Monday, 2 May 2011

Why buy a home?

Guys, Have you ever visited any sites in Pune to buy a property. What's your experience?

I visited few sites in wakad and hinjewadi area and received same comments from most of the developers, "Buy it now, Price will be increasing by 100/200 from 1st of next month." Will it increase at the same pace in future?

If you wanna buy a 2 BHK apartment in this area. It costs from 35 to 50 lacs out of which you need to pay 8 to 10 lacs cash as down payment and the remaining will be paid giving 25 to 30 thousand to bank per month for 20 years.

last Friday, in canteen (@Synechron), we (JEDI Team) were having discussion over it and Hemant sir asked, "Why you want to purchase a flat? You can stay on rent for 20 years and you will end up saving more amount than your flat". Initially I was not agree with him, but then he challenged me and asked to compare it.


So I did some calculations based on below assumptions and created an excel sheet. Download it from here.
  • You have purchased flat on 1st Jan 2011 making 10 lacs down payment and paying EMI of 25000 per month for next 20 years. So in next 20 years you will pay 60 lacs.
  • If you stay on rent in the same area, assuming 10000 as rent for 2011 in this area and 5% increment per year (Hope I am not considering to0 less here). So next year the rent will be 10500 and next to next year it will be 11000.
  • Now if you pay rent of 10000 you end up saving 15000 per month for 2011, 14500 per month for 2012, 14000 per month for 2013 and so on.
  • If you invest your savings in PPF, FD, Mutual Funds you will at least get 1% interest per month.(Hope I am not expecting to0 much here).
  • Doing all these calculations, below is the summary of your savings.
    1. Down payment made : 10 lacs in 2011
    2. Total EMI paid in 20 years : 60 lacs
    3. Total Rent paid in 20 years : 35.4 lacs
    4. Total Saving staying on rent : 60-35.4=24.6 lacs
    5. Total Interest earned on savings : 34.77 lacs
    6. Interest on 10 lacs for 20 years : 30 lacs (minimum)
    7. Total Amount you will save after 20 years : Item number 1 + 4 + 5 + 6 = 1 crore
    8. If you buy a home, you will have it after 20 years. (Don't know what will be its value at that time)
  • For more details and to change the numbers like interest percentage or increment in rent per year, please download the excel file from below location and do necessary changes in details sheet.


Guys, Do let me know your views as I still don't know what will be the price of that property after 20 years. So if it is more than 1 crore, buying it may help.
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3 comments:

  1. gopalbrazil5 May 2011 at 10:22

    very nice and detailed analysis..i liked it..first and foremost the price of your house will surely be 10 times more than what you will save by staying in a rented house. Secondly, your own house is always your own whereas in rented house you have to keep shifting every year(or assume atleast once in 3years) plus dont forget my friend it will help you to a great extent in tax deduction. Pride of ownership is the number one reason why people wish to own their home. It means you can paint the walls any color you desire, turn up the volume on your CD player, attach permanent fixtures and decorate your home according to your own taste. Home ownership gives you and your family a sense of stability and security. It's making an investment in your future.
    - Aage marzi aapki hai dada :-)

    ReplyDelete
  2. Deepak Parkhe18 May 2011 at 09:26

    Thanks for sharing your views... appreciated

    ReplyDelete
  3. Radheshyam Mali22 June 2011 at 03:16

    Fix assets value always increase dear.(my friend purchase flat in 2008. That time, he had purchased flat in 27 lac's.But now that flat's price is 81 lac's). Can u save 54 lac's withing 3 years?

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