Your calculations on whether buying a house is better than renting are thoughtful, but there are some nuances and potential issues. Let’s break this down and address key factors in detail.

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Summing it up from the Original Post

Assumptions Matter: - You assumed 5% YOY rent increase and 5% property value appreciation, which are optimistic and may not align with recent trends in Indian Tier-1 cities. - Rental yields (rent-to-property-price ratio) in most Tier-1 cities range between 2%-4%, and property appreciation has been 3%-4% annually in the last decade (excluding speculative markets).

Opportunity Cost: - Investing50L upfront in Mutual Funds (MF) with 10% returns compounded over 30 years vastly outpaces property appreciation in most cases. - The "extra" EMI amount (~?33,906/month) could also be invested, significantly increasing potential MF returns.

Maintenance Costs: - Ignoring maintenance costs in the calculation skews results. These costs can range between 1%-2% of property value annually, especially as the property ages.

Liquidity & Flexibility: - Real estate is illiquid compared to financial instruments. Selling may take time and involve transaction costs (e.g., stamp duty, registration fees, and brokerage).

Loan Rate Volatility: - Interest rates fluctuate. Repo rate increases will likely raise your EMI costs, while reductions may not always pass on equivalent benefits.

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Refining the Calculation

1. Rental Yield Reality Check

• Current rental yields in Tier-1 cities average 2%-3% of property value, often below FD rates.
• Assuming rent grows at 5% annually may not be realistic; historical trends suggest 3%-4% growth.

2. Property Appreciation

• In Tier-1 cities, the long-term appreciation rate of residential real estate is closer to 3%-4% annually.
• For older properties, appreciation slows, and significant investments may be required for renovations.

3. Opportunity Cost of MF Investment

Let’s calculate potential returns from investing50L upfront +33,906/month for 30 years in Mutual Funds:

• ?50L @10% CAGR for 30 years = ?8.72 Crores
• SIP of33,906/month @10% CAGR for 30 years = ?7.62 Crores
• Total MF Value = ?16.34 Crores

4. Accounting for Maintenance and Property Taxes

• Assuming 1% of property value as maintenance annually, this adds up to1.7L/year initially, compounding with inflation.

5. Total Cost of Home Ownership

Upfront Costs: -50L down payment +10L for stamp duty and registration = ?60L

Loan Costs: -83,906 EMI/month for 30 years =3.02 Crores total payments.

Maintenance & Property Tax: - At1.7L/year (increasing with inflation), over 30 years: ~?1 Crore.

Total Cost =4.62 Crores

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Revised Analysis: Rent vs. Buy

Scenario 1: Renting

• Monthly Rent:50,000 (growing at 4% annually).
• Opportunity cost:16.34 Crores from MF investment.
• Total rent paid over 30 years = ~?3 Crores.

Net Wealth =16.34 Crores -3 Crores =13.34 Crores

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Scenario 2: Buying

• Total Cost =4.62 Crores.
• Property Value after 30 years @ 4% CAGR =5.78 Crores.
• Net Wealth = Property Value - Total Cost =1.16 Crores.

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Comparison

• Renting allows you to grow wealth significantly (~?13.34 Crores net).
• Buying results in significantly lower net wealth (~?1.16 Crores net).

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Key Observations

Renting is Financially Superior: Renting coupled with disciplined investments outpaces property appreciation for the same outflows.

Emotional Factors Matter: Homeownership offers stability, freedom from landlords, and potential emotional satisfaction. These non-financial benefits are hard to quantify.

Market-Specific Considerations: - If you expect real estate to outperform historical trends (e.g., ~10% YOY growth), buying could become attractive. - Regional or city-specific factors may also play a role, like metro developments or infrastructure boosts.

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Summing it up

• Financially, renting + disciplined investment often beats buying in Tier-1 cities given current trends.
• However, buying might still make sense if you:
• Prioritize stability and freedom over returns.
• Plan to live in the property for a long time.
• Expect property prices in your location to rise significantly above inflation.

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