If you have all the extra cash, go ahead and get that dream house of yours! I’m not gonna stop you but is real estate a good investment if you get one on home loan and go into debt for the rest of the years to come?
Well, here is my take on that.
Let’s assume you want to buy a house and it’s going to cost you Rs 1 crore.
Assuming that you make a down payment of Rs 20 lakh, the rest Rs 80 lakh is on loan.
Now, you have your dream house and Rs 1 lakh+ EMI to be paid every month.
I don’t know how much you earn. And it doesn’t matter. But let’s say, for next 10 years you pay mostly the interest part of the home loan. The principal amount yet needs to be cleared off. It will probably take another 10 years. And then the house will be officially yours.
Interest rates are always fluctuating and no one ever knows if it will fall or rise.
I get it, you’re supposed to be happy and sorted now that you have your dream house.
But, you aren’t because your wallet and other needs are crying in the corner.
What could you have done differently?
Well, invest the same money into other investments which gives you at least 10-15% returns for the next 10 years at least. Make your returns dance in your wallet and when you are ready to get that house, increase your down payment and lessen your loan amount.
What you also lose if you buy a house with more loan is, opportunity cost. Because you are too busy clearing the debt and don’t have enough money to invest for your other goals which could have earned you great returns.
Who knows if your early retirement plan might get postponed because of just one decision?
Always remember, anything that doesn’t give you returns is not an asset.
Yeah, yeah, even if the house earns you rent, do the Math! Still not a great investment choice if you’re going into major debt for the years to come.
Tip – Use the Rent vs Buy calculator and invite me to your housewarming if you decide to get one 😉
Disclaimer: Views expressed above are personal opinions of the author. They do not necessarily reflect the views of The 1% News. Ideally, you should consult a SEBI-registered investment advisor to decide whether renting or buying will be a better option for you.
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