Home Loan vs. Financial Freedom: What You Should Know Before Buying | Financial Freedom - 8

Home loan burden that reduces financial freedom. Can I buy a house with a home loan for rental income?


Home Loan vs. Financial Freedom: What You Should Know Before Buying


We have seen some of the safe investments in movable assets in the previous sections. Now let's look at the main income that most people invest in movable assets and get passive income.

Own house..!

Many people dream of buying their own house. Some of them build or buy houses and rent them out to generate passive income.


According to the proverb "Elephant eats when moving, house eats when not moving", building a house is an investment that attracts a lot of capital. Therefore, before buying a new house for rental income, we should ask various questions and research carefully and make decisions.


We should find answers to important questions such as the price of the house we are going to buy, who is the builder who built the house, how much is our UDS (Undivided Share) in the house we are buying, how much will it cost per square foot if we buy land in that area (Guideline Value, Market Value), and how much income will we get if we rent such a house in that area.

We need to make sure that we have bought the house at the right price.


Is the price of the house correct?

You are asking how to know if the price of the house purchased from the builder is correct. If you multiply the UDS amount given to you by the square foot price of the house in that area, you will know the value of your land. For example, let's say Selvam buys a new flat in Tambaram area. The builder gives Selvam 450 SQFT through UDS.

Go to that area and inquire about the price of the vacant land near the place where Selvam's flat is located. Assuming that a square foot goes for Rs. 5,000 in that area, the value of the land in Selvam's flat is 450 * 5,000 = 22,50,000. Let's assume that the size of the house allotted to Selvam is 950 square feet. At present, the cost of building a quality house ranges from Rs. 2,000 to Rs. 2,500. Now the value of a 950 sq ft house with 450 SQFT UDS should be calculated as follows.


Land price - Rs. 22,50,000 (Market Value)


House price - 950Sqft x 2500 = Rs. 23,75,000


Total value of the house = Rs. 46,25,000


If kumar buys this house at a price lower than our estimate, it is profitable for him to buy the house. If he buys more than that, he may face a loss. In the above calculation, we have roughly calculated Rs. 2,500 per square foot to build a house. The construction cost may be slightly higher in luxury flats. 


home loan vs financial freedom guide


Land investment..!

The investment made in land has increased manifold. Through this, we can know that the investment made in land will grow. On the contrary, the investment made in the house has lost value due to depreciation.

In our ancestors' time, apartments were not introduced. Therefore, they had invested a considerable amount in land. We cannot create even a square foot of land in the world. That is why when the value of land increases, old houses have become very expensive. On the contrary, now when we buy from builders, only a very small amount of UDS is given to us as the right to the land.

In the story of wealth we saw above, out of the Rs. 46 lakhs invested in the house, the value of the land is only 40%. When buying a house, builders do not sell it without at least 20% profit. It is very important to plan properly whether it is right to buy a house with a high depreciation rate in a place with a small plot of land. If you do not plan properly, you may end up losing money by buying that house in the long run.

There is an important reason why we continue to talk about UDS. When apartments were introduced in Chennai, houses with a maximum of 3 or 4 floors were built. Since those buildings have now become old, their owners are asking the new builder to hand over their old house and build a new house. Since the UDS is high, the builder is also building up to 5+ floors instead of 3 to 4 floors and giving the new house to the old owner. On the contrary, now high-rise apartments with more than 10 floors are increasing. These types of apartments only have a low UTS. These types of houses may not be considered as long-term investments. If we are buying a house to stay, it is okay. If we buy houses with a low UTS for rental income, there is a high chance of losing money.

We are not always saying that buying a house is wrong. Therefore, in real estate investment, only by examining the various factors mentioned above and choosing the right house and buying it, we can get a good rent and increase passive income. We should not forget that if we take loans and invest in the wrong houses, we can get into trouble.


The reason is that the annual rent is only about 2.5 to 3 percent of the value of the property.

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