Published Article Details

Should one buy house as an investment?

Posted by: Arti Bhargava on Apr 02, 2018, 06.30 AM IST

Sameer is a single marketing professional. He has never got around to planning his finances or saving except for the mandatory investment in provident fund and for tax saving purposes.

In the past he has sometimes splurged recklessly, running up huge outstandings on his credit cards.

He is now slowly shaking off this habit. His family feels that he will make better use of his income if he has a long-term investment in the form of a house. Is that the way to go for Sameer?

Sameer’s decision to buy his first house should be based on his need for it and his financial readiness to service a large commitment. Since he lives with his parents, there is no immediate need to buy a house as there will be no saving on rent involved. It will also not add to his financial well-being at this stage. Therefore, it would be best for him to buy a house when he is able to evaluate his needs and proceed accordingly.

Moreover, he needs to consider how he will fund the purchase of the house. Given his lax saving habits so far, he may not have sufficient funds. Will his parents be able to support him with the down-payment? If Sameer were to opt for a loan, his credit profile may prove to be a hindrance. He may not get a good interest rate due to a bad credit score. Also, before committing to the EMI and a home loan, he needs to be sure that he will be willing to service the debt, month-on-month. Is he ready for it?

Alternatively, in order to mend his high debt and lax credit ways and to encourage long-term saving, it would be best if Sameer commits to an investment plan. An SIP would be recommended. It inculcates a sense of financial discipline, but with a bit of flexibility as per his needs. Real estate as an investment will be suitable for Sameer only when income and cash flows are not a constraint.

The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.

This article appeared in Economic Times dated Apr 02, 2018, 06.30 AM IST

Online Courses

Financial Planning
Basic Level

People are discovering how financial planning can help their money grow and prepare for a more secure futur

Financial Planning
Advance Level

Learn how to measure investment performance through analysing Returns on Investment (ROI) through this onli

Financial Planning
Advance Level

Understand the nature of investment risk with our course on measuring investment risk and how to manage it.

Financial Planning
Advance Level

Learn to construct portfolios and the techniques used to allocate assets across classes and manage risk.

Financial Planning
Intermediate Level

Learn to invest based on investment goals and objectives through our Intermediate course on Mutual funds.