Rent or buy a house? The Dos and Don’ts of Residential Property Investing: Manage Your Money

What’s better – living on rent or buying a house? Is the mortgage a viable option or is it better to accumulate wealth to buy cash? Manage Your Money talked about the pros and cons of both, buyer protection laws, investing in real estate for rental income, among other areas related to investing your money in residential properties. The Indian mentality is usually around “roti, kapda aur makaan” and this, in a way, acts as a psychological support when it comes to investing in residential property, said Ramesh Ranganathan, CEO of K Raheja Corp Homes, during a keynote at Your Money.

“There are several merits to owning your own home. First, it brings systematic discipline to investing over a period of time. And if invested smartly, the right kind of project also acts as a hedge against inflation. So I strongly believe that owning an asset is something one should start early in their career,” he said.

Watch the full conversation here:

While this is true for most Indians, according to Magicbricks India Rental Housing Update, total rental housing demand (searches) across 13 Indian cities jumped around 15.8% QoQ. (QoQ) and 6.7% year-on-year (YoY), while cumulative rental housing supply (listings) grew 30.7% quarter-over-quarter and 101.5% year-on-year across cities charted, from January to March 2022. “Buying a home is a lifelong commitment and renting gives you a cushion until the time comes when you can make that commitment,” said Amarendra Sahu, co-founder and CEO of NestAway Technologies Pvt Ltd.

Read more: Demand for rental accommodation in Indian cities increased by 15.8% quarter-on-quarter in the first quarter of 2022: report

When is the right time and the right way to invest in residential real estate?

Investing in residential real estate versus renting a home has been an ongoing debate for years, but a list of real estate investing do’s and don’ts seems like the right way to go.

Good investment time

When looking to buy a home, consider one’s “disposable income so it doesn’t become stressful” for buyers. Amarendra Sahu added, “Buying a home is a grounding experience. I would say pace yourself; when you go to buy a house and make sure you have enough cash. However, as Ramesh Ranganathan has argued, the current generation has higher disposable income and is able to invest in real estate much earlier than previous generations did.

The right kind of investment

“From a financial planning perspective, we recommend that IMEs be limited to 30% of your net income. If you opt for 50% or 60%, your other important financial goals are affected. Also, go for 30-40% down payment,” said Mrin Agarwal, Founding Director of Finsafe India Pvt Ltd. In addition to rationalizing this, one must look at the location of the property, the accessibility of the property to basic public amenities, the builder one is buying from, the quality of management of the company, if it is of a heterogeneous society, etc. while making the final investment decision. Also, after the pandemic, buyers started looking for larger spaces and also open green spaces around properties. “The value of space is really appreciated now and also, delivering the experience of the urban forest is the effort that is truly being made by developer communities today,” said Ramesh Ranganathan.

The right way to invest

Once you are clear on the type of investment you want to make, where you want to live, etc., a major check mark to look at is due diligence documentation. “I don’t agree with the mindset that people think it’s safe to invest in a property once the bank has already approved the loan. There are various other factors to consider when buying a house,” said Mrin Agarwal. Moreover, it is also very important to have insurance aligned with your home loan, in case one goes for a loan. “Indians do not are mostly uninsured and they see buying insurance as an extra expense, especially when they buy it for loan purposes,” she added.

Fair expectations of the investment

Once you’ve invested in a property, you need to set the right kind of return expectations. “Don’t expect 25% returns in residential real estate because that’s not happening given rental yields and capital appreciation,” Agarwal said. Adding to the same, Ramesh Ranganathan argued that if one is planning to invest in residential property for rental income, it is wiser to invest in commercial property instead.

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