Sanjay and Akshay began their corporate careers together. They both dreamed of owning a luxury car.
Their salary had increased significantly in 2017.
Sanjay was considering an Audi A4. Sanjay decided that now would be a good time to purchase the Audi because he could comfortably afford the EMI. The car would cost him 41.5 lakhs.
He applied for a car loan for 80% of the car’s value for 5 years with a 20% (~8.3 lakhs) down payment. Each year, he spent almost 8.2 lakhs on EMIs.
Akshay had different ideas. He did not want to go for a luxury car right away. He purchased a high variant of Maruti Swift Dzire for 8.3 lakhs approx. He invested the 8.2 lakhs each year, that Sanjay paid in EMIs, into the Nifty index over a five-year period.
Sanjay finished repaying his loans at the end of 2021.
At the same time, Akshay was hoping to purchase the identical Audi A4. Today, he would have to pay 46 lakhs for the same car.
However, considering the post-tax returns from the nifty over the previous five years, his assets had increased to roughly 58 lakhs.
Without taking out any loans, he was able to finance his dream car and had an extra 12 lakhs or so.
In these five years, Sanjay’s car value decreased by 50%. In a few years, he should start looking for a new vehicle.
He is currently unable to escape this lifestyle trap and is once more considering taking out EMIs to buy a new luxury car. This cycle goes on.
Planning and Patience pay off in the long term.
#luxury #Merc #Benz #Patience #planning
For one to decide on buying a second home, let alone the first, a self-enquiry will be the first step.
A few of the reasons usually are:-
- As and when the family grows, one needs to look for a larger home.
- Choosing to be near work/school.
- Well-planned and Conscious Upgrade of lifestyle.
- As the family nest becomes empty, wanting to move closer to relatives/children. Hence need for a change in location.
Unless there are valid reasons supporting the purchase of a second home, it should be viewed at par with other investments like Equity stocks, Mutual Funds, and NPS (Tier I and II).
If one decides to buy a house as an investment, there are a few questions to ask oneself:-
- Will the rental yield from the investment justify the purchase?
- Will one be able to take care of the maintenance of the property without much hassle?
- Who will look after the house, when one moves to another location/country?
- Will the next generation have an interest in the property?
- Will one be able to liquidate the investment as and when required?
- Will any other investment give better returns without the overheads of owning a real estate property?
Before purchasing a home for investment, it is always better to compare it with various other forms of investments and then arrive at an informed decision.
#secondhome #investments #homeloan #realestate