In today’s world, the decision to buy a house holds immense significance, often influenced by contrasting opinions regarding its status as an asset or a liability. This blog aims to shed light on the complexities of this decision, providing practical insights for individuals at different stages of life.
For those currently living in a house they dislike or finding their rented apartment limiting, two primary scenarios emerge. Firstly, individuals dissatisfied with their current living situation face a dilemma. They must evaluate whether owning a new house is a solution to their dissatisfaction or if other alternatives should be explored.
The second scenario involves individuals who are financially stable and contemplating purchasing their own property after living on rent. The question here revolves around the potential benefits of homeownership compared to continuing with a rented arrangement.
The age-old debate regarding whether a house is an asset or liability is dissected, and a novel perspective is introduced – a house is neither solely an asset nor a liability; it’s an investment. The key lies in understanding the nuances of this investment.
Acknowledging the need for maintenance and expenses, some deem a house a liability. However, others believe it’s an asset because, when rented, it generates income. In reality, a house’s true nature is a blend of both. Maintenance costs and investments are part of the equation, but the property’s appreciation and potential rental income contribute positively.
Security, a paramount concern for any homeowner, varies across different housing options. In the case of standalone houses built on owned land, the security framework comprises both the colony’s security and the individual house’s security. While the colony’s security might be a one-tier system, the homeowner can install locks and alarms to further secure their dwelling. In a rating of one to five stars, this scenario could merit two stars for security, factoring in the dual-layered approach.
Moving to the builder floor option, security arrangements evolve. The builder floor setup often includes a community guard for the building, supplemented by homeowners keeping a personal guard outside their residence. This two-tier security approach provides a degree of assurance, although it falls short of the comprehensive security present in gated colonies. With a rating that hovers above two and a half stars, the builder floor arrangement offers a moderate security advantage due to its layered entry process.
Contrastingly, in high-rise apartments, the security dynamic shifts. While the building itself may feature multiple layers of security, such as guards at entrances and CCTV surveillance, the individual apartment security is contingent upon the owner’s precautions. In this setting, the emphasis is on centralized security protocols, but the onus to ensure apartment-level security falls on residents. Given this context, the rating for apartment security could also hover around two and a half stars, reflecting a reliance on collective security measures rather than individual home fortifications.
As potential homeowners evaluate these security aspects, they must remember that security isn’t solely determined by housing type. The locality and neighborhood also significantly impact overall safety. Regardless of housing choice, considering security within the broader context of one’s lifestyle and needs is crucial.
Transitioning to apartments, a contrasting dynamic emerges. Here, housing developers often present alluring area figures to potential buyers, creating the impression of generous space. However, the truth lies within the details: the carpet area, which represents the actual living space, often falls short of the marketed numbers. While apartments tout benefits like common area coverage and shared amenities, the discrepancy between promised area and actual living space becomes a point of contention.
Interestingly, standalone houses offer a distinct perspective on area allocation. The available land area remains a pivotal factor, dictating the potential for spacious living. However, the defining aspect is the flexibility of designing multiple floors. This flexibility enables homeowners to tailor their living space to their needs, effectively multiplying the usable area. The concept of space, in this context, evolves beyond physical land area and encompasses the design possibilities of a multi-story dwelling.
In evaluating these housing options, the reality is clear: area allocation impacts not only the available living space but also the adaptability of the living environment. While builder floors and standalone houses emphasize space versatility, apartments confront the challenge of reconciling marketed area figures with actual living space.
At the forefront, the concept of ROI is grounded in the premise that an investment should appreciate over time, maximizing financial gains. Among the various housing options, land stands out as an investment avenue that is known to appreciate consistently. Unlike other assets, land’s value rarely depreciates; rather, it typically sees steady growth due to factors like population growth and urbanization.
As the population expands and individuals seek to settle in their own homes, the demand for land remains steadfast. This unceasing demand ensures that land value tends to appreciate over time, making it a favored investment option for many. Recent examples showcase land investments yielding substantial returns, underscoring the potential profitability.
Comparatively, builder floors and apartments present a different ROI scenario. While builder floors offer a degree of customization and potential for capital appreciation, the market conditions and locality play crucial roles in determining their returns. Apartments, on the other hand, often come with a slew of associated costs such as maintenance fees, which can impact the overall ROI.
The intriguing aspect lies in the fine balance between expected ROI and the initial investment. While builder floor deals might seem enticing with lower upfront costs, factors like stamp duty, brokerage, and additional payments for amenities can offset the seemingly lower investment. Conversely, land investments tend to hold their value well, even if the initial investment might be higher.
This in contrast with builder floors and apartments, where potential appreciation may be impacted by market conditions and locality. However, the fine balance between initial investment and ROI becomes evident as hidden costs associated with builder floors and apartments surface, such as stamp duty, brokerage, and maintenance fees.
The narrative further unfolds by focusing on the crucial factor of locality. Whether it’s a standalone house, builder floor, or apartment, the value of the property is inherently linked to the area in which it’s situated. This insight resonates with the significance of selecting a property that aligns with one’s long-term goals and lifestyle preferences.
The blog also navigates the dynamic between buying and renting. While renting offers flexibility and reduced responsibilities, buying a property brings the potential for long-term ownership and investment appreciation. However, an eye-opening twist is introduced, an unconventional perspective. It’s proposed that making calculated investments in land might offer more profitable returns compared to some traditional housing options.
Reflecting on the past, a house worth ₹1 crore today was valued at less than ₹10 lakhs twenty years ago. This staggering difference underscores the remarkable appreciation in the value of land. This realization sets the stage for a paradigm shift in understanding investment dynamics.
Consider a scenario where an individual opted for a home loan of ₹10 lakhs two decades ago. Despite the loan repayment of ₹21.5 lakhs over 20 years, the appreciation in the value of the property, coupled with tax deductions, magnifies the returns. Tax benefits on interest and principal payments significantly reduce the effective repayment amount. When the investment is revisited today, the property’s worth has soared to ₹1 crore, significantly overshadowing the repayment.
Comparing this with renting, the same ₹10 lakh property would have incurred monthly rent of around ₹2,500 twenty years ago. Assuming rental rates increased moderately, the cumulative rent paid would pale in comparison to the appreciation of an owned property. Moreover, if one were to invest the saved rent amount over the years, the growth would surpass the accumulated rent paid.
Imagine a scenario where you have the chance to acquire a ₹1 crore house with a favorable locality. The recommendation is clear: seize the opportunity and purchase the property using an EMI plan. By diving into the details, the benefits of this approach become evident.
Taking a loan of ₹1 crore for 20 years might initially appear to result in a repayment of ₹2.15 crore. However, the journey of value appreciation defies this simple calculation. Over two decades, the property’s worth can escalate to ₹5 crore, demonstrating the extraordinary potential of real estate investment. The property’s location plays a pivotal role, as good localities attract demand, ensuring sustained appreciation.
Contrasting this with renting, where monthly expenses are perceived as losses, holds further insights. If you were to invest the monthly rental amount in mutual funds or index funds, the cumulative value after 20 years could surpass ₹3.15 crore. This significant disparity underlines the financial wisdom of property ownership.
Moreover, real estate investment provides a unique avenue for generating capital. Government-issued circle rates, although lower than market rates, have the potential to appreciate over time. Opting for a home loan based on these rates not only facilitates property ownership but also opens doors to additional funding for fixtures and furniture.
The strategic benefit arises when selling the property. The white capital generated through the transaction can be a significant asset for future ventures. This approach capitalizes on the tax-compliant nature of white money, positioning investors to access larger loans, secure appreciating assets, and generate substantial capital over time.
Navigating the realm of real estate investment is a journey that reveals the hidden potential for genuine wealth creation. Beneath the surface of traditional investment advice lies a trove of insights that can transform your financial journey.
The perception of income tax is often simpler than its reality. A stark truth is that tax implications on earnings can be significant, especially as income climbs higher. While many are aware of tax slabs, few are privy to the fact that beyond a certain threshold, additional income charges and GST may apply, resulting in substantial tax burdens.
In contrast, real estate investment offers unique tax planning opportunities. Long-term capital gains in the real estate sector are often subject to lower taxation than other avenues, positioning real estate investors as beneficiaries of favorable taxation frameworks.
The essence of the message is that real estate investment goes beyond accumulating assets; it’s about becoming a real millionaire. Unlike stock markets, where external forces govern fluctuations, real estate puts you in control of appreciating assets. The key player in this scenario is land – a resource whose value has demonstrated consistent growth over the years.
The real estate narrative is illustrated with a practical example. Consider Rahul, who invested ₹10 crores in a penthouse. Unfortunately, a calamity struck, and the penthouse was lost. While the initial investment was hefty, the realization dawns that owning a mere share of land offers resilience. Rahul’s ownership, albeit fractional, serves as a foundation for resurrection. The option to pool resources from fellow owners, over time, reaffirms the potential to rebuild, rendering the investment secure.
A contrasting choice emerges: the option of renting. By refraining from investing a large sum in ownership, individuals can redirect funds into experiences or alternative investments. The example of Rahul’s ₹10 crore investment highlights the potential to spend ₹1 lakh monthly on rent while maintaining financial freedom and mobility.
So if he had invested that money, then he would have had ₹ 51 crores after 10 years. And if he had made the investment here for 20 years, then Rahul would have actually become a millionaire. Rahul does not have ₹ 50 crores, not even ₹ 100. Rahul has more than ₹ 250 crores. So if someone is sitting with a capital of ₹ 10 crores today, he can reach ₹ 250 crores in 20 years if he understands the power of compounding. See, 16% is nothing. This is not even 1.5%. We are not talking about 1.5% monthly average. If any businessman operates today, then he operates at least 2% or 3%. He needs this much on his capital every month. So if someone operates so much, then you understand that if we invest money where and where not to invest. If you want to invest in land, do it. If you want to invest in a flat and floor, I will tell you, you do one thing, you take it on rent, that will be better.
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