How much money should be spent on buying a house?

BossMan · Post by **BossMan** » Fri Dec 21, 2007 3:15 pm

Many R2I'ed people like me could be facing this dilemma. Since home prices have gone skywards in last 3-4 years and dollar has
depreciated by around 15-20%, it is really getting uncomfortable for recent returnees like me who were not wise enough to invest in a home
in India. Since I have come back after spending so many years in US, friends and family members believe I have unlimited money.
Everyone expects me to buy a house that costs well above 1 crore rupees. I want to ask what is the maximum amount one can spend on
a house ( as a percenatge of their total net worth). Let's take an example of someone like me (fairly typical profile of returnees) : guy in
mid-thirties, two kids (5 and 2), wife not planning to work, finds a typical Project Manager job paying about 20L per year.
Assume that my savings are a neat round figure of Rs 1 crores. How much should be spent on a house? Local Indians will go for a home
loan without hesitation, but I am not inclined towards that. Would you be comfortable spending all your savings on a home+furninshing costs?

Please refrain from these kind of replies:
1. It depends
2. It really depends
3. It really depends on how important a big home is for you
4. It depends on blah blah ...

Please put yourself in my shoes, make 'general' assumptions and let me know.

Sincerely,
Boss Man

b2b · Post by **b2b** » Fri Dec 21, 2007 4:00 pm

well it depends.............:emsmile:

but it really depends .............:emsmilep:

It really depends on how important a big home is for you :D

It depends on what you want, what you can afford, how much risk can you take, what are your other needs, financial obligations, tolerance to any reductions in prices subsequent to your buying, your overall AAP....

merry xmas......:emsmiled:

ananth · Post by **ananth** » Fri Dec 21, 2007 5:26 pm

Bossman,

First of all you did not mention your city of r2i. But no matter where you are its better to have your own house. You can rent for 1 to 2 years max, but you definitely need your own house. I do not understand the reason why you are not willing to buy it on loan in case you do not want to spend your savings. You had mentioned that you did not invest in real estate before. But you shouldn't be in the same position 4 years from now.

taan ta taan · Post by **taan ta taan** » Fri Dec 21, 2007 5:45 pm

If I am in your situation I would spend about 35Lakhs for a site (30X40 site) and about 20L for house construction in a decent upcoming layout? and with rest of the money would buy another site for investment and then invest bit of money in mutual fund, long term children education deposits etc? Of course continue to work at least until 50 to 52 yrs. of age and keep saving for retirement until then. :emsmiled:

Others may/may not agree but this is what I would do.

MrLong · Post by **MrLong** » Fri Dec 21, 2007 5:54 pm

r2i success will base upon your community where you live, and everything else that goes along with that..

additionally, there are tax savings on the interest paid towards your home loan etc..

So, with general assumption, shoot for an apartment in a good like minded community, for an amount of 50 - 70 lacs. Pay down 30-40%, and take a loan for the remaining in both spouses names. This will help offset during your taxes end of the year.

DosaiLvr · Post by **DosaiLvr** » Fri Dec 21, 2007 5:58 pm

taan ta taan;66291If I am in your situation I would spend about 35Lakhs for a site (30X40 site) and about 20L for house construction in a decent upcoming layout… and with rest of the money would buy another site for investment and then invest bit of money in mutual fund, long term children education deposits etc… Of course continue to work at least until 50 to 52 yrs. of age and keep saving for retirement until then. :emsmiled:

Others may/may not agree but this is what I would do.

[/quote]

I agree and have expressed this in this or another forum that I sometimes visit.

If the satisfaction derived in owning a primary residence is of lower priority, I'd just invest all the money - in RE (non-residential purpose) or other (stocks, bonds, fund, etc.)

Mel · Post by **Mel** » Fri Dec 21, 2007 7:26 pm

The very act of starting a thread on this to me indicates you are not comfortable buying a house with a huge amount of your money. Seems like you already have the answer you are looking for. Now the question remains, do you want to buy a "small" house or a house say within 50L that would make you comfortable OR simply rent till you are ready.

What does your wife think? Does she want a big house? Is she okay with the concept of renting for a while? How about renting for several years?

r2iks · Post by **r2iks** » Fri Dec 21, 2007 7:43 pm

If your money is sitting in FD or savings, its not earning much. If you have it invested in shares/bonds then its a different issue.
But still, when you have that much money and a good, regular income, why not have your own house and enjoy. Satisfaction you get from staying in your own house is amazing.

Going_nowhere · Post by **Going_nowhere** » Fri Dec 21, 2007 7:52 pm

If your savings are to the tune of 1 crore rupees, I'm assuming its cash since you didn't specifically say "net worth". So under this assumption, I think you should put upwards of 80 lakhs in a good apartment in a good area. Since you're a family of four, I'd even go for a larger apartment (4 bedroom) even if it costs me more than 1 crore rupees (taking a loan).

My reasoning behind buying a larger apartment is that builders are no longer constructing bigger apartments due to lack of buyers. So if you bought a larger apt, it'll command a price premium when and if you sell it 10-15 years down the line when the Indian economy will be firing on all cylinders and there'd be mega millionaires wanting lifetsyle apts.

Don't think too much about "crore", a crore will mean nothing in another 5 years from today. Make sure you live in a metro since metro apts will always command a preimum and any temporary slowdown in the economy will not adversely impact metro real estate prices.

Good Luck.

BossMan · Post by **BossMan** » Fri Dec 21, 2007 8:00 pm

Mel;66309The very act of starting a thread on this to me indicates you are not comfortable buying a house with a huge amount of your money. Seems like you already have the answer you are looking for. Now the question remains, do you want to buy a "small" house or a house say within 50L that would make you comfortable OR simply rent till you are ready.

What does your wife think? Does she want a big house? Is she okay with the concept of renting for a while? How about renting for several years?[/quote]

No, the question is how much of money (as a percentage of net worth) should one spend on buying a house. It is definitely a function of one's age, # of dependents, current salary and of course bank balance. That's why I provided some details. I am more interested in an answer from R2I crowd because locals in general are very bullish and everyone seems to think buying a house, no matter how expensive, would still be a good decision. I have also met numerous people who almost guarantee that their favorite mutual funds will return 40-50%. Being a person with background in finance , this level of bullishness makes me distinctly uncomfortable.
And yes, the wife wants a very big house (like a palace). This is where it all started in the first place!