I always wonder why NRIs buy houses in US instead of buying in India. I want to know buying a house in US is financially beneficial or it's the feeling about owning a house in US makes the people to buy over there. I was in a quest to find that answer and found it. So here I present my findings.
Lets assume I am a guy who has $60,000 in cash. I could either buy a home or rent a house in US. Which option would be beneficial for me after 10 years. Lets analyze each option one by one.
Buying a home:
Note: All values are average and assumed values.
Home Cost - $200,000 Down Payment - $50,000
Loan Amount - $150,000 Loan term - 30 Years Interest Rate - 6%
For this, my monthly home loan premium would be $899.33. Adding home insurance($850/year), property tax($2500/year) and maintenance($2000/year) would bring my monthly total premium amount to $1345 per month.
Total Housing expenses for 10 years = 1345 * 12 * 10
= $161,400
On top of this, adding the down payment($50,000), selling cost($16127) and move in expenses($10,000),
my total investment and expenses on my house would be $237,527.
Home value appreciated after 10 years - $268,783 (3% appreciation per year)
Tax benefits in 10 years - $ 35,876
__________________
Total value after10 years $304,659
Total Gain after 10 years = 67,132 (304659 - 237527)
So total gain is $67132. After 10 years, the remaining loan principal amount is $125799. So deducting gain from this amount gives how much amount I spent on housing to provide the roof for my family.
Total amount spent on housing for 10 years when I own a house = $58,667 (125799 - 67132).
Renting a house and investing in India:
For $1000 monthly rent with $25/month renter insurance and 3% rent increase yearly, the total rent amount paid in 10 years would be
$141,286. (average monthly rent $1177).
The investment amount I have is $60,000 which is used for $50,000 down payment and $10,000 move in expenses.
Most of the properties in major cities in India appreciate 12% each year. Then in this case, my land investment would have gained almost 300% in 10 years ie.
$186,351.
Total amount spent on housing for 10 years when I rent a house = $141,286 - $186,351= $-45065.
That means I earned $45065 while renting a house in US.
Conclusion:
By renting a house in US and investing in India, I will earn $45065 instead of spending $58667 when I own a house in US.
Totally I gained profit of more than $100,000
that is earned amount plus the amount saved on spending.
Addition to this amount, I have additional amount $170 each month ie. monthly owning house expense $1345 - renting house expense $1177). So yearly I save $2040. If I apply 8% compound interest, then this amount will become $31,917 in 10 years.
In my opinion and research, it becomes very clear that Investing in India is the best option.
