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Monday, May 29, 2017

Residential realty - buy home or rent home

Series of announcements in real estate sector. RERA has been in force in more than a dozen state and about a dozen of them are about to adopt. I often wonder is #buying-a-home is realistic or an emotional decision made by most of us?

Many expert says.. one should not measure monetary value of the house one reside in. "That is not for sale" If this is the argument for buying a house, go for it! Otherwise let's do a reality check on how residential real estate fair amongst all asset classes.

10 things you want to know about the cost and risks attached to property investment 
  • A large sum of money blocked as a down payment
  • Hefty EMI
  • Monthly mainatanance charges to society
  • Interior expenses once in few years
  • Cost and tax on electricity, water connection
  • Maintaining the structure gets costlier every passing year
  • Yearly property tax
  • Tax on rent earned
  • Difficult to sale at a fair value, besides a portion of earning goes in tax and broker
  • Property prices are not regulated, negotiation can be erratic
Renting a property is much easier with significant benefit.
1. Rent paid is tax free under HRA regulation 
2. Only capital blocked is advance payment of the rent/ deposit money, refundable 
3. Don't like the house, change it
4. Don't spend on interior, just choose a better one
5. Don't stay in the old house, rent a brand new every time
6. Changing the city for job? You don't have to think about leaving behind a previous asset.
7. Put the hefty sum set aside for down payment of equity. It is likely to give double digit return over long term 
8. No extra cost apart from the monthly rent of the house and basic bills
9. Maintenance is the job of the house owner, not yours
10. Put the EMI money in debt mutual fund and earn decent money over long term, to pay your rent, which can be offset on income tax return as house rent according to your income slab is eligible for tax exemption on housing rent. 

If you are a prudent money manager, renting is a much better option if you are staying in metro like a mumbai, smaller cities still give you a little better deal with cheaper maintenance cost. buying a second home is absolutely NO NO, you will earn a much better return with equity investments through mutual fund.

My money my way :) 

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