In India 50% people living in their own houses, 30% families live in rental houses and 13% People Live in their parents houses. This information revealed by knight frank report. The research was carried out across Tier 1 and tier 2 cities in India.
The more people think before rent a house, is rent is better or taking lease. Maximum people go for rent and even house owners are not accepting lease purpose. They ask tenants to pay rent with as per as their agreement.
ADVANTAGES OF RENTAL INCOME
- House owners get monthly fixed income through rent.
- No worry of income fall.
- Bank FD rates falling so they cannot generate the Fixed income from lease amount.
- Every year 5-10% of Rent increase and the rental income increase every year
- No worry of Water bill, power bill etc
Based on these benefits house owners always choose rent over lease. Really rent a house is more benefit then buying house with bank loan and down payment.
People thin k instead paying rent we can go for own house with Monthly EMI. This is really not a good choice as of my knowledge. My analysis shows that rent a house till you arrange the corpus to buy house.
Just imagine Rs 75,00,000 worth Plat in outskirts of Bangalore can attract Rs 25,00,000 down payment. Investor can go for housing loan from any leading bank and assume interest rates 7.20% (interest rates are too low compare to 2014-15)
He needs to spend Rs 5,00,000 designing and registration & stamp duty cost Rs 5,00,000 and house loan Rs 50,00,000 all including he will go for Rs 60,00,000 bank loan.
- Rs 60,00,000 Loan amount
- Loan tenure 180 months (15 years)
- Interest rates 7.20%
- Monthly EMI Rs 54,602
- Total Interest to be paid for 15 years Rs 38,28,467
- Total repayment amount, Principle + Interest= Rs 98,28,467
Get ready to pay Rs 54,602 monthly EMI for 15 years to become a owner of the house.
As a mathematics teacher I am always calculating what if scenario A & Scenario B.
I choose best scenario to start any planning but the best even can deliver average I am fully satisfy with my decision. Buying a car, site, house rent, Jewells and paying my annual bills.
Mr Prajwal (name changed) live scenario can make you all perfect understanding the case study.
Above Flat Mr Prajwal want to buy in 2015 in Bangalore and he was seeking my advice and I told him to not to take housing loan to buy a house and invest the same and plan for own independent house after 5-6 years. After 2-3 meetings and discussions he agrees to start planning.
He Invested Rs 25,00,000 Down payment in balanced advantage fund as a lump sum and from this every month he want to get Rs 16,000 House rent.
He started his pre EMI for his house, the above Housing loan EMI he suppose to pay today Rs 54,602 he started in Different mutual funds through Monthly SIP.
Mr Prajwal now planning to build his Own house without any loan. Recent discussion as per as his Current investments Portfolio he can withdraw the Funds and Start House Construction
DO YOU KNOW WHAT THE PORTFOLIO VALUE OF MR PRAJWAL NOW IS?
PORTFOLIO 1 Rs 25,00,000 Lump sum.
He invested Rs 25,00,000 In balanced advantage fund and started withdrawing monthly Rs 16,000 to pay his house rent. His current fund value as below.
- Invested Rs 25,00,000
- Monthly Withdrawal Rs 16,000
- Total he withdrawn till today Rs 13,92,000
- Today’s his fund Final value to withdraw Rs 37,59,002
- Fund delivered 12,73% CAGR
He withdrawn Rs 37,59,002 now and kept ready in his bank account to start constructing a house.
SPECIAL NOTE: His Rs 25,00,000 Investments gives Rental income since January 2014 to till date with capital appreciation.
PORTFOLIO 2 RS 54,602 RS SIP FOR PRE EMI OF HOUSE
Prajwal started Rs 54,602 per month SIP in Mutual funds and he withdrawn the all money now. How much he accumulated in his portfolio? Just have a look
- Mount Invested Rs 48,04,976
- Started January 2014
- Monthly Invested Rs 54,602
- Current market value to withdraw Rs 1,09,88,408
- Returns CAGR 21.67%
Now Mr Prajwal Withdrawn RS 1,09,88,408 and kept in his bank account to start Constructing a house.
Now MR Prajwal Accumulated Rs 37,59,002 + RS 1,09,88,408= Rs 1,47,47,410 tp construct his house without any bank Loan. Also Mr Prajwal Not paid any Rent since 6 years from his pocket. Major important he avoided the 15 years of Long tenure EMI burden. That is the reason I kept heading for this article is RENT A HOUSE FREE AND GET OWN HOUSE AS A BONUS
Now Mr prajwal allocated the same Rs 54,000 Sip to his 2 Kids higher education and marriage and his own retirement purpose. Next 10 years again he can accumulated the big corpus and fulfill his all future family needs.
“People Failed to plan not planning to fail” Planning is must for everyone. Plan for your future needs with available recourses, get professional advice and monitor, track and learn the new investments skills from experts. Lead the life debt free. Debt makes us poor not rich.
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M SRINIVASA
AMFI Certified Mutual Fund Distributor
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