Have you heard these housing lies?

• A home is a good investment
• Inflation makes the EMI very cheap
• RE prices NEVER go down – it always keeps going up
• You can always rent it out if and when you want to move
• Paying rent is throwing away money – with EMI you own the house
• Buy a house soon and buy as big a house that you can afford to buy!

Let’s see the real bitter truth:

1. A home as investment: Let’s say you buy a house worth Rs. 1 crore. Assume you have invested say Rs. 10L and borrowed Rs. 90 L. Please include the brokerage, registration costs, furnishing, annual maintenance…etc. when you do your return calculations include all this. Include the interest paid as a cost. Now go and do all that and find out what is the ‘profit’ that you made. Over long periods of time this is likely to be a single digit number.

2. You can always sell it or Rent it out: A cousin’s family has been struggling with a house in a Southern Metro. Unable to sell it, and unable to rent it out to a decent family they can trust. The whole process of finding a buyer or a tenant is not as simple as the builders/brokers make it out to be. Even if you do get a good tenant, how long will the tenant stay, will he pay the rent on time, will he keep the house in good shape – are questions that you will not be able to answer very easily. In Indian conditions, the rent is far, far lesser than the EMI that you pay, so there could be a cash flow issue also.

3. Renting is a waste of money: Do not throw money at the land lord it is a waste of money…you might as well buy the house. Oh, really? you are joking, right? In Mumbai a house costing Rs. 2.25 crores will cost you about Rs. 2,25,000 per month as EMI whereas the same house is available at a rent of about Rs. 30,000 per month. What are we talking about? Rental yields are about 2% p.a. and interest costs are about 11% p.a. Sheer innumeracy to assume that the differential will catch up over a 5 year or a 7 year period.

4. What if your landlord throws you out? This is clearly a movie impact. Old movies – any number of Hindi movies were made with the theme of a cruel landlord. Well, if your landlord throws you out, find a new landlord. By the way the landlord is far more scared that the TENANT will leave…!!

So when you are under social, peer, parental, sibling, marital pressure to buy a house…direct them to this article !!

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  1. Well, your last line of this blog should be put up as a heading 🙂

    Again, something that you have been telling it to your readers time and again 🙂 worth reading one more time and sheer joy I get to put this up to those who wants to chase me for buying a house 😉

  2. Numbers are inflated. but the point is well taken. One house is mandatory for living. but when you are going for investment in real estate, better to take care of all things mentioned here.

  3. @Karthikraja – why is one house mandatory for living? why can’t one live in a rented house all his life?

  4. Dear Subra,

    I am a regular follower of your blog, and I know for a fact you are not a big fan of RE. However, based on the below scenario, would you change your stance. This is from a different geography, where I live currently.
    1. Apartment costing 430,000 USD, will fetch you a net rent of 30,000 USD (After service fees/ taxes etc)
    2. You get upto 75% funding on the property for a 25 years term (Expats)
    3. Home loan rates are currently @ 3.75% PA floating

    Knowing you are a numbers guy, would you buy a property for Investment in such a destination.

  5. All valid points. @Karthikraja, even for self occupation, for those on tight budgets, it makes sense to defer your purchase, paying lower rents and saving the interest. This will also help you accumulate higher down payment on your home purchase a few years later.

  6. Sandeep,

    As you are asking from US context, here is my response. What is the HOA associated? Have you included the yearly property tax? What about the insurance cost for the apartment? How about the maintenance cost for the upkeep? Do you have to pay a PMI for your loan if you are taking a huge chunk as loan?

    Consider all that, and your rental yield will be much lesser. Taking an indian context and considering only cost is not going to work in US.

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