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I am 25 year old Indian in the beginning of my career i.e this is my second year after entering the workforce. I am working in Japan.

My salary does not leave much extra after my personal expenditures. But I do have a savings plan which I am investing 1/3rd of my salary every month. I do not have any student debt.

Now my parents are insisting that I buy a house in India on loan in the next year. Their reasoning is that, since I am paying for their house rent, if I could divert it to pay for the loan I can get a property in return. I understand the logic behind that. But I am scared of getting into debt so early in my career. If I commit myself like that, it might make me less independent in making career changes till I finish paying off that debt.

My question is, is it a smart thing for an entry level employee with a basic pay to buy a property on debt ? Should I wait a few more years to save up money and then think about property ?

2 Answers2

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is it a smart thing for an entry level employee with a basic pay to buy a property on debt ?

This is opinion based and can't be conclusively answered by others. Only you can make the choice.

Their reasoning is that, since I am paying for their house rent right now(I have been doing this ever since I got into graduate school), I could divert it to pay for the loan while getting a property in return

If I understand this, you are currently NRI [as you are working in Japan], you would like to take a home loan in India and buy a property in India.

In the current scenario, the EMI towards home loan do not equate to the Rent as property prices have gone up in most places. In 2002 - 2007, there was a time of low interest rates and low property prices, that along with tax breaks made it cheaper to buy than rent.

Also note that since you are NRI, you do not get any income tax rebate on interest paid. If you buy please ensure that all the EMI's are paid from NRE account. This would in future help you repatriate funds out of India, if you plan to sell the house.

But I am scared of getting into debt so early in my career. If I commit myself like that, it might make me less courageous in making career changes till I finish paying off that debt.

This is a valid concern, if you need to pursue further studies, or take a break for a change in career, it would make it difficult. Also note there are additional costs of buying a house, apart from EMI, there property tax, if you staying in society, a monthly maintenance etc.

Dheer
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I would strongly consider renting; as homes are often viewed by people as "investments" but in reality they are costs, just like renting. The time-frame for return is so long, the interest rate structure in terms of your mortgage payments; if you buy, you must be prepared to and willing to stay at minimum 7-10 years; because anything can happen. Hot markets turn cold. Or stale, and just the closing costs will cause it be less advantageous to renting.

Before buying a property, ask yourself does it meet these 5 criteria: IDEAL

I - Income; the property will provide positive cash flow through renters.

D - Depreciation; tax savings.

E - Equity; building equity in the property- the best way is through interest only loans. There is NO reason to pay any principle on any property purchase. You do 5 year interest only loans; keep your payments low; and build equity over time as the property price rises. Look how much "principle" you actually pay down over the first 7 years on a 30 year mortgage. Virtually Nil.

A - Appreciation - The property will over time go up in value. Period. There is no need to pay any principle. Your Equity will come from this... time.

L - Leverage; As the property becomes more valuable; you will have equity stake, enabling you to get higher credit lines, lines of equity credit, to purchase more properties that are IDEA.

When you are RICH, MARRIED, and getting ready for a FAMILY, then buy your home and build it.

Until then, rent, it will keep your options open. It will keep your costs low. It will protect you from market downturns as leases are typically only 1 year at most. You will have freedom. You will not have to deal with repairs. A new Water Heater, AC unit, the list goes on and on. Focus on making money, and when you want to buy your first house. Buy a duplex; rent it out to two tenants, and make sure it's IDEAL.

McFlySoHigh
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