Is It Wise to Live on Rent than Owning A Property You Live In?
Mar 02, 2017 Home Trading Steps
Investment in any sector comes with its share of risks. Speculations do not always come true and as a result, investors are always under the danger of losing their hard earned money. With the advent of Digital Age accompanied with the inventions of analytical algorithms, it has indeed become a lot easier to choose the right area to invest money.
Real estate has been the true beneficiary of large scale investments for the last 15 years or so. It is a widespread belief that investing in real estate property is the safest bet for the investor. As a result, people have been buying properties in urban as well tier 2 cities at cheaper rates with an aim to sell them off after a few years at a much higher cost. Although it can be said that property prices do go up as the time passes, this has not been the case lately.
Due to high inflation rates coupled with even high Loan interest rates, there has been a steady fall in the investments done in the real estate sector. Also, several cities in India have observed correction in the property prices.
So is it not right to invest in property in these market conditions? The answer is a bit twisted which will raise the following question:
Do we need to own the house we live in?
To understand it better let us first establish the fact that one may own a property and live as a tenant in some other property. Owning a property indeed brings monetary gains for you. However, a majority of the people think they should own the house they live in and as a result end up paying huge EMIs every month.
Let us understand this better with an example. Mr. A plans to purchase a house in Pune which he can call it as his dream home. The said property costs him 1 crore INR. Mr. A takes a loan of 80 percent of the property value which would be Rs 80 lakhs in this case and pays the rest amount as down payment to the seller. Consider that the interest rate he has to incur against the loan is 10 percent for a period of 20 years. The EMI he has to pay against this loan computes to Rs 75 thousand. Also, considering the market rates, the rent he would have had to pay for the same property would have been around Rs 20,000 per month. As you can see, the same property can be rented for around 2 percent of the property value as opposed to a mortgage loan at 10 percent. Considering that the property appreciates quite steadily over a period of time, it would take Mr. A several years before he can make any profit on the property. So it would be wiser for Mr. A to live in this property on rent and buy a much cheaper house in distant Pune suburbs. In this way, he doesn’t need to be under the pressure of high debts and can add a valuable asset to his kitty.
Always invest in properties in the areas which have the potential for growth. Places with hospitals, play grounds, shopping malls and other basic necessities will ensure appreciation of your property over a period of time.
Real estate has been the true beneficiary of large scale investments for the last 15 years or so. It is a widespread belief that investing in real estate property is the safest bet for the investor. As a result, people have been buying properties in urban as well tier 2 cities at cheaper rates with an aim to sell them off after a few years at a much higher cost. Although it can be said that property prices do go up as the time passes, this has not been the case lately.
Due to high inflation rates coupled with even high Loan interest rates, there has been a steady fall in the investments done in the real estate sector. Also, several cities in India have observed correction in the property prices.
So is it not right to invest in property in these market conditions? The answer is a bit twisted which will raise the following question:
Do we need to own the house we live in?
To understand it better let us first establish the fact that one may own a property and live as a tenant in some other property. Owning a property indeed brings monetary gains for you. However, a majority of the people think they should own the house they live in and as a result end up paying huge EMIs every month.
Let us understand this better with an example. Mr. A plans to purchase a house in Pune which he can call it as his dream home. The said property costs him 1 crore INR. Mr. A takes a loan of 80 percent of the property value which would be Rs 80 lakhs in this case and pays the rest amount as down payment to the seller. Consider that the interest rate he has to incur against the loan is 10 percent for a period of 20 years. The EMI he has to pay against this loan computes to Rs 75 thousand. Also, considering the market rates, the rent he would have had to pay for the same property would have been around Rs 20,000 per month. As you can see, the same property can be rented for around 2 percent of the property value as opposed to a mortgage loan at 10 percent. Considering that the property appreciates quite steadily over a period of time, it would take Mr. A several years before he can make any profit on the property. So it would be wiser for Mr. A to live in this property on rent and buy a much cheaper house in distant Pune suburbs. In this way, he doesn’t need to be under the pressure of high debts and can add a valuable asset to his kitty.
Always invest in properties in the areas which have the potential for growth. Places with hospitals, play grounds, shopping malls and other basic necessities will ensure appreciation of your property over a period of time.
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