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.
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.
You are not taking into account tax savings due to home ownership. Mortgage interest is deduct able. Further, you are also not counting in the satisfaction of ownership. Home, if it turns out to be a good investment, is a bonus; far more important is to live in your own home gives you a sense of ownership and pride.
ReplyDeleteI have included tax savings in my calculation. I really understand the feeling of owning a house. Nothing can replace that.This is just about calculation.
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