Newsdetail

Is It Better To Buy A Small Home First?

By Rishabh Chamoli | 2022-09-27

As a first time buyer,choosing between a small home or a big one can be a difficult decision.However,heres why a compact home as your first real estate purchase can work in your favour
Owning a home brings with it a sense of accomplishment. Its also considered as the most reliable form of security when the chips are down. This is one of the many reasons why starting small with your first house can be a great beginning in homeownership.
And when you pick up pace in your career or business, you can match your future needs by upgrading to a bigger home. Heres a quick look at how you can go about it if youre a first time buyer.

Small Home For Starters
Every journey begins with a small step. Make it about your first home too, particularly, if youre just beginning your career or entrepreneurial venture. A small sized home in Mumbai usually comprises a one room kitchen (1 RK), a studio, or a compact 1 BHK. As a starter home, any of these options can work well for young buyers who are single, newly married, or have a small family.

A compact starter home can be a great first investment. Here are a few perks of buying a small first home:

Affordability: Not only are these homes more affordable to buy than the larger ticket sizes, its also easier to repay the equated monthly instalments (EMIs) if you are borrowing a home loan for it, without having to use your savings for the down payment. Moreover, under the Pradhan Mantri Awas YojanaUrban (PMAY U) scheme for affordable housing, you can acquire a home loan.

Low property tax: If the location of your compact home is away from the premium areas in the city, as most homes this size are, you will have to pay a low property tax.

Low maintenance: A small home means you conserve energy and save on its upkeep. This is because a small home uses less power for air conditioning which is usually a power guzzler.

Cost effective interior decoration: A smaller house means minimal expenses for interior decoration. Bulky and expensive sofa sets are out and affordable yet elegant options like a sofa cum bed or futon are sought after.

Future source of income: When you do upgrade to a bigger house in a few years, you can sell the first home or rent it out to a small family or an individual. There will always be a market for a compact home for those starting their career.

Save on rent: If you haveve been shelling out a tidy sum on renting a small home, you might as well buy one and channel the rent towards the EMI if you are taking a home loan.

The Flip Side
On the other hand, getting an ideal small home, which fits your budget and is located in a prime neighbourhood in Mumbai, is almost impossible.
So, a small home then comes with its downsides which you must consider:

Away from the city: Yes, most new compact sized homes which are fairly affordable are located away from the city centre. The ones that are available or are on resale within the city are usually unaffordable for a first time homebuyer with a low budget.

Small for the family: Owning a first home can be fulfilling but not if its a small one and if you have kids. Most affordable compact homes do not sport amenities such as a playground, park,clubhouse, etc.

Difficulty in selling in the future: With more residential projects offering modern amenities for a slightly higher rate, a compact home on resale without these frills could be difficult to sell. This could delay your plans toupgrade to a bigger home.

When Should You Upgrade Your Home?
Experts say that when you buy your first home, which is a standby or starter home, and plan to sell it in future to upgrade to a bigger house, its wise to live in it for at least five years before selling it. During that period, you can build a corpus for your forever home. You might obtain annual increments or establish a business in order to be able to repay a substantial loan for a bigger house.

Instead, if you choose to retain your first home and rent it out to gain rental income from it, you could pay off your EMIs on the home loan for the new house from the rent earned. You could also borrow a loan against the property. Besides the budget, it pays to factor in additional costs that come with a larger home such as stamp duty, registration, more property tax if its in a plush locality, larger maintenance component, higher utility charges, etc.

While buying a small home makes sense if you feel that a chunk of your earnings is being consumed by rent, it’s prudent to weigh the pros and cons before making a decision.