Original Question: Is it wise to buy a 1.5 Cr flat in Bangalore for a recently married 28-year-old? I have 25 L invested in stocks and receive around 2.5 L monthly. Should I continue with my investments?

If the house becomes 2.5 times its value in 10 years, only then would it make financial sense.

Let’s see a 10 year horizon and crunch the numbers.

For buying a 1.5Cr house:

  • 30 Lakh down-payment is required (20%). Let’s say you invested that stock money and got the rest 1.25 on loan somehow.
  • Let’s take the loan tenure of 15 years. 1.25 Cr
  • The EMI at around 8% would be Rs 1,20,000 per month
  • Let’s say you save your rent amount, or give it for rent which saves you about Rs 40,000 per month
  • You save taxes on the loan as well. Max about Rs 5,000 per month
  • Your net monthly spent: Rs 75,000. This translates to 90 Lakhs over 10 years with you owning 66% of the house. This EMI would not be an issue in terms of your expenditure as you earn 2.5L every month.

Now, had you not bought a house, spent this entire amount in stocks here’s how it’ll go in 10 years (assuming 12% returns on stock):

  • The initial amount of Rs 25 Lakh would become 77.6 Lakh
  • The SIP of your monthly spent of 75,000 at 12% would become: Rs 1.74 Cr
  • So the number to beat is Rs 2.516 Cr after 10 years.

Now since, you still have 5 more years to go for EMI at this point you own 66.6% of your house. That 66.6% should be better than Rs 2.516 Cr for this decision to make financial sense! That means your house should be worth Rs 3.77 Cr!!!!

So, for it make financial sense to buy a house, the house should be worth 2.5 times in 10 years!!!

Here’s the kicker, houses in a good case scenario grow at about 5% every year. So a more realistic value would be Rs 2.44 Cr. You’d lose about Rs 1.3 Crores in ten years if you buy a house!

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