Nikhil Kamath's Journey from Renting to Buying a House: A Change of Heart
Nikhil Kamath, co-founder of Zerodha and True Beacon, long skeptical about owning a house, has finally decided to buy one. In a recent podcast, he discusses his decision with real estate tycoons from Prestige Group, Brigade Group, and WeWork India.
Real EstateBuying A HouseRenting Vs BuyingNikhil KamathProperty InvestmentReal Estate MumbaiOct 16, 2024
Kamath, known for his calm demeanor, explained his shift in perspective. “The thing with renting is that it has all the advantages, but one major disadvantage is the lack of foresight about when you might have to move. I realized that I might want to stay in one place for a longer time, and not having the hassle of moving felt like a good reason to buy a house,” said the 38-year-old billionaire.
Nirupa Shankar, with her keen business acumen, probed further. “When you analyze stocks, you look at a company’s health and balance sheet. Similarly, buying a home can strengthen an individual’s financial position and provide security. Don’t you think it adds to your balance sheet?” Kamath acknowledged the financial benefits but highlighted his reservations. “I feel something like gold can offer similar security, and I dislike the illiquid nature of real estate,” he said. He also pointed out the additional costs associated with buying property, such as the 5-6 percent stamp duty.
While the debate on whether to buy or rent a property continues, financial advisors offer their insights. Ravi Saraogi, co-founder of Samasthiti Advisors, is cautious about recommending property as an investment. “Real estate prices have historically only kept pace with inflation, offering an average increase of 5 percent. We don’t advise buying a house purely for investment purposes,” he said.
Sridharan S., a Sebi-registered investment advisor and founder of Wealth Ladder Direct, agrees. “Buying a property is fine as part of a diversified portfolio, but purchasing it on borrowed money doesn’t make sense. The net return can be as low as 3 percent after accounting for interest rates. Investing in the stock market can yield higher returns,” he added.
However, the decision to buy a house is not always purely financial. Non-financial reasons play a significant role. “It’s perfectly fine not to own a house. The key is to understand your reasons for buying. There could be non-financial factors such as raising a family, passing on an asset to the next generation, or simply fulfilling a personal aspiration,” Saraogi noted.
For those who have already bought a house, the benefits can be more than just financial. Some property owners are happy to earn rental income, providing an additional source of revenue and security.
In conclusion, whether to buy or rent a house is a personal decision that should consider both financial and non-financial factors. Kamath’s journey from a skeptic to a homeowner highlights the importance of aligning one’s financial choices with personal goals and aspirations.
Frequently Asked Questions
What was Nikhil Kamath's main reason for deciding to buy a house?
Nikhil Kamath decided to buy a house because he wanted the security of staying in one place for a longer time and avoiding the hassle of frequent moves.
What are some financial drawbacks of buying a house mentioned by Kamath?
Kamath highlighted the illiquid nature of real estate and the additional costs like 5-6 percent stamp duty as financial drawbacks.
According to financial advisors, what has been the average increase in real estate prices?
Financial advisors note that real estate prices have historically increased by an average of 5 percent, which only keeps pace with inflation.
What is the recommended allocation of a portfolio for property investment according to wealth advisors?
Wealth advisors recommend that property should constitute only up to 30 percent of an investor's portfolio.
What non-financial reasons can influence the decision to buy a house?
Non-financial reasons for buying a house can include raising a family, passing on an asset to the next generation, or fulfilling a personal aspiration.
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