Home Truths. The novice asks, the expert answers

- Ek-shy Buyer

Real estate analysts — who are brighter than astrological stars — predict that like the summer temperature, home prices will go up. But then again, that has been the prediction since 2012. Eventually, it will become true and they will be right.

Buy when prices are low as it is a steal; buy when prices are shooting up, as otherwise you will miss the chance.

Given that this is the general advice on housing, it may seem that you have committed a mistake. But trust me, you did no wrong, because returns from property have slowed down and things are not going to improve in a hurry.

If you do not trust me, hear what Meenakshi Shekhar, a financial advisor with Transcon Developers, has to say: “The appropriate time for a first-time home buyer to invest in property will depend totally on the individual’s profile and the scenario of the local property market.”

So buy only when you are comfortable, no matter what enticements in the form of freebies are thrown in. It is a big-ticket item; so take your time.

- Down Under

Typically, you need about 20 per cent of the property value as down payment. You also need to budget for stamp duty and registration charges, plus any other expenses for the new home — wood work, furniture and fixtures.

If you do not have that, no problem. Mutual-fund savings stars are favourable to you. Looking at your money trail, I see that you have been saving through SIPs over the past five years. You can liquidate this for down payment. Should you consider withdrawing money from your provident fund or other retirement savings accounts? That’s not such a bright idea; the retirement corpus must remain untouched as far as possible.

If you prefer to keep the savings, as it may be towards some financial goal, you can take a secured loan. For example, if you have life-insurance policies which are not pure-term plans, you may get a loan against those. The loan amount will depend on the premium already paid.

- Loanly Buyer

Typically, the home loan you get is based on your work-karma (aka salary) and home-karma (also known as household expenses). For a 10-to-15-year tenure, you will qualify for a loan that is 40-45 times the monthly disposable income. My crystal ball shows a chunky number for you and I see that you have enough liquid assets to make a larger down payment.

There are a few reasons why you may want to maximise your loan. One, interest payment on the loan for your primary home is eligible for income-tax deduction. Two, if your money yields good returns, you may want to let it continue and fund your home purchase with a loan.

On the other hand, there are a few reasons why you should minimise your outstanding loan. One, if your job or other financial situation is dicey, you may find it difficult to manage EMI payments. Two, if your money is either idle or you tend to spend it, you may be better off paying down your loan.

In your case, finances are stable and your current investments are doing well; so you can go ahead and take a larger loan.

- Second-a-Bad

Owning one or more homes may be like opening a demat account — exciting and easy. But what risks can you take and what returns can you generate? Also, unlike financial assets, maintenance is another aspect that you must factor in.

I see in the magic mirror that this house is quite old and not something that can give good rental returns. It may require spending money for upkeep as well, and my visions are of a money pit.

The rule is the same for any home investment — do your research on price appreciation and rental-return potential as well as risks — whether you buy or inherit.

If the risk-reward is not favourable, pass on the investment, or in this case, sell, and invest in something more suitable.

The writer is co-founder, Rana Investment Advisors.

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