding Your Cibil Credit Information Report

   WE ARE all familiar with the anxiety and uncertainty that we feel when applying for a loan. After all, it's the lender who decides whether we can own our dream home, our first car, or whether our children can pursue higher education. In a nutshell, a better life depends on the lender's decisions.    While other factors do play a part in the lender's decision, the Cibil Credit Information Report ( CIR ) plays a crucial role in a lender's decision to approve a loan application.    Previously, lenders would treat all loan seekers equally. Each applicant, if approved by the lender's internal credit policy, would be charged at the same interest rate for a particular loan size and purpose. The lenders would charge a higher interest rate to all the borrowers, in order to compensate for the possible default of a small portion of the loan disbursed. In other words, it's like a professor (the lender) punishing an entire class (borrowers) for the mischief played b...

What are the factors affect the changes in Interest Rate of Fixed Deposits?

  What are the factors affect the changes in rate of Fixed Deposits? Fixed Deposits are now considered to be a very old fashioned method of saving, but still attract many investors since they have guaranteed returns at the end of the tenure of the investment at a decent interest rate. There are various factors that affect the rates of interest for a Fixed Deposit. Policies of the Reserve Bank of India   - The several norms and restrictions posed by the Reserve Bank of India , in order to gain optimum control over credit and inflow and outflow of fund throughout the country. The repo rate changes, cash reserve ration tends to change and these changes affect the banking products like Fixed Deposits, loans etc. Recession   - When unemployment in a country crosses the benchmark set Recession hits, and slowly the country faces an economic slow movement, affecting the purchasing power of the people in the country, forcing the Reserve Bank of India to release more funds in the financial marke...

Capital Protection Oriented Funds

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   Capital Protection Oriented Funds   Erosion of capital is one of the key concerns for investors wanting to invest in equity mutual funds. To address this concern, asset management companies have launched Capital Protection Oriented Funds (CPOFs). What are CPOFs? CPOFs are generally three to five-year, closed-ended funds where 70-80% of the portfolio is invested in fixed income securities, which mature on or before the scheme's tenure. The investment in fixed income securities grows to 100% at the end of the tenure, providing the investor with capital protection. The remaining portion (20-30%) is used to take exposure to equity, which provides the upside. Exposure to equities is either by directly buying equity stocks (plain vanilla CPOFs) or by b...

Mutual Fund Review: ING Dividend Yield

  ING Dividend Yield's small assets enable the fund manager to churn in impressive returns… Strategy The aim of the fund is to invest in stocks which offer a high dividend yield. This fund deploys a value based strategy which aims to gain from investing in fundamentally strong and free cash flow generating businesses. The scheme focuses not only on growth but also on the cash generated by the business, which mostly leads to stable returns even in volatile markets. This fund has a low volatility because of its investment in high yielding stocks. The scheme tries to include stocks that yield dividend above the dividend yield of the Nifty and stocks with liquidity, which throws up a universe of 150 stocks.   Our View Launched in October 2005, this fund invests at least 65 per cent of its assets in high dividend yield stocks. The fund has consistently maintained a mix of stocks across varying market capitalisation, with a higher tilt to mid caps compared to small caps. Howev...

SBI Small Cap Fund

SBI Small Cap Fund scheme seeks to provide investors with opportunities for long-term growth in capital along with the liquidity of an open-ended scheme by investing predominantly in a well diversified basket of equity stocks of small cap companies. SBI Small Cap Fund has widened its margin of outperformance relative to its category and benchmark in the last one year, earning itself a five-star rating. The fund shows a hefty 18 percentage-point outperformance relative to its peers in the last one year, 5 percentage points over three years and 4 percentage points over five years. Needless to say, it has also outpaced its benchmark to deliver convincing five-year annualised returns of 37 per cent. A believer in the credo that a small market cap does not reflect business quality, the fund looks for five attributes in the stocks it buys: competitive advantage, return on capital, growth, management and valuation. SBI Small Cap Fund is among the few in this space to remain at quite a man...
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