[Naetik30]

There is a school of thought that does not include the house you stay in as part of your net worth. I am slowly moving to that school of thought and plan to remove my current residence value from the Excel sheet that calculates my net worth.

Trust it is not an easy decision, especially when "your view" of your own networth would take a dent by about 15-20%.

So, for buying a house to reside in - it should be considered with this in mind. Basically not as a financial decision - in the sense dont account for the property appreciation, etc to justify the purchase. You will not be selling the house even if the house doubles in value in 2-3 years. So whats the point.

But I strongly suggest, checking affordability of your house payments. If your total loan EMI outgo is less than 50% (car, house, any other loans) - then go for it. And take loan for only 50% of the house value.

[SmartCat]

Originally Posted by Naetik30

There is a school of thought that does not include the house you stay in as part of your net worth. I am slowly moving to that school of thought and plan to remove my current residence value from the Excel sheet that calculates my net worth. You will not be selling the house even if the house doubles in value in 2-3 years. So whats the point.

I think you should put it back into your Excel sheet and not listen to what these folks say.

1) For an asset to have a value, you don't need to sell it. If you buy Gold/NIFTYBEES/Debt MF and hold forever, it does not mean it has zero value.

2) If you want to, you can always sell your house and opt for a smaller or bigger house in the future, based on your needs.

[jjp@chn]

Originally Posted by Naetik30

There is a school of thought that does not include the house you stay in as part of your net worth. I am slowly moving to that school of thought and plan to remove my current residence value from the Excel sheet that calculates my net worth.

Trust it is not an easy decision, especially when "your view" of your own networth would take a dent by about 15-20%.

So, for buying a house to reside in - it should be considered with this in mind. Basically not as a financial decision - in the sense dont account for the property appreciation, etc to justify the purchase. You will not be selling the house even if the house doubles in value in 2-3 years. So whats the point.

But I strongly suggest, checking affordability of your house payments. If your total loan EMI outgo is less than 50% (car, house, any other loans) - then go for it. And take loan for only 50% of the house value.

If the objective of the net worth calculation is for retirement planning, then this makes absolute sense not to include it in your net worth as you may not end up selling the house you live in and any notional gain through appreciating property value will never be realized. But if it is for boasting, then we can include..

However, there is also the factor of "where" you want to retire. Many folks who might reside in busy metros during the heyday may want to move back to more peaceful localities or hometown where cost of property might not be as high as in the cities.

In such a scenario, owning a house in the city could come in handy when you want to buy a property in a locality that is comparitively less costly by disposing off your asset in the city. Either you will be able to afford a bigger place or add to your disposable cash pool, if you move to a place of equivalent size or downsize.

[antz.bin]

The essence of comedy is being able to laugh at the truth, rather than being afraid of it so adding some laughs to this thread. (Apologies to non-Hindi speakers).

https://www.youtube.com/watch?v=1ptxdWmAyzw

Regarding points being discussed on the thread:

1. Totally agree with living below your means when renting and upgrading when buying. You can move up when renting but once you buy, moving up is much harder.
2. Totally agree with including the value of your only real estate purchase to your net worth. If you fall short during retirement, you can downsize/move to a cheaper location or there are other ways to monetize your asset than just selling.
3. The average home loan in India gets pre-closed in 7 years. After those 7 years, recession, job-loss or something else worse happens, nobody can kick you out of your home.
4. Do not agree with moving to small town/hill station with the money saved by not buying in the big city: The smaller town will have lesser health infrastructure compared to the big city. Infra that you will need once you are older. All the infra related issues that we see in the cities today (traffic, metro construction, dug up roads) the small towns have not reached that stage yet. They will reach there when you are 15 years into retirement, and you will then have to face the same hell again at the ripe age of 75. Also, your children will probably be working in the same big city that you moved out of and wont be able to find time to come visit just like you couldn't.
5. Do not agree with organized players entering the renting business. It will do nothing but drive up the rents.
6. Interesting idea on converting 2BHKs to 3BHKs using in the east asian manner.
7. But there is another school of thought converting 3BHKs to 2BHKs with larger living areas to accommodate and encourage friends and family get-togethers that result in laughs late into the night. That is something you cannot do in a rented apartment because neighbours start calling your landlord and before you know it, the next society meeting is all about you. I have had a downstairs neighbour call my landlord complaining that I throw gym equipment around the house breaking tiles leading to a surprise inspection. My sin being that I played indoors with my 1.5-year old daughter too much during the covid times.

[Axe77]

Originally Posted by V.Narayan

Your second real estate investment may be measured on financial parameters and return on investment, but never the first.

Originally Posted by libranof1987

There are two ways to look at this: a) financial, b) intangible (sense of security, comfort, stability).

Originally Posted by antz.bin

Shouldn't the renting equation also include the following costs?

Voted for buying a home. The above two posts by VN and Libran combined with many of the parameters listed by Antz sum up my thoughts on this.

I bought the house I currently stay in sometime in 2013 and while it hasn’t appreciated significantly since then, I greatly value the fact (from a mental peace of mind standpoint) that I own my own house, debt free for several years now, and don’t have to think of rent or EMIs as an outflow from a current or going forward perspective.

Its also assisted in some intangible savings. With rent, the temptation to constantly upgrade your house with growing income is always there. We live in a nice 3 BHK in a well regarded complex with full amenities and took a call that the quest for a ‘slightly better locality’, or ‘an extra bedroom’ or ‘both’ are never ending. We capped off our housing standard to where we stay even as I see many peers who are on rent constantly upgrading their choice of housing and moving up the rent outflow curve. We instead decided to invest any available surplus to accelerate our savings rate and benefit from its compounding - we have never regretted that decision.

Buying a house can sort of help force those moderation decisions where with a rental approach, the ease of being able to upgrade can sometimes make that discipline harder.

Originally Posted by SmartCat

I think you should put it back into your Excel sheet and not listen to what these folks say.
…
2) If you want to, you can always sell your house and opt for a smaller or bigger house in the future, based on your needs.

I actually agree with the school of thought that you should not count your home in your net worth.

Financial net worth is about planning for a desired outcome. If you don’t achieve what you’re shooting for or if circumstances require you to downsize your home, then that’s always an option but its definitely not what you’re planning for by default. Similarly if you’ve overachieved savings and can upsize, again let that be a factor of your net worth outside of your primary home.

[DigitalOne]

Originally Posted by ZenMaster

I whole heartedly agree with V.Narayan ji's opinion. Your 1st house should be your HOME as long as you can afford it.
You should either build it or own it, not invest in it. Nobody should be able to kick you out of your personal heaven and put a price on your happiness. Its your safe space that you can always go back to even if its a bit small.

Originally Posted by V.Narayan

Wise words from some one so young. By law of averages all of us will face financial and other pressures at more than one point in life - expensive medical bills, death of loved ones, accidents, businesses collapsing, losing you job {and hence min income} and so on. At those points in life when you are low on energy and/or cash it pays to have your own home. You can't comfortably fight other battles life throws at you if you do not have home security.

Nice sounding words, but not practical advice. What does 'own' mean? Till the time you are paying the mortgage, the lender holds a lien on your property. They can evict you and auction your property if you stop the EMI.

[UD17]

Its always buy for me- even for 2nd house.

- House (real estate) is immobile and appreciating asset. The barrier to dispose is too high. So this asset class always (mostly) remains with you (unless the reasons are too big to consider a sale)

- Most people in India try to finish their home loan as fast as possible (I have seen this behavior in my circle), so actual outgo in terms of interest is not what the above calculations shows.

- The rental income keeps on increasing, which again helps to either invest in SIP or reduce the tenure of loans + The value of house keeps increasing.

- The MF/Stocks etc. mostly provide 9-10% average returns, not 15-20% as mostly declared by these MF guys. The investing discipline would come as a big surprise to keep these investment floating.

- Once loan is over, the house rental are pure earnings. House also become an assurance and security for your new generation.

[aadya]

Originally Posted by antz.bin

Shouldn't the renting equation also include the following costs?

We should factor in the convenience of freedom to move to better locality, preferable society whenever we want to, when we rent, against the cost and shackles of getting stuck up into a not so desirable house after the novelty of new house fades away.

I live in rented house and most of my immediate family live in individual own houses (couple of them built by my funding). I have a metaphor their homes being their tombs.

[sudeepg]

Originally Posted by Omkar

Attachment 2576128

Does this assume that Maya and Tara have same or similar salary structure?

[mally2]

Has anyone considered the benefits of leasing if you have a decent capital at hand and wish to not buy a house rather, its quite famous in Bangalore, not sure with the rest of the country

Pros
Fixed capital for x years ( mostly 3-4 )
No rent for the duration
Capital will be returned interest free at the end of the tenure
Invest the rent variable in higher risk assets
In an economic downturn/job loss you at least have a roof over your head without worries about rent/emi

Cons
Need capital 10-20L ( same as you would need as a down payment for a flat )
lesser options
No HRA benefits
Needs extra work to get the Rental/ lease agreement registered with the local sub registrar
If the land owner goes bankrupt, you are stuck in the house until he pays you or a new leasee comes along ( rare scenario )


I have been leasing for the last 10 years, and moved from leased houses from 7L > 10L > 13L > 18L > 20L

Needless to say I have always invested the approximate rental rates in MF and made a decent profit as of today

Net net, I can liquidate my lease+ MF earned on rent and retire at a tier 2/3 city for the rest of my life hopefully in next 5 years

[silverado]

If someone has to buy a house, they should start early and finish off the loan before they turn 50.

Housing loan should not dictate your life especially when you have kids and are beyond 40, its best to take a loan in early 30's when you are in prime of your career and health.

After 40, its your health which should be the main priority and nothing else.
For people in IT, if you get an onsite make the most of it to pay off or reduce your loan.

I beleive in buying pre-loved homes since there are not many unknowns in those cases. Its best to rent in place where you plan to buy and then decide to buy home there when you are set.

[One]

Originally Posted by VWAllstar

Valid points. Any report or data which justifies that the entry points are high and there are no/less potential of growth? Real Estate as a whole is always unpredictable. In the last 10 years the prices have been stagnant and there could be a good chance of an upward trend. As you said, it is just like an equity script which can either have higher highs or correct itself to a low.

Replying to the question you asked in response to my message:

There are enough data points for no/less potential growth for the particular project you mentioned -
- The supply of the particular configuration you are looking at exceeds demand and will continue to do so as there are multiple projects of same builder in the same location.
- Even the larger configurations which have appreciated in absolute value have actually not even given FD returns.
- Also just because the builder is a brand doesn't mean the quality is good - please check with existing society there to get a overall good picture. - Proximity to upcoming Metro or SEEPZ etc will help rentals, not capital appreciation where people will buy larger flats at same cost and willing to travel more.
- For self-use, people would rather buy a more expensive 3BHK at same project or a bigger 2BHK for self-use at a distance over the project mentioned by you. Rest will be pure speculators. No decent real-estate broker will recommend this as an investment.


For overall market, you will need to correlate data points like salaries, City rates etc. to reach your own conclusions. There are enough long-term studies done on Real Estate but again you will need to derive their applicability on Mumbai market.
---------------------------------------------

On a separate note, think our conditioning of Real Estate always appreciating is so strong, and owning a house considered such a big achievement, that we consider it to be an investment irrespective of what the situation is:
1. There are cases where it is a house, then it can't be considered as an investment
2. There are cases where it is an investment (only land or entry level prices typically vis-a-vis salaries of people buying there determine this)
3. Finally, there are cases where it is a less liquid asset and locking money will be beneficial across a generation.
Where Mumbai (Proper) currently fits should be assessed carefully, especially considering the price-income ratio and plethora of options around.

[reverse_gear]

At some stage, I am in favour of buying and staying in an owned place. But a salaried professional should never be in a hurry to do that in my view. There are comments about buying in the late 20s or by the time you are 30. I am not too sure about that approach. It is very likely that a house you end up buying when you are 30 is probably not one you will want to live in when you are 45. Just taking Mumbai as an example, you may evaluate affordability and come up with a 2BHK in Vashi when you are 30. But, by the time you are 45, with kids (and possibly parents) and an upgraded job, you probably wish you were in a 3BHK in Andheri or Bandra. The EMI on the 2BHK in Vashi is probably enough to rent a 3BHK in Andheri.

You have to make your first big home investment as one where you are willing to spend a very long time.

If you are planning on continuing the EMI for 20 years, you are in big trouble financially. In my view you should have financial resources to cover at least 50-60% of the house cost if required, even if your actual equity investment is lower to start with. Best to have the loan finished within 8-10 years max and then live without the EMI burden.

On a separate note, the tax structure significantly incentivises renting over owning, especially for salaried class in metro cities. The entire HRA amount is deductible from salary, while if you stay in owned property, there is a cap on the interest (2 lakh I think) which is deductible. Weird structure, but it is what it is.

[DigitalOne]

Originally Posted by reverse_gear

At some stage, I am in favour of buying and staying in an owned place. But a salaried professional should never be in a hurry to do that in my view.

+1.

At age 25-45, be agile and stay on rent. Get your kids the best schools, not constrained by location; both of you make career shifts, again not constrained by location. Make money, and invest money aggressively.

Around 45, it is likely that kids are finishing schooling, and you are not looking for major career change. Plan on where you want to stay for the next 40 years - Tier 3 town? Far suburbs of a city? Hill station? Buy what is affordable from your savings, and enjoy a high-quality life (~50-90).

[V.Narayan]

Originally Posted by DigitalOne

Nice sounding words, but not practical advice. What does 'own' mean? Till the time you are paying the mortgage, the lender holds a lien on your property. They can evict you and auction your property if you stop the EMI.

Ouch! Ouch! Permit me to differ. That is like saying the landlord can toss the tenant out for non-payment of rent. Or if you buy and drive a car you are putting yourself at risk of an accident. Or if you fly in an airliner as a passenger you could crash. We shall cheerfully agree to disagree.