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.
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.
