We Indians love to invest in Real Estate!
Many Indians think Buying a house is a safe investment!
Should u buy a house or Rent a house?🤔🤔
A thread🧵on the pros and cons of each and which one should u choose?
Lets go👇
Many Indians think Buying a house is a safe investment!
Should u buy a house or Rent a house?🤔🤔
A thread🧵on the pros and cons of each and which one should u choose?
Lets go👇
Buying a house:-
When u buy a house u end up taking a big loan with a huge EMI that will go on for 10/15/20 years.
So lets evaluate it👇
When u buy a house u end up taking a big loan with a huge EMI that will go on for 10/15/20 years.
So lets evaluate it👇
Pros of Buying a house:-
1. Creation of Lifelong asset:-
Instead of paying rent, one pays EMI to create an asset in ur name.
This means in retirement u have a house to stay in without the worry of paying any rent.
1. Creation of Lifelong asset:-
Instead of paying rent, one pays EMI to create an asset in ur name.
This means in retirement u have a house to stay in without the worry of paying any rent.
2. Tax benefits
If you are paying EMI for the housing loan, it has two components –
-Interest payment
-Principal repayment
If you are paying EMI for the housing loan, it has two components –
-Interest payment
-Principal repayment
Tax Benefit on Interest payments:-
The interest portion of the EMI paid for the year can be claimed as a deduction from your total income up to a maximum of Rs 2 lakh under Section 24.
The interest portion of the EMI paid for the year can be claimed as a deduction from your total income up to a maximum of Rs 2 lakh under Section 24.
Tax Benefit on principal payments:-
The principal portion of the EMI paid for the year is allowed as a deduction under Section 80C.
The maximum amount that can be claimed is up to Rs 1.5 lakh.
The principal portion of the EMI paid for the year is allowed as a deduction under Section 80C.
The maximum amount that can be claimed is up to Rs 1.5 lakh.
Additional deduction under Section 80EE
Additional deduction under Section 80EE is allowed to the home buyers for a maximum of up to Rs 50,000.
Additional deduction under Section 80EE is allowed to the home buyers for a maximum of up to Rs 50,000.
A summary of the tax benefits available:-
Source-Cleartax
Source-Cleartax
3. Interest rates will fall from here, higher appreciation:
Currently, home loan rates are multi year high of nearly 9%.
The insterest rates will fall from here.
Currently, home loan rates are multi year high of nearly 9%.
The insterest rates will fall from here.
4. Property appreciation:-
As you will own the residential property u will get the benefit of the appreciation in prices
According to the RBI,prices have grown at a steady rates of 10%.
As you will own the residential property u will get the benefit of the appreciation in prices
According to the RBI,prices have grown at a steady rates of 10%.
5. Emotional security
One of the biggest benefits of buying a house is emotional
Having one’s own house provides peace and mental stability and the freedom to keep it as per one’s wish.
One of the biggest benefits of buying a house is emotional
Having one’s own house provides peace and mental stability and the freedom to keep it as per one’s wish.
Cons of buying a house:-
1. High EMI and very costly:-
Buying a house is more costly than renting. besides the upfront cost of purchase,
you have to pay charges for maintenance, property tax, renovation and repairs.
1. High EMI and very costly:-
Buying a house is more costly than renting. besides the upfront cost of purchase,
you have to pay charges for maintenance, property tax, renovation and repairs.
2. Pressure to service EMI:-
When u have a EMI to pay,it gives u very less flexibility to change jobs or to take up entrepreneurship.
Income must keep flowing every month to service EMI.
When u have a EMI to pay,it gives u very less flexibility to change jobs or to take up entrepreneurship.
Income must keep flowing every month to service EMI.
3. Illiquid Asset:-
Buying/Selling real estate is an uphill task.
It has a long lead time with high transaction costs attached.
Buying/Selling real estate is an uphill task.
It has a long lead time with high transaction costs attached.
4. Wrong Asset allocation.
Generally, people end up with nearly 80-90% of their wealth in Real estate.
This by all means is incorrect asset allocation.
Owning more of financial asset is helpful in the long run.
Generally, people end up with nearly 80-90% of their wealth in Real estate.
This by all means is incorrect asset allocation.
Owning more of financial asset is helpful in the long run.
Renting a house:-
Here life long one generally lives on someone else's house and pays rent.
Rent generally increases every year.
Excess savings are then invested in mutual funds etc as per asset allocation.
Lets see the pros and cons
Here life long one generally lives on someone else's house and pays rent.
Rent generally increases every year.
Excess savings are then invested in mutual funds etc as per asset allocation.
Lets see the pros and cons
Pros of Renting a house:-
1. Rent is lower than EMI
Rent is always lower than EMI.
Generally, EMI is 2x-3x of the rent amount you will pay.
1. Rent is lower than EMI
Rent is always lower than EMI.
Generally, EMI is 2x-3x of the rent amount you will pay.
2. No maintenance costs
Owning a real estate means u need to maintain it and pay taxes such as property tax etc.
When u rent u need not worry about these costs.
Owning a real estate means u need to maintain it and pay taxes such as property tax etc.
When u rent u need not worry about these costs.
3. Ease of shifting.
For all those who are uncertain about their job location, Renting makes complete sense.
Renting will help in easily switching houses.
For all those who are uncertain about their job location, Renting makes complete sense.
Renting will help in easily switching houses.
Cons of Renting:-
1. No permanent house in retirement:-
Since one doesnt have a house.
They will continue to pay rent in retirement as well.
This means there needs to be proper retirement planning.
1. No permanent house in retirement:-
Since one doesnt have a house.
They will continue to pay rent in retirement as well.
This means there needs to be proper retirement planning.
Rent rise:-
Generally rent rises by 10% every year.
This can be huge in retirement and therefore must be properly planned.
Generally rent rises by 10% every year.
This can be huge in retirement and therefore must be properly planned.
Renewing the rental agreement every year:-
Generally, the agreements need to be renewed every year and sometimes there can be issues in renewing the same.
Generally, the agreements need to be renewed every year and sometimes there can be issues in renewing the same.
Conclusion:-
When u buy a house:-
1. It gives emotional satisfaction
2. High EMIs and transaction costs are a given.
3. Real estate is illiquid.
4. However there are good tax benefits.
When u buy a house:-
1. It gives emotional satisfaction
2. High EMIs and transaction costs are a given.
3. Real estate is illiquid.
4. However there are good tax benefits.
When u rent a house:-
1. The rent is comparatively lower
2. No maintenance bills of property is required.
3. However the money so saved should be properly invested in different asset classes to make sure rent for retirement is covered.
1. The rent is comparatively lower
2. No maintenance bills of property is required.
3. However the money so saved should be properly invested in different asset classes to make sure rent for retirement is covered.
Conclusion:-
There is no right in
Buying a house or
Renting a house
Both are beneficial if done correctly!
Therefore it comes down to personal preference.
There is no right in
Buying a house or
Renting a house
Both are beneficial if done correctly!
Therefore it comes down to personal preference.
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