1) Rental you get is usually 30-40% of the EMI you would pay for the house. The rest is sunk cost. 2) When you buy a house , nearly 20% cost goes into brokerage, registration and general improvement. You don't recover through capital appreciation for the next 2 years. 3) Purchasing property is a good idea when the market is down and it usually happens in cycles. In the current market only the builder and the banking industry that gains. You buy and you are the sucker.
RE:bad idea
by anand srivastava on Feb 18, 2007 01:52 PM Permalink
Buying property is most often a long term investment so there is no sunk cost(a term used in accounts for capital items). Secondly, any one can solicit - buy when market is down....If every one could time the market !? Next, buying property is forced saving and a rent on property is a bonus.
RE:RE:bad idea
by Anurag Shrivastava on Feb 18, 2007 02:16 PM Permalink
One house is usually a good investment as it provides emotional security. The second house has to be treated with the same rational as say in stocks or bonds. Sunk cost is the interest paid which is cost of the investment.
The author has exggagerated a bit on rent but the point is: if your current cash flow permits buying a ready made house, renting it will assist you in owning it most definitely thru rent appreciation much before the loan period. If Rajeev Lal took 85% loan(1487500) for 15 years @ 10% and gets a realistic rental of 5000/-pm after meeting maint/cost then rental income(9 lakh) has paid for 31% of his total cost(Final cap intt: 180 instlmts :28,65,625),his inflow is 5000/-pm & outflow 14462/- pm so net outflow 9462/- pm assuming intt rate, rental & maint cost all are static(for simplicity). Chances are Rajeev Lal will be doubling his investment between 3rd to 5th year of purchase going by current rate depending on metro/cosmo invetsed.
First flat I have taken on home loan. The way home loan or increasing has made my financial plans upside down. This is a false advertisement. I don't see any place in India where you can get 12,500 rent by paying 14000 EMI. Our jobs like water bubble be prepared to face the situation as most of people are undergoing because of Job layoffs in U.S stuck with mortgages
What has been mentioned in this article perhaps would work in Pune, if you really bought your second house in Jan 2005. It may not work if you buy your second house now. Reason? While property rates have more than doubled in last 2 years in Pune, the rents have not gone up by that rate. Hence the loan you need would be bigger, leading to more EMI. The difference between the rent you would get and your EMI would be much bigger now and you need a substantial surplus in your monthly income to bridge this gap. The recent hike in the interest rate on housing loan has widened this gap further.
As mentioned above that second house can pay emi of the first flat is right.I bought a flat in pune in Feb 2005 and i got it for 16and half lacs and the emi i pay is 14500.That time the property rate for the same was 1325/sq.ft and now the rate has gone up to 2800/sq.ft and can fetch a rent of at least 10 to 12 thousand.So think about it.Of course the rate should be low when you buy and should increase to such extent.
For whom is this article for? for higher pay scales this article would not be reqd, they will definitely buy, for upper mid-range to low scale this article is absurd. just wondering the writer must be belonging to the highest tax bracket class having plenty to fobble around.
RE:Good advertisement
by Baudhayan Lahiri on Feb 18, 2007 12:49 AM Permalink
This article is not to promote anyone or to encourage people into buying new house. This is a very good informative article in the chain of Home Loan articles which Rediff publishes to help people make proper utilisation of avaialble Tax saving instruments.
