Money Guru: Should you buy a house of continue staying on rent? Expert decodes

Money Guru: Are you planning to buy a house but confused about whether to take a loan and pay EMIs or continue with a rented arrangement? Which of the two options are better whether to stay on rent or pay EMI?  Expert Firoz Aziz, Deputy CEO of Anandrathi Wealth Management gives some useful insights in a chat with Swati Raina during the popular TV Show 'Money Guru'.

Planning to buy a house?
Buying a home is one of the important goals. One can buy the house for self-sustainability or can also buy the house for investment purpose. But keep in mind that buying a house and owning it is not an investment. Rather, the house from which the income is received is called investment.

Buying a house for investment?
Asset Class               Year                    Return
NIFTY 50                5 Years                  11.89%
Real Estate             5 years                   3%
NIFTY 50               10 Years                  12.93%
Real Estate            10 years                   7.2%

Want to buy a home with home loan?
One can buy a house by taking a home loan. Home loans are available from banks, and financial institutions. Every bank has its own home loan rates. When the repo rate increases, banks also increase the home loan rates. As home loan rates increase, EMI also increases.

Is it better to live in a rented house?
By staying in a rented house, one can invest money. Instead of taking a loan and paying an EMI, a person can choose to invest that amount. The person can earn regular income through Systematic Withdrawal Plan (SWP) by investing the money which one can save while staying on rent.

What to keep in mind while taking home on loan?
While taking a home on loan, it should be kept in mind that some amount should be set aside for emergency needs. Apart from that one should keep the amount for the house only up to 50% of the portfolio. Adding, keep in mind that the EMI of the house should not exceed 50% of the income. The annual rent of the house is correct only if it is at 2-3% of the property value.

Home On Loan       -       Mumbai
Income                           Rs 1.25 lakh
Loan amount                  Rs 70 lakh
Loan tenure                     15 years
Loan Rate                        7.40%
EMI                                 Rs 67,494
Stamp Duty @ 8%          Rs 5.6 lakh

House on Rent      -         Mumbai
Income                              Rs 1.25 lakh
Property value                   Rs 70 lakh
Duration                             15 years
Return(estimated)              12%
Rent                                   Rs 20 thousand
HRA                                   Rs 4,000

EMI vs Rent
- After 15 years property worth Rs 70 lakh will be Rs 1.56 crore at 5%
- Investing the EMI amount, one could make 12% to Rs 2.80 lakh
- Going on EMI will result in loss of Rs 1.31 crore