How to PLAN and BUY a HOUSE in India? EMIs, loans, build vs buy, construction quality?

hi everyone welcome to today's video so on today's video I'm going to discuss with you whether or not you should be buying a real estate or a house in India if you have made up your mind that I'm going to purchase real estate what are some of the key and Salient points that you should remember and third and finally how you should plan for your dream home so this is the precise piece of information that I'm going to give you in a very practical manner why do I say that because I have had experience of purchasing real estate across three different states in India already you can check some of my videos on the Channel and there are new real estate based videos that I'll be making and putting on this channel so all the information that you seeing on this video it is highly practical it has taken me years to aggregate this information so please press the like button and also in case you are interested in learning about more practical investment oriented stuff I teach courses on wisdom hatch and these courses are live in nature so these are very interactive and you can ask me your doubts questions Etc and so far we have received excellent feedback on the courses and you can check more details in the description box so let us Kickstart our conversation and I will speak in a very easy to understand pointwise format so Point number one or question number one is that whether or not you should even consider purchasing real estate so we will keep the emotional discussion aside but let us speak about practical Finance points and here the first thing that you need to understand is that you should definitely consider purchasing some real estate maybe a piece of land or a house or a commercial property only and only if your portfolio is Big it should not happen this way that your your portfolio size in the stock market is only 1 lakh rupee and then you have taken a 1 rupe loan on buying a house that type of a scenario is very detrimental to your financial health and I will explain that more subsequently but the first key message that you need to understand is that real estate is a wonderful investment if your portfolio size is Big the second key reason to purchase a real estate is that you are getting an excellent deal for example many of times you might see that a lot of people require money immediately but their wealth is tied into real estate so they want to sell the real estate quickly and go away that is called as distressed sale so if you are getting access to some distressed sale and if you can procure that piece of property great for you so definitely go and purchase it even if you don't have massive wealth sitting with you if you can get some loan then definitely go and purchase such property simply because of the fact that you are getting a very good deal now another way when you will be getting a very good deal is and this is something that our parents also used to tell us that you know what you should definitely buy a home because many of times when you are paying a rent let's say that you are paying a rent of 50,000 Rupees and you are paying an Emi on a home loan which is let's say 50 lakh rupees so you are paying equal Emi in both these circumstances if both these things are somewhat equal then it's better to just simply go and purchase that piece of property because that property becomes free for you after a while so why in fact get into that hassle of paying rent and this formula used to work wonderfully well during our parents's time when the rent of the houses used to be much greater than the Emi that they used to pay but in our generation that is not the case so let me outline that by talking a little bit more about practical examples for example right now if you go in Delhi or Mumbai then what is typically happening is that for every 1 CR worth of investment in a property you have to pay a rent of roughly 20 to 25,000 so let's pick an example that if I'm renting a place in Delhi and the total apartment cost is 4 rupees then how much total rent I would be paying in 2022 so that would be roughly around 1 lakh rupe now how 1 lakh rupe simply because I have taken 4 for every 1 I have to pay around 20 to 25,000 rupee as rent this is the usual rate you go and do these scouting you will easily be able to uncover this so if you run the formula this is what you will see that you are getting to rent a place which is worth 4 at 1 lakh rupe a month so the total rent that you have paying is roughly 12 lakh rupees a year and this is on a 4 CR house so if you divide it will come out to be 3 something as rental yield and this is pre-tax so post tax rental yield will be less than somewhere around 3% so which is really really bad in Metro right now so this situation in 2022 looks really bad but if we go to our parents's time then this rental yield used to be much higher so therefore our parents's logic of owning a place used to make a lot of sense but coming back to the topic if you can figure out some properties where this rental yield is good where you are making sensible returns out of it then maybe owning that piece of property might be a sensible thing so just to break apart the formula this is what it should look like that your rental yield I hope you understood the concept of rental yield plus the appreciation of the property this is usually not more than 2 to 3% a year as per the last 10 years data if you aggregate both these things then the total yield comes out to be around 6% now if you can find better opportunity cost of your Capital opportunity cost of capital means that you have an option of investing 1 CR rupe in a property here versus investing 1 CR rupe in some other asset class for example equities where do you think you can make more return Then accordingly take a decision now this formula is not a standard formula that this number will forever come out to be around 6% only it really depends from City to City for example if you are buying properties right now in delhi or Mumbai then this number comes out to be around 6% but if you go to tier 2 tier three cities in India right now then this number will be much much higher so you accordingly need to pick the deal I'm just simply telling you the formula and you can contextualize the formula as per the property that you are buying setting standardized rules in real estate investing is really really bad so which brings us to the next related point that many of times heard arguments from really young people that you know what aat I'm making a salary of 1 lakh rupe and my wife is making a salary of 2 lakh rupees and if we take a home loan Emi and if my wife's salary can be paid in form of the Emi that will take care of our Kaa there and I will use my salary in terms of running our household expenses okay awesome but that is not a logic to buy real estate real estate investing is done as per the specific opportunity that you are getting just because one of the partners salary can pay for the Emi is not a good enough logic to buy real estate because what could happen is that one of the partners might lose their salary there is firing from the job lot of negative things can happen then you're surviving on just one salary and that salary is going into paying your Emi so it becomes a headache for you so please don't get into these type of situations is there a financial formula that I can give you in order to make that assessment the answer is yes and that Financial formula is called as 3 20 30 40 rule so let me quickly explain that now there are multiple variants to this formula but this formul according to me is the most sensible one please hear the entire logic and argument only then refine this formula further as per your need so let me quickly walk you through what the formula says it says that 3 means 3x income of your family so for example let's say that your yearly family income is 10 lakh Rupees then what is the maximum budget you have in order to purchase a house or a property the maximum budget then comes out to be three times of 10 lakh Rupees that is 30 lakh rupees your usual response would be that AA 30 L rupes what will you get you will get like some really bad shop or this that we will never be able to purchase a house okay so in that scenario what you need to consider is that what type of stuff you can already sell for example if you have an existing house probably you could sell that for example you have an ancestral land probably you could sell that for example your parents want to move in with you and they want to sell their house so all that mathematical computation needs to be done but to cut the long story short if you're purely working on salary then please do not be overleveraged by expanding upon this number for example if you make it 10x or 20x that okay yearly income is 10 lak Rupees and I'm buying a property of 1 CR rupe that can prove quite disastrous especially if you don't get possession of the house or if there is some legal dispute that has erupted of the land or building that you have purchased etc etc second key part of the formula is that usually you should prefer taking around 20year loan period so this is fairly straightforward there are different mathematical computations that have gone into this but 20-year home loan period is good third key thing and this is very very important that your Emi payment should not exceed 30% of your entire salary for example if you are making a salary of 1 lakh rupe then please do not take a loan where your Emi outflow becomes more than 30,000 rupees final point is that please have the capability of doing a 40% down payment on a property for example if you purchasing a 1 rupe property then you should have the liquidity of paying 40 lakh rupees immediately as a down payment before you take possession of that property whether or not you should be paying that 40 lakh rupees as a down payment not a down payment it depends on a host of different factors but by using this formula you will be able to financially assertain whether purchasing a real estate from a financial viewpoint does it make sense or does it not make sense depending on your Current financial circumstances now many of you would be hearing this and would get deeply depressed that you know what we have not been able to save that much money we will never be able to own a house no I'm just telling you what Financial facts are Beyond this if you want to take a leverage of 100x also I can't do anything that I make a salary of 1 lakh rupe a year and I want to buy a property at 1 CR so you tell me whether that is sensible or not I'm just simply presenting sensible facts so now hopefully Point number one gave you Clarity whether you should be owning a real estate SL house or not let's move on to point number two that let's say that you have made up your mind that okay fine financially it makes sense for me to buy a house what comes next then you need to make a call whether you should be building a house yourself or you should go to a builder and buy a house from him or her okay so this is a very interesting conversation and I will give you some very quick insights here so first and foremost if you are going via the Builder route that you're contacting a builder and telling them that hey can you show me some properties I want to buy some property this that what is the amount of money that you will lose you will easily lose 25 30% of your money now maybe using the word lose is incorrect because the builder needs to keep his or her profit margin but even if you contact Best of the builders you will at least lose 25 to 30% of the money that you could have saved by constructing the house yourself so this is the first critical point that you need to understand now you might be tempted to say that okay fine if I can save 25% of my money by constructing my house myself then why should I not do it my parents also did it lot of other people that I know have also did it so why should I not be doing that this seems like a no-brainer no it is not no-brainer because now our life has become very very hectic you might be going from office from morning to evening do you have the time to construct a house number two are you okay with understanding the local laws are you okay in terms of doing the leg work to get permissions and whatnot this point becomes especially true if you are purchasing a property outside your city for example right now I'm in Goa and so many of you have contacted me my friends have contacted me that a that help us buy a villa in fact tell us a piece of land we will go and purchase that land and we will construct a villa ourselves okay good luck doing that because there are small small things that you might not know of the classic case and point is that there is a lot of garbage picking problem in Goa if you go and construct a villa in some isolated land and if the garbage people do not show up to your Villa you can construct a 10 CR Villa and you will not even get someone to collect your garbage then what you will have to do you will have to pick up your Mercedes put your garbage in your Mercedes then go and dump it out on the main road so all these are small small points that you must understand before making the decision of purchasing it from a builder or constructing your house on your own practical advice here will be that if you can research on your own if you're good with paperwork you are okay doing that leg work then saving 20 25% of your money by doing your own property makes a lot of sense otherwise simply go with Builders and one very important quick note that will you get Loan in order to buy a flat the answer is yes will you get Loan in terms of buying a land the answer is yes will you get Loan in terms of doing construction on that land the answer again is yes so you can easily get loans for all these three options now depending on your life circumstances you can pick an option either to save money or either to save H by going with a builder so now comes Point number three you would say that okay aat fine I don't want to save my 25% money I will go with a builder now am I completely free if I just pick a good Builder because I'll just Google reviews for fana DEA builder in Mumbai and I will take a look at their five project look at their five star rating and I will go and invest my money please don't do that that is a horrible horrible idea okay so let me break that apart Point number one reputed Builder or going with a reputed builder is a great thing no problem with that but here is the real problem with going with really good Builders also that good Builders do their initial few projects really well and after their few initial projects are done really well once they have made their name in the market what they do is that they mess up with people a classic case in point is okay I will not take the names of the Builder because then I will get personally sued you guys don't even press the like button when I make the videos and I keep getting sued but seriously like the video this is a very insightful point that I will tell you that Builders initially they create their market value and once the market value is created their projects get sold off the shelf right at the construction stage itself please please do your own inspection please don't just simply go by the Builder reputation that is one of the worst things that you will do and a lot of my friends have been ented into builders's Trap by undertaking such projects I have seen few of the biggest builders in Gua right now initially they constructed wonderful properties absolutely amazing properties but by the time they got to their fourth or fifth project the quality of construction went down there was a lot of hassle they started squeezing margin at every single instance while I can't save you entirely from this game what I will typically tell is this that please go visit the property under construction second key point that please buy a property which is at least 50% complete you might have to pay some premium it is completely okay do that it's not end of the world but please don't buy a property which is not at least 40 50% completed otherwise you will not be able to understand what you are getting into please don't simply go by the fact that the Builder is R registered he has created some floor plans and exactly what he or she is telling me on Whatsapp that is exactly how my property is going to turn out no almost 80 90% of the times that is not the case another related insightful point that you must understand is that please check the quality of construction now you might say that akat how do I check the quality of construction okay this is what you do you go find a contractor not a builder find an independent contractor pay him a little bit of consultation charges he might charge maybe 10 15,000 rupee for a day go take that contractor on the construction site and ask them whether this piece of flat or whether piece of villa is being constructed properly or not and what does he or she have to say about the quality of construction you and I as normal people will not be able to figure out the quality of construction but just by paying someone 10 15,000 rupees you will get an estimate of how good the construction quality is so now comes the next question where should you buy the property okay so this is fairly simple that number one you need to go to the previous formula that I was telling you about that go check the rental yield if you are getting some distressed sales great go purchase that property you might be making a very Sound Investment otherwise if you need a general rule then pick a city where you will be living long-term so it's completely okay to buy a property there otherwise just go to tier 2 tier three City from an investment point of view an important consideration to keep in mind is the market cycle first and foremost because real estate market cycle is fairly long so take a look at this chart you will see that the real estate prices kept going down and down and down for almost the last one decade now they have started to come up so I'm hopeful that now the real estate cycle will recover so great time to be purchasing properties right now so this is point one point two when you are purchasing properties my personal advice will be don't buy super expensive properties now the definition of expensive will differ from person to person but given the situation or the world where we live now then usually try to purchase properties in smaller block for example less than 2C is considered to be a decent property now this allows you to resell the property fairly quickly if you buy like a 10 CR property then you will have a hard time moving that property now comes the last point that a what is even the point of getting into this hassle you have taught so many points and it is really confusing me this that so number one Finance is complicated if you're just looking at one minute reels and what not and making a decision whether you buy a property or a stock you are doing yourself a disservice and you're destructing your own wealth this is point one the reason why you should be owning real estate is that it helps you out a lot in terms of your tax planning this is point one it helps you out a lot in terms of preserving your wealth for example a classic case in point is that if you keep your money in the bank account it decays with time every year you are witnessing that the INR is going down by four or 5% compared to US dollar now what about property would a good property get destructed at any point in time the answer is no because it is a hard asset it is a wealth protection asset the real value of a property keeps going up with timey yes there will be periods when a property will not give you very high returns and there can be a stagnation period no doubt about that but it preserves your wealth very similar to Gold the real value of gold has not gone down similarly a real value of a good property has not gone down but the idea there is that you should have access to land if you're just buying stack up buildings or a flat in some building then it might or might not give you enough returns I hope you enjoyed this practical conversation let me know in the comment box are you planning to buy a house did you find these tips and strategies to be useful and I will make a part two which is around buying a car and whether or not you should be buying a car let me know if you would want me to make that video and you can check this video where I have talked about one of my commercial properties you will get a better idea about buying commercial properties

Channel: Akshat Shrivastava

Views: 335,493

Keywords: akshat shrivastava, money making skill, how to be time efficient, make money while sleeping, productivity hacks, build wealth, akshat and zayn, how to get rich, how to build wealth, makingmoney via stock market, real estate, buy a house in india, commercial properties, rental yield in india, investing in real estate in india, tier 1 cities, when to buy a property, reits

Id: USB8ktjlIGE

Length: 17min 32sec (1052 seconds)

Published: Sun Sep 11 2022