Since childhood, we are brought up with this idea that we should buy our own houses as soon as possible. And for almost everyone, house is the biggest investment (or expenditure) which one makes during his lifetime. And there is absolutely nothing wrong with that.
But there is something that makes me restless.
Why is it that as soon as we start earning, we should commit ourselves to make the biggest investment of our lives, and tie ourselves for next 15 – 25 years of paying EMIs? Are we really supposed to live a life like that?
Don’t get me wrong. I am not saying that one should not buy a house at all. I am just weighing the pros and cons of buying a house early on in one’s career.
Few days back while surfing the internet, I came across this interesting post, where it was said that in 2005, one of India’s most well known investor Rakesh Jhunjhunwala sold some shares of CRISIL for purchasing a house in Mumbai. The amount received on selling the shares was Rs 27 Crores. The house today might be worth Rs 50 to 60 Crores. This means a compounded annual growth of 7% to 9.5%.
Now what would have happened had he not sold his shares in the company?
I am not sure if he purchased that house for living purposes or for investment. Had it been for living purposes, it’s possible that he would still be staying in a house on rent(!) And assuming he paid a rent of Rs 2 Lac a month, till now he would have paid close to Rs 2.1 crores as rent itself. Seems horrible… right?
But what happened to 27 Crores worth of shares then?
The shares are now worth a whopping Rs 700 Crores!! A growth rate of more than 43% every year!! 🙂
Now we are not experts like Jhunjhunwala or Buffett. We may not be able to find multibaggers like CRISIL. But we can find mutual funds which offers reasonable growths…isn’t it? Any reputed well diversified equity mutual fund scheme would have given returns in excess of 15% in last 10 years. And that is more than what real estate offers.
Now does it not make sense that early on in our financial lives, we should invest as much as possible in equities? If not directly, then through mutual funds? Returns are far more than what average real estate offers. And you also don’t have to remain stuck with paying EMIs for decades. Why not stay on rent and invest the remaining amount? I know it sounds controversial but I am just doing loud thinking.
I seriously think that our mindset of buying house early on in our lives needs a serious rethink.
Note – I know people around us these days, are constantly talking about doubling their real estate investments every 2-3 years. But believe me that this is an exception and not a norm. Trends like these do not continue forever.