Hereby I will prove how the realty boomers arguments are false.

What are the boomers arguments?

1.) Buy today, houses always increase in value in the long run.
WRONG. House prices cannot increase more than incomes in the long run. This is obvious if you think about it. If house prices go up more than people can afford to pay, buying stops, like it has stopped now.
Even Warren Buffett have pointed out that houses don't increase in intrinsic value. Unless there's a bubble or a crash, house prices simply reflect current salaries and interest rates. If a house is 100 years old, it's value in sheltering you is exactly the same as it was 100 years ago. Then came the maintenance as the house didn't renovate itself. It also has taxes, and insurance - costs that always increase and never go away. The price of the house went up about as much as salaries went up.
To put this is simple perspective, vegetable were costing Rs.5-6/kg when 5 digit salary was a rarity.
Today, the prices have gone up by about 4 times but so have the salaries. So, sounds very much like the reasoning people use now when they talk about how much their father's house appreciated "in the long run" without considering that salaries rose a proportional amount.

2.) Renting is just wastage of money.
WRONG. As said before renting is now much cheaper per month than owning. If you don't rent, you either:

* Have a mortgage, in which case you are throwing away money on interest, tax, insurance, maintenance, costs that increase forever.
* Own outright, in which case you are throwing away the extra income you could get by converting your house to cash, investing in bonds, and renting a similar place to live for much less money. This extra income is sufficient for emergency expenses,retirement etc.

Either way, owners lose much more money every month than renters and that's assuming prices don't correct to very high level & everything is smooth in the economy.

3.) As a renter, you won't have any money left as you will spend them on vacations,cars & hence won't have equity/savings etc.
WRONG. Equity is just money. Renters are actually in a better position to build equity/savings through investing in anything but housing. Renters can get rich much faster than owners, just by investing in conservative stocks & bonds.

* Owners are losing every month by paying much more for interest than they would pay for rent. The tax deduction does not come close to making owing competitive with renting.
* Owners must pay taxes simply to own a house. That is not true of stocks, bonds, or any other asset that can build equity/savings. Only houses are such a guaranteed drain on cash.
* Owners must insure a house, but not most other investments.
* Owners must pay to repair a house, but not a stock or a bond.
* Owners lose their money as house prices reduce. The EMI's remain constant in spite of reduction in rates. At the end of loan tenure, they would have paid almost twice than that of current renters who will buy at logical rates. Keep interest rates in mind. Most of the EMI is not principal amount but interest.

4.) There are great tax advantages to owning a house.
WRONG. Many people believe you can just reduce your income tax by the amount you pay in interest, but they are wrong. Buyers may not deduct interest from income tax; they deduct interest from taxable income. And even then, the tax advantage is not significant compared to the large monthly loss from owning.

If you don't own a house but want to live in one, your choice is to rent a house or rent money to buy a house. To rent money is to take out a loan. A mortgage is a money-rental agreement. House renters take no risk at all, but money-renting owners take on the huge risk of falling house prices, as well as all the costs of repairs, insurance, property taxes, etc.

5.) RE is based on local factors, it's not a national phenomenon. RE of Delhi-NCR,Bangalore & rest of the cities has nothing to do with Pune RE.
WRONG. Lending rates remain the same throughout the country. ALL loans are harder to get. This will drive prices down everywhere.

6.) A rental house provides good income. So, you can rent if you have purchased as investment.
WRONG. Rental houses provide very poor income in hyped areas and certainly cannot cover mortgage payments. Remember there is almost 300% difference between EMIs & rent for the same house.

It's pointless to do the work of being a landlord if you can make more money with no risk, no work, and no state income tax by investing in assured good returns bond.

7.) If owning is a loss in monthly cash flow, but appreciation will make up for it.
WRONG. Appreciation is negative. Prices are going down. It only adds to the injury of already high EMI's.

8.) As soon as prices drop a little, the number of buyers on the sidelines willing to jump back in increases.
WRONG. There are very few buyers left, and those who do want to buy will be limited by increasing difficulty of borrowing now that many house owners are near bankrupt as they don't save anything at the end of the month due to high EMI's.
No one has to buy, but there will be more and more people who have no choice but to sell as their payments rise. That will keep driving prices downward for a long time.

9.) House prices never fall atleast in Pune.
WRONG. If you see the RE scenario of 1996, prices crashed by 50% & took a whole 7+ years to recover.
Exact 1996 scenario may not be there today but strong correction is inevitable across the city.

10.) House prices don't fall to zero like stock prices, so it's safer to invest in real estate.
WRONG. House prices won't be zero, but the equity or the principal amount you paid can be zero or even negative. What you will pay as EMIs later in actual terms is not for the principal amount but only the interest as house prices dip. So, you will be only serving the bank.

11.) Prices will soften gradually, won't crash immediately.
WRONG. Prices are falling off a cliff. No one knows exactly what will happen, but it looks like prices will continue to fall for long time. These are just more manipulation of buyer emotions, to get them to buy even while prices are falling.

12.) The bubble prices were driven by supply and demand alone.
WRONG. Prices were driven by low interest rates and risky loans & good returns for investors in initial phases of boom in 2004-05.
Prices went up, interest rates went up & buyers savings went down. So prices are violating the most basic assumptions about supply and demand.

13.) There is lack of land.
WRONG. Ample of land is available & continue to be even in future in Pune. Sales volume are down. Even in Japan (small country with less land), prices went down. Current prices here are the same as that of 23 years ago. If we really had a housing shortage, there would not be so many vacant rentals.

14.) If you don't own, you'll live in a cheap neighborhood later.
WRONG. For the any given monthly payment, you can rent a much better house than you can buy. Renters live better, not worse. There are downsides to renting, such as being told to move at the end of your lease, or having your rent raised, but since there are thousands of vacant rentals, you can take your pick and be quite happy renting during the crash. There are similar but worse problems for owners anyway, such as being fired and losing your house, or having your interest rate and property taxes adjust upward. Remember, property taxes are forever.

15.) There's always someone predicting a real estate crash.
TRUE, yet irrelevant. There are very real crashes every decade or so. Even a broken clock is right twice a day.

16.) Local incomes justify the high prices.
WRONG. The mortgage should be more than your 3 years earning. It is much higher today. Most are already in danger/red zone.

17.) You have to live somewhere.
CORRECT. But that doesn't mean you should waste your life savings on a bad investment. You can live in a better house for much less money by renting during the down slide in RE.

18.) It's not a house, it's a home.
WRONG. Wherever one lives in it is home, be it apartment, condo, bungalow , mansion or house. Calling a house a "home" is a manipulation of your emotions for profit.

19.) If you don't buy now, you'll never get another chance.
WRONG. History proves otherwise.
Here's a beautiful quote from a analyst:-
"The real issue isn't whether you will be stuck being a renter all your life, she says. Its whether you'll get so scared about being shut out that you'll buy at the market's peak and be stuck in a property you can't afford or sell."

20.) It would take major economic recession or a major earthquake that wipes out this area in order for the price to fall by over 50%.
WRONG. Even today, if the prices fall by 50%, there will still be very few people who can buy at this levels due to uncertainty in jobs & most importantly high EMIs. Also, look at the rental rates for equivalent houses. Which loss per month is larger? EMI or rent?

contd....
Read more
Reply
12597 Replies
Sort by :Filter by :
  • I know someone who started looking for a flat (already owns one) 3-4 years back. He used to spend all weekends on various builder sites. He usually used to call friends to accompany him in the process. Three of us who roamed with him understood market as per our understanding level and bought flats (different period and different projects).

    That guy is still roaming with fourth friend in search of affordable, reasonably priced, descent flat (whatever hole you call it, you might have bigger than ours but at the end it's a hole or nest) and he didn't find anything in at least 3k projects he visited in all of west Pune in 4 years and now he says if he vets something at 4.8-5k per sqft with this, that n bla bla conditions he'll buy :D

    3300 was too much and inflated for this guy few years back.
    CommentQuote
  • Originally Posted by BaagadBilla
    If they are not coming down 30% or 3%, it does not matter. Is it rising at the same rate as 2009-2013?

    I dont know about FD rates after 5 years. In the near term, they may fall if Rajan cuts RBI rates.

    ---- This all is happening in dreams of guys who cannot decide or dare to take a step or cannot afford.

    There are many who can afford multiple properties. Does not mean they should buy them all.


    Who said it'll go up with same rate? Why not consider 2004-2008 appreciation then? That was better.
    I agree, i can afford 3 more at same place, but I want diverse portfolio so I invest inRE only with salary and don't mix other income here.
    CommentQuote
  • Originally Posted by REinvest
    I know someone who started looking for a flat (already owns one) 3-4 years back. He used to spend all weekends on various builder sites. He usually used to call friends to accompny him in the process. Three of us who roamed with him understood market as per our understanding level and bought flats (different period and different projects).
    That guy is still roaming with fourth friend in search of affordable, reasonably priced, descent flat (whatever hole you call it, you might have bigger than ours but at the end it's a hole or nest) and he didn't find anything in at least 3k projects he visited in all of west Pune in 4 years and now he says if he vets something at 4.8-5k per sqft with this, that n bla bla conditions he'll buy :D

    3300 was too much and inflated for this guy few years back.


    Buying a home is not like buying a TV. You dont buy the first flat you see and like.

    You are an investor, so your view is different.

    Two years ago i did the same. I visited multiple resale flats and builder sites. But as soon as I would make up my mind, the builder would increase the price by up to 5L. I saw that it was simply extortion with stupid charges here and there. Bank loans had gone up to 11%. Even at 9.5% now, it is not affordable. Even resellers were thinking that their property is the best in the market. If neighbour got 1.1Cr for his flat, then I should get 1.2 - was the mindset of the resellers. Resellers thought that buyers desperation will continue, that they can treat buyers like filth and manage to get crores for their property. Resellers would play buyers off against each other - if they got an offer of 1.2 Cr, they would try to find a buyer for 1.25 and cancel the deal with the previous buyer.

    When the RE slowdown started, I stopped searching. I will wait for a year or two, before I decide to buy or not buy or move out to another city. E.g. amdavad has rates almost 2/3 of Pune. And better infra. Nagpur and Bhubaneswar are other options. There is Kochi, there is Hyderabad. Better prices better infra than pune or bangalore. Maybe Pune has more industry than these places right now, but there is enough in other places to earn your salary (at least from IT point of view).

    In the meantime, I am simply stacking up my savings.
    CommentQuote
  • Originally Posted by BaagadBilla
    I agree that RE was a good investment before 2014. Prices were rising by almost 100 psft a month in Pune. Lets say I missed the bus. I was not in a position to buy then.

    Maybe it was a good time to buy during 2009-2013. I agree with you. But what about now? Is it a good time to buy now? I assume that you will say yes.

    But if prices remain stagnant or dip or rise very marginally in the next two years, am I at a loss? If prices dip, I will save. If stagnant, then also save because I will gather more down payment amount. If rise marginally, then maybe yes.
    .


    You have proved in your post that 2014 may have been worst time to buy RE (between 2008-2015 window) as prices were reaching a plateau. So some one who followed that original advise (of waiting till 2014 to buy prop as 2013 will be gr8 fall year) must be in real fix today.


    Originally Posted by fundoo158
    Well..I have been active reader of this forum from quite a long.

    I think this thread shows you another view of RE which isn't generally heard from aam aadmi...however, I think some of you overdo it. Someone rightly mentioned that this thread creates so much negativity that it can "impact" (badly) your decision. To be frank, I am one of those victims..when in 2008-09...I was actively looking for flat and just turned down a deal after reading enlightened discussions here.

    I am not blaming anyone.....and call was completely mine.

    During this 2009-15 period, I made some decent savings..but the RE price far outdid my savings.

    Now, over last 1 year, I again started my search...but to be frank; lets accept

    1. Quality 3BHK flats (carpet of 1100+) are no where less than 1 cr..(even in wakad).
    2. No project has all positives.
    3. Each individual here is different and lets respect that. His/her choice may be due to lot of socio economic factors.
    4. No amount of return is worth if my parents and kids have to undergo hassle of changing flat every year. Not every1 is lucky to have owner in US :)
    5. If slowdown hits and lets say you get a 20% correction..for argument you get a flat quoting 1.2 cr today in .9 cr...and you stick your neck out (which is highly unlikely...as u will be afraid that it will fall further)

    but then if those dooms day predictions ever come true, then even .9CR won't sell...and it will definitely go down further...so in short you won't be able to BUY in a falling market.....unless you are a wiz kid and not lesser mortal like me.



    Good points.

    Originally Posted by fundoo158

    6. When all assets are checked in $ terms..we must realize that indian RE hasn't moved at all.
    A 2BHK in 2008 was of ~40 lacs (exchange rate was arnd 40) ===> $100K
    same 2BHK in 2016 is of ~70 lacs (exchange rate is 68) ===> $100K
    So, I don't know which fall or appreciation we talk about. Its time based correction which has already happened.

    Just to update...
    my search is finally over and got a 3BHK last month for myself in Ready to move building.




    Your point is very valid. In dollar terms India RE has remain stagnant (however effect are bit delayed after devaluation of Rupee). I have been observing it but never posted as people will be quick to grab "see we said prices have stagnated and now they will fall". Did not want to create fodder for gyanis in 2012 who used to take name of NY, London, Paris, Tokyo in same breath :-) . I am not sure if this is coincidence or there is some underlying correlation. If we accept it then the Rupee has fallen further in last few month and this may put further appreciation in prices (in Rupee term).




    In China there is some drop in prices. Wonder related to Yuan getting stronger against USD.
    CommentQuote
  • Originally Posted by REinvest
    Who said it'll go up with same rate? Why not consider 2004-2008 appreciation then? That was better.
    I agree, i can afford 3 more at same place, but I want diverse portfolio so I invest inRE only with salary and don't mix other income here.

    It is easy to post.. But many of us are mathematically challenged. A for rent investor will need appreciation of approx 5%/6% pa to break even with a FD of 10% (30%/20% bracket). Any thing above that is pure out performance

    A high appreciation from 3500 to 5000, mentioned earlier, in four years is only 9.5% annualised return. But the FOR RENT investor will still out perform a FD 10% substantially by at least a multiple of 2-3
    CommentQuote
  • Originally Posted by Que Sera
    It is easy to post.. But many of us are mathematically challenged. A for rent investor will need appreciation of approx 5%/6% pa to break even with a FD of 10% (30%/20% bracket). Any thing above that is pure out performance

    A high appreciation from 3500 to 5000, mentioned earlier, in four years is only 9.5% annualised return. But the FOR RENT investor will still out perform a FD 10% substantially by at least a multiple of 2-3

    here I am paying 1.8L rent per annum for a 1 cr flat aur aap 6% rental appreciation kee baat kar rahe ho. I am paying same since last two years. The day owner talks about increasing even 1% I will shift. There are way too many empty flats in west pune.

    unless you are doing tax chori, rental income is taxed. Plus owner pays society maintenance. And property tax. Owner is paying emi ( more interest than principal) too.

    Read my prev posts. Read again. If you wait too long for rental appreciation it wont be easy to sell old crumbling flats for a good price. Maybe in mumbai not elsewhere. I won't even rent such places forget buying.

    I am adding more to my savings from my salary (wife kee salary alag) and it more than takes care of even 10% increase in rent if any.

    It may be inefficient but it is simple. It helps me concentrate on things that matter and not read money control com all day. I want assured returns. plus liquidity.

    Only the amount I have earmarked as down payment for flat is in FD.
    CommentQuote
  • Originally Posted by BaagadBilla
    here I am paying 1.8L rent per annum for a 1 cr flat aur aap 6% rental appreciation kee baat kar rahe ho. I am paying same since last two years. The day owner talks about increasing even 1% I will shift. There are way too many empty flats in west pune.

    unless you are doing tax chori, rental income is taxed. Plus owner pays society maintenance. And property tax. Owner is paying emi ( more interest than principal) too.



    And you should continue doing it. Since you will always find reasons.

    For people who want to understand.. Flat worth rs 100.. Own contribution rs 25 (20% + 5 other charges) balance by bank loan of rs 80.

    If the price increases by 9.5%, return on your investment is rent 1.5% or rs 1.5 and 9.5% of 20.. Rs 1.9.

    So investment of rs 25 and return of rs 1.9+1.5 = 3.4, 13.6%.

    FD at 9% will return 6.3/7.2% for 30%/20% tax payer.

    For the loan of 80%, the post tax cost of the interest (10%) is 7%/8% for 30/20% tax brackets. The appreciation of 9.5% not only covers the interest cost but contributes 2.5%/1.5% unrealised profit.

    Depending on your view you can add it to return (rs 2/rs 1.2 on Rs 80 is ADDITIONAL 8%/4.8% return on investment of rs 25. Alternatively you can consider it as subsiding the extra rs 5 paid over the next 2-3 years.

    So a not so exciting return of 9.5% has still provided double the FD return at the minimum.
    CommentQuote
  • Originally Posted by Que Sera
    And you should continue doing it. Since you will always find reasons.

    For people who want to understand.. Flat worth rs 100.. Own contribution rs 25 (20% + 5 other charges) balance by bank loan of rs 80.

    If the price increases by 9.5%, return on your investment is rent 1.5% or rs 1.5 and 9.5% of 20.. Rs 1.9.

    So investment of rs 25 and return of rs 1.9+1.5 = 3.4, 13.6%.

    FD at 9% will return 6.3/7.2% for 30%/20% tax payer.

    For the loan of 80%, the post tax cost of the interest (10%) is 7%/8% for 30/20% tax brackets. The appreciation of 9.5% not only covers the interest cost but contributes 2.5%/1.5% unrealised profit.

    Depending on your view you can add it to return (rs 2/rs 1.2 on Rs 80 is ADDITIONAL 8%/4.8% return on investment of rs 25. Alternatively you can consider it as subsiding the extra rs 5 paid over the next 2-3 years.

    So a not so exciting return of 9.5% has still provided double the FD return at the minimum.


    Agree 100% .

    However :

    1. Capital appreciation over last 2 years is from 0 to 2-3% .

    2. Percentages dont always post the correct picture . 80 L loan is abt 80k EMI which is a huge burden for a salaried guy affecting his lifestyle and health . Leveraging was good when the EMI was not mind boggling . It still holds good for somebody who has guaranteed source of income .
    CommentQuote
  • Originally Posted by suryawork
    Agree 100% .

    However :

    1. Capital appreciation over last 2 years is from 0 to 2-3% .

    2. Percentages dont always post the correct picture . 80 L loan is abt 80k EMI which is a huge burden for a salaried guy affecting his lifestyle and health . Leveraging was good when the EMI was not mind boggling . It still holds good for somebody who has guaranteed source of income .

    My post is not meant to be a invitation to buy. Only that reinvest is not as challenged as made out by certain posters in the forum.

    In practically all asset classes, appreciation is spasmodic.. Never linear.

    Over leverage is a crime.. Against one own self. But idiotic comments accusing people of tax chori to get returns are not expected in the forum.

    And financially challenged comments like "pay more interest than principal". If this were so, no business would resort to borrowing. It is not the interest you pay that matters but the income you earn on it.

    To put a different view.. I have a rented out property purchased 5 years ago on a 50% own funds basis. Left it empty for one year since tenant was giving a 5% lower rent than my expectation and I had the financial muscle to pay emi out of my pocket. The xirr is 19% despite no price increase in the last 2 years. Today 80% of the emi is being financed by the rent and tax break.

    Eventually I expect at least 30% loan of the original cost will be paid by my FD man tenants.

    I will not prepay the loan though I could have done it two years ago. And if I see a financially stressed multiple property owner selling property at attractive prices.. Yes I am in the market as long as

    1 my asset allocation is within my limits
    2 debt ratios/emi ratios are manageable

    Till then I am in debt mutual funds (9% post tax return over last three years.

    So using specific disaster cases to pull down any asset class is fear mongering, whether it be equity or debt or re.

    Follow financial tenets and things will be OK. Do not hunger over the larger 3 bhk house .. Go for one you can afford.
    CommentQuote
  • Originally Posted by Que Sera
    And you should continue doing it. Since you will always find reasons.

    For people who want to understand.. Flat worth rs 100.. Own contribution rs 25 (20% + 5 other charges) balance by bank loan of rs 80.

    If the price increases by 9.5%, return on your investment is rent 1.5% or rs 1.5 and 9.5% of 20.. Rs 1.9.

    So investment of rs 25 and return of rs 1.9+1.5 = 3.4, 13.6%.

    FD at 9% will return 6.3/7.2% for 30%/20% tax payer.

    For the loan of 80%, the post tax cost of the interest (10%) is 7%/8% for 30/20% tax brackets. The appreciation of 9.5% not only covers the interest cost but contributes 2.5%/1.5% unrealised profit.

    Depending on your view you can add it to return (rs 2/rs 1.2 on Rs 80 is ADDITIONAL 8%/4.8% return on investment of rs 25. Alternatively you can consider it as subsiding the extra rs 5 paid over the next 2-3 years.

    So a not so exciting return of 9.5% has still provided double the FD return at the minimum.


    Que..

    A question.. I am not too comfortable in taking the Rs 1.9 which is the appreciation while calculating.. That 1.9 is not cash..
    Comparing that with FD return which is on the cash deployed distorts the calculation in my opinion..

    I am a part owner of an ancestral property in which my share is now 20 Lakhs (1 lakh 8 years back) and it has been appreciating quite well as it is in a village which has become a class 3 town .. by this logic my return would be good but in reality it is cash burner as I am spending 50K per year for its upkeep and my father and his brothers are simply not willing to dispose it off for reasons other than financial..
    CommentQuote
  • Originally Posted by Sharpj
    Que..

    A question.. I am not too comfortable in taking the Rs 1.9 which is the appreciation while calculating.. That 1.9 is not cash..
    Comparing that with FD return which is on the cash deployed distorts the calculation in my opinion..



    Sharp

    Actually in such a case.. Investment in PPAS or Berkshire Hathaway is worse than FD.. These guys do not declare a dividend, never ever.

    The 1.9 unrealised appreciation is a moving figure. If I cannot accept the volatility, I would be better off in cash rather or bada bhai FD.

    expected returns are negatively correlated to certainty.

    Finally it is about getting the extra 2-3% return, which in the case of re/equity works out to be a post tax 4-5% + out performance over FD.

    Note.. I am not saying this is a good time for re. Just getting the theoretical framework in place so feel free to argue out..
    CommentQuote
  • Originally Posted by Que Sera
    Sharp

    Actually in such a case.. Investment in PPAS or Berkshire Hathaway is worse than FD.. These guys do not declare a dividend, never ever.

    The 1.9 unrealised appreciation is a moving figure. If I cannot accept the volatility, I would be better off in cash rather or bada bhai FD.

    expected returns are negatively correlated to certainty.

    Finally it is about getting the extra 2-3% return, which in the case of re/equity works out to be a post tax 4-5% + out performance over FD.

    Note.. I am not saying this is a good time for re. Just getting the theoretical framework in place so feel free to argue out..


    Appreciation in RE in my opinion is a very dicey figure to take as there is only one way to realize it is by disposing off the whole asset. I can always sell part of my shares in Berkshire and realise some of the appreciation any time..
    I would still not take the appreciation value in RE as it can distort your calculation or one has to be very conservative while calculating the returns (reason)
    1) No clear market value defined (Use the guidance value if you want to do the calculation)
    2) People tend to take the maximum value of the property for calculations (Generally if you ask a home owner what is the property value, he will tend to say.. oh my area properties are fetching 1 crore, where as his apartment in a badly maintained building in a questionable neighbourhood with terrible neighbours will not even fetch 50 lakhs).
    3) Calculate the ROI on only rental properties and not the one you stay in..
    CommentQuote
  • Self occupied house is consumption. Rented-out house is investment.. So I look at returns for comparisons

    Since my property is in a large complex with at least a couple of transactions per month, I can get a fair idea of rates. But you are right.. Valuation is a tricky business at the best.

    Lack of small tickets is a big negative in RE. This is the reason why I advocate following financial tenets.. ASSET DIVERSIFICATION. And managing cash flows. A 80% appreciation is useless if you are struggling to pay emi.

    The high asset prices and low cash flows (rent/interest) are QE malfunctions. Choice is to sit it out or tiger by the tail sorta approach. . the later in the game you enter.. The bigger risks.

    On a personal note, farm land and second homes in resort towns have no real uses other than farm income and zero income respectively, so I would be sceptical in investing there at these prices. . the later in the game you enter.. The bigger risks.

    On a personal note, farm land and second homes in resort towns have no real uses other than farm income and zero income respectively, so I would be sceptical in investing there at these prices.
    CommentQuote
  • Originally Posted by Que Sera
    My post is not meant to be a invitation to buy. Only that reinvest is not as challenged as made out by certain posters in the forum.

    In practically all asset classes, appreciation is spasmodic.. Never linear.

    Over leverage is a crime.. Against one own self. But idiotic comments accusing people of tax chori to get returns are not expected in the forum.

    And financially challenged comments like "pay more interest than principal". If this were so, no business would resort to borrowing. It is not the interest you pay that matters but the income you earn on it.

    To put a different view.. I have a rented out property purchased 5 years ago on a 50% own funds basis. Left it empty for one year since tenant was giving a 5% lower rent than my expectation and I had the financial muscle to pay emi out of my pocket. The xirr is 19% despite no price increase in the last 2 years. Today 80% of the emi is being financed by the rent and tax break.

    Eventually I expect at least 30% loan of the original cost will be paid by my FD man tenants.

    I will not prepay the loan though I could have done it two years ago. And if I see a financially stressed multiple property owner selling property at attractive prices.. Yes I am in the market as long as

    1 my asset allocation is within my limits
    2 debt ratios/emi ratios are manageable

    Till then I am in debt mutual funds (9% post tax return over last three years.

    So using specific disaster cases to pull down any asset class is fear mongering, whether it be equity or debt or re.

    Follow financial tenets and things will be OK. Do not hunger over the larger 3 bhk house .. Go for one you can afford.


    I find all asset classes necessary , not just RE and FD .

    The point I was making is in line with what you're saying - you need to have financial muscle to invest into todays RE ticket size and stay invested for long given the current state of RE . This is not easy . People hardly have 20% downpayment for end use , forget investment - so I talked numbers rather than percentage .

    If interest rate does not increase dramatically over the loan tenure then in most cases running a home loan for entire duration is more beneficial than prepaying even though you'll pay more interest than principal as you are paying in installments the present value of money over time for an appreciating asset .
    CommentQuote
  • Originally Posted by Que Sera
    My post is not meant to be a invitation to buy. Only that reinvest is not as challenged as made out by certain posters in the forum.

    In practically all asset classes, appreciation is spasmodic.. Never linear.

    Over leverage is a crime.. Against one own self. But idiotic comments accusing people of tax chori to get returns are not expected in the forum.

    And financially challenged comments like "pay more interest than principal". If this were so, no business would resort to borrowing. It is not the interest you pay that matters but the income you earn on it.

    To put a different view.. I have a rented out property purchased 5 years ago on a 50% own funds basis. Left it empty for one year since tenant was giving a 5% lower rent than my expectation and I had the financial muscle to pay emi out of my pocket. The xirr is 19% despite no price increase in the last 2 years. Today 80% of the emi is being financed by the rent and tax break.

    Eventually I expect at least 30% loan of the original cost will be paid by my FD man tenants.

    I will not prepay the loan though I could have done it two years ago. And if I see a financially stressed multiple property owner selling property at attractive prices.. Yes I am in the market as long as

    1 my asset allocation is within my limits
    2 debt ratios/emi ratios are manageable

    Till then I am in debt mutual funds (9% post tax return over last three years.

    So using specific disaster cases to pull down any asset class is fear mongering, whether it be equity or debt or re.

    Follow financial tenets and things will be OK. Do not hunger over the larger 3 bhk house .. Go for one you can afford.


    ---- And financially challenged comments like "pay more interest than principal". ---

    Learn some manners. I have often noticed you are rude with many posters on this forum.
    Yes, in the earlier years of the home loan tenure, you pay more interest than principal as part of your EMIs. Read again, what is it you dont understand?
    Also, you give an example of 5 years ago. I have agreed that five years ago was a good time to buy (read the chain, dont jump in just by seeing my ID on the post). I was talking about now. About today.

    ---- I had the financial muscle to pay emi out of my pocket.

    All your examples and calculations are on the basis of your personal experience and your financial muscle and some assumptions you make which may not be true. You are an investor, your perspective may be different. But I will post my point of view here, for average end user buyers. Forum does not belong to you. Anything that does not agree with your view does not become "financially challenged". Yes, I may be financially challenged because I am not a finance or CA grad. Maybe you have more financial knowledge. If you think any member is wrong, point it out rather than being abusive. You may be having a finance degree but it seems your education has been incomplete.

    ---- But idiotic comments accusing people of tax chori to get returns are not expected in the forum.

    Read again, I did not accuse you. Read the sentence again. It starts with Unless.

    Again learn some manners. At least soarer; had a wicked sense of humour. You dont.

    I recall I once posted a link which said Mumbai has the highest ratio of RE price to income in the world. You went all ballistic and rude. But use your brain. If you have a problem with that article, please go and talk to the author of the article and the magazine/newspaper editor. NO point abusing me for something which I merely posted the link to. Dont be what you are accusing me of being :D

    I am younger than many on these forums. I have a long way to go. I would rather concentrate on more interesting stuff than spend my hour searching which investment gives a few pennies more than the other. You may be old and wise and have the time to count pennies. I dont have it.
    CommentQuote