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POSTED BY ON January 26, 2013 11:38 pm COMMENTS (9)
Hi,
I just wanted to know ur views on how do I approach for this goal.
I am 25 and working in an IT company in Pune. My take home salary is around 35k. I am not yet married but likely will marry in a year or two. My goal is to purchase a house in Pune after 6-7 years. Since the cost of buying a house in Pune is very high (even in present times), I cannot afford in near future like one or two years. A 1000 sqft falt costs around 60 lacs minimum. what is your take on this? How should I start saving for this goal? I need atleast 20% down payment for booking a flat. I am not sure how much it would cost after 6-8 years from now. Or shall I drop the idea of buying the house at all !!??
thanks!
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ashal,
I am talking about building an asset. even if I stay for 30-40 years in a rented home, I have to keep changing it even year. Instead if I own it, it will get rid me of doing this every year.. However, I would surely checkout out manish’s article you quoted.
thanks.
Dear Rajan, so you are dead sure for next 30-40 years & even beyond that you ‘ll not change your employer as well as your home. You ‘ll not move out from Pune…..
Please try to look out for an old article by dear Manish on Renting v/s purchasing a house. That article itself ‘ll clear a lot of clutter from your mind.
Thanks
Ashal
Hi Ashal!
Thats a very nice perspective!!! But a rented home needs to be changed almost every two to three years..
A 2bhk at a good location will fetch atleast 15 k rent (today).
Dear Rajan, if you are going to live on rent in the same house. You w’d have to pay just 15000 Rs. Now If we assume you do have the down payment amount of 12L: Rs. with you. What can be done if we do not go for purchase?
You may remain invested for this 12L Rs. amount. @ tax adjusted rate of around 7%, your yly income ‘ll be 84000 Rs. That translates into 7000 Rs. So in effect you w’d have to pay just 8000 Rs. from your salary income to live on rent in this house.
Also let’s check the price to earning ratio (PE)
Price = 6000000
Earning = 15000*12 = 180000
So PE = 6000000/180000 = 33.333
It indicates that the property prices are way to high than normal rental yield. So it’s advisable to go for renting not for purchase.
Please feel free to share your views.
Thanks
Ashal
Dear Rajan, May I know the possible rent of this property in question?
Thanks
Ashal
Hi,
I expect my salary to rise by atleast 10% per year. Where I can start saving for the downpayent? shall I invest in debt funds or bank FDs?
thanks again!
Assuming your goal is 5 years away invest in monthly income plans with not more than 10-15% equity component. This will decrease your tax outgo.
Salary increase of 10% is not important. The emi % wrt take home pay is.
Inflation in other expenses will mean the buying power of your salary is roughly the same.
The main question is assuming you can get the 10-12 lacs down payment for a 60 lac house, will the emi from the housing loan be not more than 30-35% of your take home pay.
If emi is much more than this now, is there a chance it will be 30-35% of tkh pay 6-7 years later? (at 10% inflation 60 lac house will be about 1 crore!)
If there is a good chance then start saving for down payment in save instruments and get a loan when you are comfortable salary-wise.
If emi will always be much higher then 35% tkh then getting a home loan for 60 lacs or more is very likely to affect your other goals like retirement, children’s education down the line. You need to then downsize the price of your house, see how you increase your income.
Postponing makes sense only if your salary or income can significantly beat inflation.
This is the logic I applied personally and I choose not to buy since my other goals will suffer
There is a saying which goes” Asset-rich but cash-poor. I didn’t want to end up like that buying a house I cannot afford.