Suggestions needed - Rent a house or build a new one?

vasanthz · Posted: Mon Jan 31, 2011 4:07 pm

Hi,

I am in need of some advice regarding the subject title.

In India there is a huge craze for self owned houses for many people... as if it is their life's mission. My sweet mom also has this strange ambition.. but I can't quite see the advantages of building a new house..

Building a house with land takes atleast 30 lakhs(in outskirts). With Housing loan assistance it is 17,000 per month for 20 years.
whereas renting a medium size house in a reasonably civilised area takes 10,000 per month and can stay for 25 years(on that 30 lakhs amount)

Anyway even if I go ahead and build that 30L house on loan in the outskirts, I can't live there since its far away from office and have to rent the newly built house
to someone and get another house for rent in place nearby office.

Assuming that I build the house in 1 year and rented it out to someone at 6,000.. I continue to live in my rented house @ 10K,
effectively I can save 10K - 6K = 4K rupees...

However I still have that 20 years loan on my head to which i gotta pay 17K per month.. subtracting the 4K i save from 17K loan amount, I get
13K of loan per month.

Also there are some other variables in the mix for a newly build house, like if the newly built house is haunted or flooded area or rowdy area or anyother crazy reason..
If I don't like the area I could immediately change the house (for rented home)
For a owned house I can't do that...

So what do u think? I build the house or I just stay in rented house??

Thanks for your patience and thoughts.

enrico-sorichetti · Posted: Mon Jan 31, 2011 7:49 pm

the own/rent for houses is a quite personal issue and rather murky
moreover the housing market and related laws/tax issues are different for different countries
duration of the rent contracts,
tenant protections
legal annual raise of the rent ( state defined inflaction index ?)
loan rate changes ( in some countries it might be an advantage to have a variable rate based on the prime index )
loan interest deduction ( for first house ?)
taxes/deductions and similar

given all the side issues are taken care of,
where,
what,
how,
WORK COMMUTING,
relocation issues ( present and future )...)
legal,
financial

my personal approach ( very quick and dirty ) is ..
start consider buying if You have the money for the initial payment and the monthly loan reimbursement amount is equal or less to the rent

buy/build and live somewhere else should be judged with different assumptions in mind
( some kind of investment ???)

but the above is just my personal point of view

rockish · Posted: Mon Jan 31, 2011 11:26 pm

Vasanth - falling under the same 'South Indian' category, even I am facing the same dilemma ! But my decision for now is to rent a house at my place of convenience and not buy one until I can afford one at a place where I feel home ! (Buying a home in the outskirts of Chennai never excites me for it never gives the feel of living in the old and original Chennai - The Madras)

vasanthz · Posted: Tue Feb 01, 2011 12:13 am

@Enrico thanks for your POV , The loan installments are higher than that of the rent by atleast two times. Which has got me thinking.. Lost some twenty to thirty forehead hairs in the process. (:

@Rockish - I agree with u macha ...building a house is one BIG task with many unknowns.. I will scrap the idea for now..

Thank you,

senjay · Active User Joined: 10 May 2007 Posts: 147 Location: India

Vasanthz,

You are missing a key point here. The amount you pay today as EMI when you buy a new house now (17000) might be a burden now. But after 5 years, when the rent rates are increased, that would be not-so-big-burden. After 10 years, you may feel like you are paying a very little EMI.

I know a friend who is now paying 10k as EMI (for the house he bought in 2004,), where as the nearby house of same size is costing 15k for Rent.

vasanthz · Posted: Wed Feb 16, 2011 11:45 am

Hi,
Thanks for your thoughts.. Its true that the rent rates keeps increasing year on year and I see your point..

btw, 15K rent now? :O thats a lot of money, Im in a big house of 6 bachelors and costs just 7K.

sushanth bobby · Posted: Sun Feb 20, 2011 1:51 am