Continuing Personal Guarantee Of Rent And: Fill & Download for Free

You wish to buy an apartment in Bangaluru costing ₹ 45 lakhs (₹ 4.5 million). You are ready to make a down payment of ₹ 15 lakhs. Your net salary is ₹ 46,000 (I assume that this is per month obviously). You are 30. You have no outstanding loans. Your loan requirement is ₹ 30 lakhs. You wish to know whether this is a wise decision?Let us talk pure finances first.You have not mentioned whether your wife works. Since you haven’t said anything on that, assuming that she is a homemaker.Based on this info, using current home loan rate at 7% and further assuming that it remains constant throughout the tenure (highly unlikely), your EMI works out at follows: 10 years tenure: ₹ 34,833.00, 15 years tenure: ₹ 26,965.00, 20 years tenure: ₹ 23,259.00.The bank allows a maximum EMI of up to to 50% of your net pay. So 20 years tenure is the only solution right now. Since you are 30, bank may allow 20 years tenure. Note that longer the tenure, the more interest you can pay. However, you can always pay lumpsum amounts as and when that will get adjusted with the principal outstanding at that time. This will reduce tenure or EMI (one or other). Another thing to note is that the apartment cost if not ₹ 45 lakhs. It will be closer to ₹ 50 lakhs with the other one time outgoings you are going to pay. After these costs, there will some basic furnishing costs. These can be at least ₹ 3–5 lakhs (very-very basic).Now let us consider other aspects.How many car parking spaces are included in the cost? At least one must be there. Else the price goes up.Is the flat under construction or ready to move? It is not wise to buy under construction property today - unless the builder is of impeccable reputation.Is this a 2-Bedroom apartment? I doubt it at this price but one never knows. You should ideally buy a 2-Bedroom apartment at least because once your family grows, you will feel the need. You may think that buy this now and sell later to move into a bigger apartment. This is not that easy and 1-bedroom apartments are little harder to sell (this is not Mumbai).I am assuming that you are going to be a permanent resident at Bangalore. If not, no point in buying.Finally, how secure is your job? Buy a home if you are assured on this aspect.Edit (16-Aug-2020): There is a very insightful comment by Nishant Luthra. The suggestion is not to get into the debt trap. He further suggests to invest the ₹ 15 lakhs in a plot of land near own town/village or Bangaluru outskirts and later on build a house. The suggestion has some merits but still not a good suggestion.First Nishant calls buying home a debt trap. While most loans are bad, not all of them are. Home loan is not a bad loan because it builds an asset. Further it can be a bad trap only if the job is not guaranteed. I know that there is no safety in jobs today, but considering that OP earns a small salary, it is unlikely that his job will be hurt. Most job losses are in IT industry - leaving aside the exceptional circumstances of today’s pandemic.Secondly, One must understand and differentiate between CAPEX (Capital Expense) and OPEX (Operational Expense). Renting is pure OPEX. Nishant said rent now and build/buy later (when situation improves). How long is later? 2 years? 5 years? 10 years? During all these years OP will be paying rent and not having building asset. Rent will be at least ₹ 15,000 per month in any decent locality in Bangaluru. It is nearly 66% of the 20 year loan EMI.Thirdly, there are tax benefits for Home Loan. To be fair, rent also qualifies for tax benefits. But again at the end of 5 years, OP would have spend ₹ 9,00,000 in rent, assuming rent is constant (highly unlikely). In these 5 years, the OP will spend more but clear off the loan of that much period.Fourthly, stability is a factor. Nishant says stay in rented property peacefully. Can he? While renting, it will be very likely that OP may have shift residence every 2/3 years. With own accommodation, the OP will be able to plan the future better - in all respects. There is always a possibility that next time he will have to hunt for longer time and find a place that is farther away from a place where he has grown accustomed to.Fifth point, Nishant says invest in a home when things improve. Question is will things improve in future and even more importantly will they improve very significantly? This is an answer only the OP can answer to himself. Can the OP significantly improve upon financial situation after paying a rent of ₹ 15,000 per months which may increase by ₹ 3,000~5,000 at the end of every 3 years?Finally, there is an emotional aspect to having and owning one’s own home. This is an unquantifiable aspect. One cannot attach a price to it.The dark part of this whole loan deal is spending nearly 50% of net take home salary. This means that for at least 3 years, the OP will struggle a lot in making things meet. He may not be able to start a family. He will have to abandon all little luxuries in life.I totally respect Nishant’s opinion. There is some merit is his assessment. This edit is not a criticism. But I do not think that he put himself in the OP’s shoes.Edit (18-Aug-2020): Another comment - another one saying that buying house is a liability. To support this, the person says that something one owns can be called as an asset only if earns money/income. House is a liability because one is paying for loan, annual maintenance, property tax, etc. Fine - one can have one’s views. I wish to state the following:Anything one owns is an asset. Own house is an asset. It is not an investment to earn money. The mistake will be to use it to calculate house value into individual net worth.Classic definition of asset is something that you own and do not owe to anyone else. House loan is a liability, house itself is an asset.House ownership vs. renting. How is renting not a liability?Is this person suggesting not to buy a house and rent forever? What about the vagaries, uncertainties of renting. And after 30 years or so, when one has no income, where is one going to live (assuming that there is no ancestral property in a village)?I can understand that if one is paying 3 times as much EMI or more, buying home in that city is a bad proposition; one can do better by investing the difference into equity markets and make more.At the end of the day, one way or other, one time or other, owning a home is a must. Saying - don’t buy a home because it is a debt trap is not the answer. Calling home ownership as a liability is absurdity of the highest order.Finally, one can’t time the markets. Neither the equity markets. Nor the reality market. When you can afford to buy a home, do not hesitate. Of course do the complete due diligence first such as assessing job security, loan affordability, home size, etc.But to each his own.Edit (23-Aug-2020): A lot continue to argue with me on Rich Dad, Poor Dad analogy on how an owned self-occupied property is not an asset. Funny, in my years of home ownership, from 1992, I never ever felt that I was creating a liability. Even today, I don’t feel so. I never regretted the decision and buying own home brought a deep stability to life.If you believe in Rich Dad, Poor Dad philosophy, I have no objection. But please do stop arguing with me who totally disagrees with that theory. You can put in your own answer arguing your outlook.

A typical company has an operating profit margin of 6%. Of course it varies considerably by type of company, but let’s work with that.For every $100 that comes in the door, $94 goes out to pay for product, wages, rent and other costs. The remaining $6 must pay for management, interest, taxes and other non-operating costs. Suppose $4 of that is paid out, leaving $2 of profit for the owner, before personal income taxes, or $1.50 after personal income tax.Say a business with normal revenue of $100 per month wants a one month cash reserve. That means saving $94 out of the $1.50 per month after-tax owner’s profit. If the owner is willing to give up one-third of her income, it would take 188 months, or nearly 16 years, to accumulate that reserve.Now that’s not typical of all companies. Some have much larger operating profit margins (but some have smaller). Some can cut expenses during the virus shutdown—by laying off employees, not buying supplies, turning off the lights. Some continue to receive some revenue without requiring face-to-face meetings.But even if a business can come up with the cash to survive, it may not choose to do it. If you built up a reserve over 16 years of running a small business, you might choose to shut the business down rather than spend your life savings to keep it viable for a month, with no guarantee it can open after that month. You might have just thrown all your money down a hole, and lost your business anyway.

Skyscrapers are not typically "paid off" for the same reason that many people still have mortgages on their homes long after the original 10, 20, or 30 year mortgage would have been fully amortized. A loan backed up by tangible, long-term, income-producing, assets is usually a pretty safe bet to be repaid...and therefore the interest rate paid by the borrower is relatively low. Most other potential uses of the money, therefore, should be both riskier and more profitable. As such, taking out a "home equity loan" (aka a mortgage) at, say, 4%, and putting the money into your investment account, where you might be able to earn 6-8%, for example, is often a smart thing to do.Similarly, most commercial office buildings (skyscrapers) are typically financed by the developer taking out a relatively expensive, short-term construction loan (to build the building) backed up by both a personal guarantee (from some entity the lender believes can repay it if necessary) and a completion guarantee (from some entity the lender believes can finish the project once it gets started).When the building is completed (by getting its Certificate of Occupancy and/or being fully leased up), the owner gets a cheaper, long-term mortgage on the now-finished building, which is (a) used to pay off the construction loan, and (b) serviced by the rents paid by the building's tenants.After a number of years have passed, several things are likely to have happened: (1) the mortgage has been significantly paid down; (2) the value of the underlying building has increased; and (3) the owner has waited for a time in the economic cycle where mortgage rates are low. At that point she will "refinance" the property by taking out a new mortgage for a higher amount at a lower rate, pay off the original mortgage, and put the balance to work somewhere else where it can make even more money. This cycle continues in perpetuity, using hard assets to leverage new investments.Now that we've learned all about real estate finance (which answers the first part of the question), we're going to forget all that in order to answer the second part of the question.The World Trade Center was a quasi-governmental project, built by the Port Authority of New York and New Jersey, and financed by government bonds backed by the building's revenues.In an unusual twist of fate, almost immediately prior to 9/11, the PA had sold the Twin Towers to a private New York development group led by long-time New York developer Larry Silverstein. They, in turn, took out a new mortgage to finance the purchase, backed by the building's rent roll.Bad News: no sooner had the ink dried on the bill of sale, then along comes Bin Laden and eliminates the underlying asset, triggering the mortgage lender to demand its money back.Good News: Silverstein had insured the buildings.Bad News: They were insured up to a maximum of $1 billion per incident.Good News: Two separate planes, two separate buildings, two separate incidentsBad News: Insurance company goes to court, claiming one terrorist organization, one coordinated attack, one incident...and they win.Good News: The Silverstein group still has the ground lease for the site (as well as the payments to the Port Authority that he still owes), so they are the ones building and owning the replacement tower there, for which they had to get a construction loan, and, when finished, a mortgage.Aren't you glad you asked ?