BUY or RENT a House in 2021 | CA Rachana Ranade - YouTube

And Bittu didi, how are you?

I'm fine how are you

Hey, I am very bored with my job in life.

Why?

nay yarr not fit

should I give a solution?

Tell me, that's why I am sitting

if you don't like your job take a home loan

you will start loving your job.

oh hahaha...

hey it's Rachana Ranade here and I welcome you to another brand new video

on whether to buy or rent a house from a 2021 perspective

what is difficult is to take this decision of buy or renting a house

but what is a very easy decision is to decide to smash the like button

So what we are going to do is we are going to track three different perspectives.

the very first perspective is going to be the emotional angle of buying the house

the second angle that we are going to take is the financial angle which will be like

a practical angle

before you take this decision

and the last angle is 2021 special perspective

that you should take into consideration before taking the decision

well just wanted to inform you that we have also started a weekend special blog on our

website

rachanaranade.com

that would be a place where you will get more and more financial information

and that too in a very simple format

since childhood, we have been taught that roti, kapda, Makan

that is nothing but food, clothing, and shelter

is what we require to lead a lifestyle

now the shelter.

the shelter is nothing but the house.

a home to live in

but you know our Indian mentality is something like

that house should not be a rented house

that house should be an owned house

which will give me absolute comfort and luxury when I stay in it.

and what else anyone from our school friends or college friends you have contact them

do you remember that sam

Haan Haan Haan... yes

what happened?

just bought a new house.

really!

yaa it is a duplex

4000 square feet area with big balcony

same flat I want

what happened?

I want that toy.

but why?

because my friend has it.

just because your friend has it doesn't mean even you should have it.

ok

now the third point which I feel one can consider while buying a house is

a change or step up in the lifestyle.

Now I will tell you my own case

where I use to stay earlier it stand-alone building and the biggest

luxury, the biggest amenity that we had was

we had a watchman for our society that was the only amenity that we had

so now at one point of view, we thought that.

if we could afford a little bit more then why not go in

for a better place to live which has my own parking

I don't have to search for parking the moment I go back home

I have a good security

I I...

if I have additional analities like a swimming pool, a zamnesium

kids area for my child to play.

So why not?

So every person who feels that I should step up

my lifestyle a little bit considers this from an emotional angle

while deciding whether to buy or rent a house

I hope you have understood all the emotional angles

attached to buying a house, but the problem with buying a house

is like it is very similar to drinking water from a Miraj

The closer you go to it the goal goes much further

So the big decision is whether I should take that risk whether

I should go that one step ahead and buy it right now or not

requires a financial angle, a logical angle rather than an emotional angel

so that's what we are going to cover in the next part of the video

so let's consider the scenario that you are going to stay in a specific city or in a specific

locality for the next 15 years

so, here you are with a decision that for the next 15 years should I stay in the rented

house

or should I stay in an owned house? that's what

the calculation you are going to see on the screen this is going to will help you

to take a decision for that.

ok

so assume that the monthly rent for the house that you are looking at is 20000

Typically, you know, today, in an above-average locality for 2 and a half BHK, this is what

It would be very nominal rent 20000

Now assume that you are into the 30% tax benefit, 30% tax lay by me.

so what will be the benefit of it the benefit for is that whatever rent you are paying

that will get an HRA benefit

so HR is House Rent Allowance benefit

so your effective rent payment is going to be net of taxes

so your effective rent net of taxes will come to 14000

so the 20000 minus 30% of 20000 which will come to 14000

now if I take it on an annual basis

14000 multiplied by 12 so, on an average

for a year entire year you are going to pay 1,68,000 as a rental amount

ok now let's assume that

the average annual rental increment is 7%

so every landlord will typically tell you that

you know next year the rent will be increased by 5% or 7% or 10% depending on the locality

we have taken 7% as an example

if that be so then the total rent for the period

which will be 15 years, you will be paying 42,21,676 Rs.

as a rental payment

right so let's come to the second option which is buying a house property.

well we are considering the same house property, ok

is either available on rent or for buying option

so now assume that the cost of the property is 75 lakhs

and if you want to buy it assume that you don't have much money and that's why you are

going to take a loan for that

typically you get an 85 to 90% loan

from the bank so you have to do a down payment of either 10% or 15% or

a little bit more or less

so we have taken 15% as the down payment amount

with that, your down payment will be 15% of the 75 lakh.

Right!

now how much will be the loan amount obliviously 75 lakh

minus 11 lakh 25 thousand will be your loan amount.

right now what we have done is we have taken the interest rate at 7%

ok

assume that the loan duration is also 15 years because

it should be the same if I am comparing rent 15 years

the loan has to be for 15 years so it becomes comparable

ok, now your

EMI will come up to

57,300 now, how is that because there is a formula like

PMT it's an excel I am not going to explain the entire formula right now

but I will tell you where you can get this excel sheet after the section is over.

So,

stay tuned till then ok

The next one that we are going to consider is the tax bracket

tax bracket we will keep it same again for rent option we had 30% same here 30%

with this now let's understand that the effective rate of

interest for the loan is going to be 4.9% now how on the arc is 4.9%

because 7% was your interest rate

you are going to get a 30% tax benefit for that and that's why your effective rate

of loan is going to be 4.9%

and with this, your effective EMI will turn out to

50,082 again the PMT formula from excel.

Right

now we have to understand how much the total interest you have paid over the period

how much will that be?

your total interest is going to be nothing but your entire EMI amount

OK, the EMI amount multiplied by 12 will be the yearly EMI

yearly amount I mean

multiplied by 15 so that will give you the total EMI paid

minus the loan amount

OK, total EMI amount which will include principal plus interest

minus the principal amount which is the loan amount

what remains is the total net interest paid for this period.

OK

so hope this point is also clear.

now going to the next one assume that you will have to pay some maintenance

and I have taken it as a 0.35% again it can depend can vary from locality to locality

with 0.35% your amount of maintenance

comes up to 2188 rupees

now, of course, every single society will keep on increasing the maintenance

we have taken an increase in maintenance at 5%

OK and with this your total maintenance over the period.

How much?

15 years will come to 5 lakh 84 thousand 695.

now pay attention

so what is your effective total cost of buying the house?

number 1: it was the total cost of your property which was 75 lakh.

number 2: the interest on loan effective interest on a loan that you paid

and number 3: the maintenance cost that you paid for the period of 15 years.

renting the house basics, done clear

buying the house basics done clear.

nowhere comes the most important part which is related to the decision making part

so focus

now if I decide to go actually ahead and go ahead with the renting option

what will happen?

will I save on the down payment?

obviously, yes my down payment was 11 lakh 235 thousand.

if I decide to go on a rental basis

what will happen the monthly EMI that I was paying the effective EMI

which I was paying remember this 52 thousand 082

that was the effective EMI I was paying

that I will save but wait

because you have taken the rental option you will also pay the rent.

so what is happening

50 thousand EMI is saved.

but 14 thousand effective rent that also what I am giving.

so what is the effective monthly saving for me?

is 50000 minus 14000 which is coming up to 36000

OK so lump-sum 11 lakh 25 thousand saved and monthly saving is 36,082

now assume that this amount an investing and I am able to generate.

on an average a 10% CAGR for the next 15 years

what will happen?

The value of the down payment saved with 10% CAGR will go up to.

50,10,659 after 15 years, at the end of the 15 years

and this monthly EMI saved because every month it is going to get added up plus it will

go on generating returns

this value of monthly 36082 will go up to 1,49,54,766 Rs.

this is nothing but normal future formula.

OK.

So, what will be your net benefit of renting a house? let us understand.

the net benefit is going to be nothing but the number 1: the value of down payment saved.

number 2: the value of EMI saved but.

minus what minus the total rent paid.

So that is what we have done.

value of down payment saved plus the value of EMI saved minus the total rent for the

period.

now that you have understood the basics of renting the house vs buying the house.

here comes the grand finale.

let's understand this point very carefully.

assume that you have bought, we have already assumed that we have bought the house at 75

lakhs.

assume that you will get appreciation on the house property.

The appreciation on house will be 6%

OK is that my assumption yes, can my assumption be different?

yes like

you remember my assumption for return on investment was 10%.

similarly here is my assumption is that the property is valuable appreciated by 6% OK.

if this happens then over a period of 15 years again this is a normal FV formula, future

value formula.

with this my property of 75 lakhs.

with a 6% rise in property

the property value after 15 years will be 1,79,74,186 Rs.

now what will be the net benefit of buying the house.

there will be nothing but future property price minus the original cost of buying it.

original cost is the total cost of buying it.

which included what?

the original cost of buying it

plus interest amount plus maintenance amount.

right?

so 179 1.79 crores minus 1.07 crores that comes to

the net benefit of 72,49,000

but what was the net benefit while we took the renting option?

It was,

1.75 crore work of net benefit.

OK.

So, is this a very easy decision for you?

Yes

The net benefit for renting a house is 1.57 crores net benefit of buying a house is 72

lakhs.

so our final decision comes up here, Tada which decision is better?

Renting the house.

well, we also have a formula hereof if and then, for you to make a very easy decision.

I show you quickly, how the decision changes?

if you feel that the property rise in your area where you are staying will not be able

to not 6% increase

you believe that the property might rise at 9%

OK.

Now with this, if you just change it to 9%

which decision is better?

Buying the house/ We have given everything for you.

S, let's come to the 2021 angle that is the taxation angle.

if you have opted

for the new tax Regine, remember that we have taken that

an example that you are in the 30% tax lap and assume that also you are a salaried person

in that case, whatever rent you pay, you will get an HRA benefit for that number 1

number 2: And if you have taken a loan then the interest on the loan also you will receive

as a deduction

But if you are under the new tax Regin neither HRA nor interest on self-occupied house property

None of these you will get as a tax benefit.

So, before you make your decision

remember both these points if you are under the new tax Regin

well, I hope you have enjoyed this video and understood what things are to be considered

before buying a house

or renting a house

if you have liked this video don't forget to share it with your friends till then take

care, Jai hind and bye-bye