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House as investment- traditional and modern perspectives

Posted by radhika I 14 January, 2010 archives 

Everyone likes to own a house and the surrounding also expects people to own a house for status purpose. Buying a home becomes a priority when everyone says you should also own one. But it is always considered as an increasingly expensive and risky proposition rather seen as a long term investment. But do make sure that you buy for the right reasons.

If you’re facing this nerve-wrecking decision and thinking whether it’s a right investment or not, then you need facts, not myths.

Traditionally it’s a fact that home ownership is a great way for most people to build wealth over time. It is a bigger commitment and more expensive than what  most first-time buyers ever realized. Added to it, spiraling real estate prices make people afraid that they’ll be priced out of the market if they don’t buy soon which means most of the first time buyers are always on the pressure stand point while buying a house. Buying a residential property is a good investment because the home is a growth asset. The longer a home owner keeps his property, the more it will grow in value.

In the modern perspective buying a house is considered to be a potential investment because of these reasons,

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1. It is a forced savings plan for most individuals who claim that the purchase of their personal home was the best investment they’ve ever made.

2. In a typical real estate purchase it leverages only a 5% initial deposit, while the remaining amount can be borrowed through bank debt or through other external financial sources available.

3. Inflation resistant is real estate as it holds its value during inflationary periods. It acts as a hedge against the investors other assets that aren’t protective against inflation.

4. Every home owner is provided with a capital gain exemption on amounts earned in excess of cost for their principal residence.

5. It allows control over the asset. Real estate is typically an investment for an individual who has control over by the means of the owner has the ability to increase the value of the asset, which may not be the case in most other investment opportunities.

6. A house also serves as most acceptable collateral while raising any loans.

Traditionally, house was bought with one’s life time earnings, and intention was to leave it as a legacy to one’s children. Currently, young professionals and NRIs are increasingly looking forward to buy a house with an intention to either sell it off later or to earn additional income through rentals.

Analyzing the investment pattern when it comes to buying a house be it traditional or modern, the bottom line is always considered to be a long term investment. Now it is time to decide whether you want to invest in the golden egg which increases the wealth every year.

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One Response to “House as investment- traditional and modern perspectives”

  1. Ranjit says:

    A very informative article that captures the social metamorphosis of real estate from a status symbol to an asset class..

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