Why you must buy a house!
Yes you read it right…YOU MUST buy a house. Why am I saying this? Normally I am a person who says ‘renting is better than buying’ – then why am I saying this?
Well this is not a generic statement. This is true for a few people….who are those people?
- Those who cannot create wealth: Not all people are wealth oriented. Many of them earn and spend all the money that they earn. So such people are better off buying a house and staying in it. Once a person has an EMI to pay, he/she will pay the EMI and will not flinch. However, the same person will skip the SIP. They will never ever do anything to create wealth. Such people are better off buying a house.
- A businessman: Many young businessmen do not have the discipline to take money out of the business to invest elsewhere. Such people are better off buying a house. At least they will repay the loan and the asset will become free of encumbrances.
- Some people (more women) do not invest in equities. No equities. No SIP in equity funds. Only bank deposits or LIC endowment plans. Such people are better off by buying property with leverage.
- Those with fluctuating income – such people don’t invest saying “my income is not known” – however the insecurity of not having a regular income scares them into buying a house. Such people should buy a house as soon as they can and pay off the loan as fast as they can,
- those in high burnout jobs – like Investment banking. The burnout is very high and therefore the compensation / bonus is much higher than in other jobs. Not all such people are good at investing. Most of them are better off buying a house and repaying the loan as soon as possible.
I am sure you get the drift of what I mean. Buying a house is just trying to harness the behavioral finance bit. People are far more committed to an EMI rather than to a SIP. One mutual fund tried to say “SIP is a good EMI” – but they did not follow up that campaign
So if you have a good adviser – even if you are in such (or similar) situations, you can come out and invest aggressively. Well that will put enough money in your hand to make a bigger down payment, if you must buy a house. In most of the cases mentioned above, a bigger down payment is a far better option, ANYWAY.
ElVin
I don’t come into any of those categories, and both me and my better half were very against buying a flat due to it
-Tying us down,
– locking up huge portion of our net worth
Yet we recently went in to buy a flat. Our reasons :
A. The complex where we were planning to rent was spacious, brand new, and ready-to-occupy.
B. No other new big buildings coming up within 2 kms. View on either side was open because of Defence land surroundings, so nothing else can come up next door for blocking the view. So resale would also have a premium value.
C. The location was midpoint for many offices, so we could switch jobs without issue
D. lots of young families in the complex, so though not many schools very nearby, we would get enough help for a school bus
E. The rent was a third of the EMI, and at a 5% increase per year, would’ve become unbearable in a few years if our salaries were to stagnate.
F. The EMI was doable as a couple without much stress, and without compromising on lifestyle and retirement Investments, even if salaries stagnated.
G. As a couple, have enough liquid assets to put up 70% of the price, but we are going for a 30% down-payment. And we have a plan to close out the loan as soon as we can but not at the cost of retirement investments.
H. Even if we do decide to move out in a few, years the rent received would be reasonable, and probably go up to half of the EMI
These were 8 points which made us go for the purchase option, and even if one of the above wasn’t happening, we wouldn’t have gone for it.
Raghav Hegde
Sir I have been following your blog for years and read your books as well. I agree with almost everything you say except for your insistence on how buying a house is a bad investment.
I think buying a house of your own is a must in India. I built my house in 2005 from the 20L I got as PF/Gratuity after my father’s death in 2003, on a plot of land I inherited from him in Bangalore.
I am an internet entrepreneur, a guy with what you refer to as “fluctuating income”. Now that house is worth close to 5 crore. More importantly, it freed me from having to worry about paying the rent, which you know is very high in Bangalore.
Also, it has freed me to think of other investments. I have since purchased a couple of properties and have been consistently investing in the stock markets for the last 10-15 years. Now have a sizeable portfolio – I invest in quality stocks, never sell, and have a dividend income of 1.5 to 1.75L per year.
So yes, building a house gave me the freedom to invest in the stock market and become “financially free”.
Raghav Hegde
But of course, I get what you are saying – for someone starting from the scratch in a city like Bangalore NOW, buying a house is not so easy. Still, this is a buyer’s market and there are plenty of 2-bedroom apartments available for dirt cheap prices. My advice for young people is get a place you can call your own, big or small, does not matter. Just spare yourself from having to pay the rent and then start investing in stocks.
Ajay
I live on rent and has been renting the same house of 8 years now. The house is 2 km from my office and close to metro station.
Though i might have paid quite big sum rents but if i had to buy my own house it would have costed twice the rent amount in EMI with substantial downpayment and that too in far away location.
Instead i invested most of my money in Mutual Funds and the amount of monthly returns they generate is sufficient to rent two such houses. So i am actually living free of cost with some money to spare for household expenses.
Living without debt can be most liberating feeling and as they say money can’t buy you happiness but it surely can buy you financial freedom
Living with massive debt for 20 years for the house feels salvery to me