When you buy a property, you have a lot of questions in your mind. Am I not buying expensive? Should I buy it? Should I stay on rent? How long should I stay on rent? Am I not paying more rent? You can have a lot of questions in your mind. This is going to be the most logical. If I said, then we will answer everything with logic.
See, today we live in any property, that property has some value. So today if you live on rent for example, most people may be on rent, many people may not be on rent. So understand the example, you will understand everything. In fact, through this blog, you will be able to guide many people. Now see, every property has some value.
If you are living in a house today, you are living on rent. I assume that a common man is living in a house and the value of that property is 300000. Now that house may be flat, we have taken₹ 300000.
Now this₹ 300000, which is the value of the property, if you want to buy it, how much money will you have to give? You will have to give 300000, but what are you doing now? You are living on rent, so it is possible that you are paying rent of₹ 15000 per month.
Now you will say that we are paying rent of 15000 per month. Itis a property of 300000.I have a question for you. If this is the scenario, now you seat according to yourself. The house where you are living on rent, it may be of 500000, it may be of 500000and according to that, how much rent are you paying?
If you are living on rent, then or someone else, your relative, friend, whoever it is, the property in which he is living, what is its value and how much monthly rent is he paying? When you understood this, then have only one question.
Is this rent more or less? How Willi know? What do we generally do in India if we need a place on rent? We need a house on rent. We go to the property dealer. We tell him that show us 3 BHK, 4 BHK, 2 BHK.
He shows us 10-12 options. Weedicide one of them and decide in such a way that a relative comparisons going on in the market. We see that there is a house asking for 15000 rent, one is asking for 18000, one is asking for 20, one is asking for 12, one is asking for 10. So we think that 15000 is fine. So we think in this way that in the market, the rent of 15000is fine, but this happened if you have seen 7-8 houses.
But how many houses are there in India? How many localities are there in India? So what happens is that generally a person has an office and there is a locality near his office. He sees there that how much rent will be required for this house. So he starts paying rent in this way. But I would like to tell you an average.
You have to understand that if you are giving more rent or not, how will you know? For that you will have to understand the concept of rental yield. Now what is the concept of rental yield? Let’s assume I have a property and that property is worth 1 crore.
If I have a property worth 1 crore, then what will Intake in my mind that I have to pay 3% interest every year. If it is worth 1 crore, Theni will get 300000 per year. If 300000 per year, then how much will be the monthly interest? You will say that it is of the month, 25000. You are absolutely right. So if I get 25000 per month, then my expectation will always be more that give me ₹30000 or more.
So whoever wants to pay rent, he wants to take more and whoever wants to stay on rent, he wants to give less. But what will you get? I am telling you an average of 2 to 3% is generally available. There may be different factors at some places. 4 to 5% rental yield is coming somewhere and it may be less than 2% at some places.
So it can depend on location to location, butane average will come of 2 to 3%. Now what should you see? You are giving more rent or less rent, how will you know? From this rental yield. I am assuming that your question was that we are living in a house of 300000. If there is a house of 300000, then 3%of it is 90000.
Now 90,000 is the annual rent from that property. Means 7500 per month. It may not be available in 7500, but it is available in 8000, 9000,₹ 10000, but we are understanding that 3% of it is 7500 per month and if we are giving 15000 for the same thing, then it is more. If I give you one more example of this, then understand like this.
You must be thinking that around₹ 15000 rent invalid, but if you do a little more research, then you will understand that around this rate, you will get things on rent because the amount to be paid on a capital is 2 to3% of the rental yield.
Now, what will you find out from the concept that I have explained to you first? I say you reduce 300000, you put the value of where you are living on rent, whether it is 100000, 1000000 or 2000000.
If you are living on rental a house of 2000000, then how much rent are you paying? You say that I am paying 75000and I am paying 75000, so now you tell me if this 75000 is more or less. You will say that you will find out from the rental yield now.
If talk according to 2000000, then according to 3%, the annual income is 600000 and if I divide it by 12, then it becomes 50000. So if you are paying rent up to 50000, then I will say that it is according to the rental yield, but if you are paying ₹75000, then it is more.
So how did you find out whether you are paying more or less rent? You found out from the concept of rental yield. Now a question comes. See, if questions come, then it is necessary to ask them. Now the second question comes that Sir, I understood that I am paying more rent. If I am paying more rent, then should I buy the property or not? See, we have not talked about buying it yet. Should I buy it or not?
Now we are here that I was paying more rent, so now I shift to another place where I have to payless rent or I should buy it. So if you have to live in the same house of 300000and you are paying 15000rent, then now I and let’s say you like that house. You are getting the same house to buy, so what should you do? See here, here you have to understand another concept, which is price to rent ratio.
Now this price to rent ratio is a very logical concept. If you understand, then you will be able to do good for yourself and you will be able too good for other people. What happens here? We will find out a ratio. What we will does that we will divide the price of the property by the annual rent. How much is the annual rent? I will explain it to you here.
See this, if you take your own example, where we were talking about the value of a property of 300000 and you were paying 15000 per month, then you were paying 180,000 per year. Now the question arises that when we are paying rent, then what is the price to rent ratio saying here? The price to rent ratio is saying that the value of a property of 300000 is divided by 180000, then the answers 16.6, which is less than 21.
So because I am getting 16.6, I should buy this house here. This is a better decision. If I like the same house, Theni can afford it. If you want to buy it with a loan, then you should buy it. But let ‘stake another scenario. Let’s assume that you had to pay rent of 15000, but now you are getting another property of 500000.
There you are getting a useless bedroom, a big kitchen, a big drawing room, you are getting a big living space, you are getting a park there, you are getting a lot of different benefits and its value is of 500000. So what should we do now? The rents the same, the rent is 180000, but now our ratio, which should have been less than21, has increased from 21 and it has come to 27.7.
So in this scenario, I will suggest that you can live in a house of 500000 and do not buy it, keep it on rent. Now you will say, Sir, I have to buy a house, a house should be mine. There are a lot of questions that come to my mind. So see here I am not against buying or not buying. I am not telling you that you should buy it, nor am I telling you that you should not buy it at all. I am telling you that always look at the intrinsic value.
If you get something less than the intrinsic value, whether it is a property or a stock, then you should definitely buy it. But if you are getting overpriced, then how will you know that it is overpriced. I told you the ratio. Look at the price-to-rent ratio. If you like something, it is worth₹ 2000000, then I will say that if you do not buy that 2000000 thing and if you live on rent, then how much rent is there.
If you are getting rent at 40000, Theni will say, stay there, because you can divide and see what is your ratio. So you must have got a logical explanation again, but despite this, the questions do not end.
Questions come, no, no, no, I will buy it. I have to buy it, whatever I get, I have to buy its emotional buying happens in India. If the boy wants to get married, then he has to show that it is his home, even if it is not on loan, but it is his home.
So one is emotional buying, the other is you can also do SIP logically. Planning. You make investments every month, but you get some returns on it. Now will tell you what you have to do for this. You calculate it yourself.
See, the money is yours. It is your decision. You will say, Sir, what is SIP? SIP means systematic investment What difference does it make to me? You stay at home, stay at your home, stay on rent, give more money to someone.
It doesn’t make any difference to me. I am different from you. I will guide you. Because it shouldn’t be that you say that no one has explained me, no one has guided me. So it is important to guide. At the end, the decision is yours. The money is yours. Now understand, I will try to explain to you logically.
See, wed emotional buying. Now what do you do? You liked that house worth 50 lakhs, which Isai that if you want, you can stay on rent, but you didn’t like it. No, not on rent. Rent is on rent. Rent will increase every year. You can believe that. The value of the property will increase at some time. This can also happen. So we are taking all the things.
So here Isai that you bought it. You applied for a loan to buy a house worth 50 lakhs. I say that you have some extra costing or furniture in it. It may cost you more. It may cost you55 lakhs. Now you will also give stamp duty. There are many other expenses. So I am assuming that you have taken a loan of 50 lakhs. Now it does not happen.
The bank gives you 80-85%but let’s say you got a loan of 50 lakhs. Now what will happen? If you get a loan of50 lakhs, then I will try to explain to you. You can do all these things at your home.
So go to Google. You simply go to the home loan calculator. Her ewe has opened the home loan calculator of HDFC. So now we are assuming that you wanted loan of 50 lakhs. Your goat loan of 50 lakhs and you got it for 20 years. Can you give money in 20 years?
You have Minnow you are giving equated monthly installments. You get a rate of interest home loan because it is cheap in India. It is available at 8% but those people who actually need home loan, where we talk that brother, the salary is limited, you want home loan, then they know that it is not available at 8%.
If you go to NBFC, then it will be 10 or more, but here I am assuming that I got it at 8%. So now you understand that you will give an Elio 41,822. It is coming in front. You will have to pay 1crore. You got a loan of 50 lakhs. You will get interest of more than 50 lakhs. So you will give 50 lakhs extra. No problem. I am saying that there is no problem. Understand the concept. So what happened to me here? I had to pay 1 crore.
Now maybe someone will think that what are you kidding? You have to pay 50 lakhs extra. So the answer is yes, you will have to pay 50 lakhs extra, but if you can do one more thing, I will explain that to you. Now see what I told you. I told you here that it is worth₹ 50 lakhs. You can stay on rent because our ratio is more. So you pay rent of ₹15000 for a thing worth₹ 50 lakhs.
So what is here now? Your EMI of 41,822 was being made. What did you do instead of that? You gave a rent of 15000 and the remaining money, 26,822, you got it SIP.
I am assuming that yes, it will happen that after sometime your rent will be 16,17, 18, 20, it will increase slowly, but I am also assuming that your income will also increase. Salary increments will also increase. So that’s why didn’t do anything there and I am assuming that your SIP is of 26,822.
Now let’s understand this logically. What will happen with this? Why am I explaining this to you? So see here.
If I simply write on the net, you can also write SIP calculator yourself, then you open the SIP calculator and when you open the SIP calculator, just give me a second, then what you will see is26,822 for 20 years, if you get 15% annual returns, means you will understand it as month, then this is 1% something.
So if you get 15% annual returns, then you will say how do you get 15%? You can invest money in mutual funds, in index funds. So if you see over the years, then he has given around 15% returns. So I am trying to tell you that this is your SIP, this 26,822 rupees, if you invest continuously for 20 years, then your amount will be 3.4 crore rupees and your house of 50 lakh rupees, it may not be of around 3.5 crores in 20 years.
So here it is said about 2.9 crores, say 3 crores, youkan says that there can be a loss because if you have taken only emotional decision that you want a house, then you have done it here, you are paying MI, you have a house of 50lakhs, it can be of 50 lakhs in the future, it can be of 1 crore,1.25 crore, or 1.5 crore but here if I was living on rent and even though I was paying rent, but my SIP made me so rich that I will have 3.4 crores and it can be more or less.
It is not that you cannot have less, if a person says that if the return of 15%has not come, then I will give you the answer of that too. It is possible that the return of 15% has not come over the years, it is possible that you got 14%, it is possible that you got 13%, so you can calculate this easily here, so according to 14%, 2.9 crores, it is still more, which if you are thinking, it will be more than that.
If I do 13% here, then youkan calculate this yourself that if the returns of 13% come, then it will be 2.4crores and it is possible that the value of the house is not 2.4, but if it comes more, then instead of 15%, if you get a return of 16%, then you will see here, it will be 4 crore rupees, it goes straight to 60 lakhs from 1%,
so the value of this 1% does not tell you today, but when he is taking a loan, then also there is a horizon of 20 years, there is a horizon of 25 years, so you calculate it yourself. I will only guide you, you have to do it, the decisions are yours.
Finally, many people do this that we do not get into the circle of loan, we do not get into the circle of loan, we have collected money, we will go and buy a house and we will buy the house of as much money as there is. Many people do this, now how much is right and how much is wrong in this, let’s give an answer to this too.
If you are thinking of buying a house, I say okay, you have done front buying, you have added 50 lakhs, you have gone to 50 lakhs and caught the owner of the house, he has registered the house in your name, finished.
Now the value of the house will increase, you will have a lot of fun, the value of your house is increasing, okay, but if you are here, if you are listening to me, it is my duty to guide you.
I say, now you take a home loan, if you have 50lakhs and you have to take it, you have taken a home loan, then the home loan is better. Why is it better? I am giving the same example here that if you have taken a loan of 50 lakhs, you have 50 lakhs left, you have taken a loan,
now we will give you a loan, we have understood that if we give a loan of 50 lakhs, then the loan will be of41,822, but if I could afford it, let’s say I can give EMI, but now what do I have to do with this 50 lakhs, so that get some extra benefit.
You go on the net and write on the net, you put a lump sum calculator, now what will be the benefit of putting this lump sum calculator, you will understand something. I got EMI done, I am filling EMI somehow, but now I have put50 lakhs in the lump sum, you put 50 lakhs, put 20 lakhs, put 30 lakhs, it is up to you, but if you have money and you put 50 lakhs in the lump sum,
for example, 15% returns are coming, so what will happen now, in 20 years, this money will not be 50 lakhs, it will be8 crore 18 lakhs, you do it yourself, it is all available on the net. The thing comes here that for this 15% where should we invest, I have covered the mutual funds very well, you understand, after that you will take logical decision, but it is my duty to tell you that it will be 50 lakhs in 20 years,
it will be 8 crores and the price of the house may not be 8 crores of 50 lakhs and generally it is not, and I would also like to tell you that I do not staying favor of investing in flats, what is a little incomplete, it is your choice, so it is my duty to guide you, I want that if you invest in land, it is always better because there is no depreciation of the land,
now here I have told you one thing that 50 lakhs can increase many times, it can be 8 crores, if it would have shaken in 1%, then what would have happened, you have to tell that if I put 50 lakhs in lump sum and instead of15% I get a return of 16%,so how much money will be in 20 years,
Now where can Idol lump sum, you can do it in index funds, there is one more plan, which we call SWP, now we have understood SIP, Systematic Investment Planning, one is Systematic Withdrawal Plan, there will be many people who are in their old age,
there is money for retirement, money is there, but what to do with it, I do not understand, but we need some money for expenses every month, we need some money for expenses, in fact, the question comes,
I had 50 lakhs in my hand, I have also made a loan, so where will this 41,000rupees come from, I do not have so much money, so the answer comes here that you put money in SWP, I explain this to many people, I am saying a very valuable thing for work, that you are saying that give me 40,000 rupees approximately. Need 20. It is your convenience what you want. Or you say it’s okay, I will afford the interest, but still something or the other keeps coming every month.
So there are many flexibilities want. Maybe you say I don’t want 40, I will afford 20. I willing the SWP plan. Like if you want, you can withdraw a fixed amount every month. You say I don’t want affixed amount. The more my money is increasing, it is increasing by 50 lakhs, but the more it is increasing, it is 50 lakhs, instead of 50 lakhs, it is51 lakhs, so I will get1 lakh.
It is on you that you have the flexibility that what you want. So you can withdraw affixed amount from the SWP plan. You want to withdraw the additional growth that is happening, you can withdraw that too. So what will be the benefit of this? If you feel that you want convenience, then that will also happen.
You have 50 lakhs of 50 lakhs and it will grow too. So now for this, I will tell you one more thing that most brokers do not have this feature of SWP. So you can check that if you have a broker who has a SWP feature, then it is very good. Otherwise, the leading broker of Indian mutual funds and SWP plans is NJ Wealth.
You can subscribe to the SWP plan yourself and otherwise you can put your query there and they will guide you how you can subscribe to your systematic withdrawal plan. If you have money, otherwise you have to start SIP and you have to start in mutual funds and you want the guidance, so they will guide you. They are one of the leading brokers. So I told you about it because you will not find SWP plans in most brokers.