Rent or Buy?

As Indians, we’ve always been told that to qualify as being “well settled” in life, your next goal after “getting married” should be to be a “Home Owner”.

Haven’t we all heard that from all and sundry?

I’m sure you’ve been at the receiving end of raised eyebrows from that distant relative when you told them that your home is actually rented and not owned by you.

But why is Home Ownership such a big deal?

Is it so easy to own a home that it’s expected out of each one of us?

Are your parents also worried for you until you have a property in your name?

What according to you is the driving factor for taking such a decision?

Is it a Financial or an Emotional call?

You’re in your late 20s-early 30s, earning a lot more than your parents could have hoped – isn’t it a good time to buy your own house?

I will let you answer that in a bit.

What does Owning a Home mean?

  • Ownership of a Tangible Asset – All of the EMIs that you pay work towards creating a tangible asset in your name.
  • Social Status – you can proudly tell everyone that you “own” the house and you will definitely get a mental “Yay” from them, if not a direct one.
  • Sense of Belonging & Community – the home that you live in gives you a sense of belonging and something that you can call your “Own”. When you live at a Permanent Address, the space & people around you become your community for life.
  • No Landlord hassles – Owing a home puts you in control of everything and you don’t have to be at the mercy of your landlord for every small or big issue.

Not to forget, a happy set of parents who breathe a huge sigh of relief.

What are the benefits of Renting a Home?

Renting a home comes with multi-fold benefits too.

With the kind of lifestyle that millennials prefer, and the secret to career growth in today’s times lying in mobility, renting a home wins hands down.

Being a tenant offers:

  • Flexibility to move as and when you wish or your job requires.
  • Predictable Monthly Expenses in the form of Rent.
  • Someone to take care of the Maintenance & Repairs.
  • A Lifestyle that you desire because you can now live in the most desirable part of the city and not have to compromise by living in the areas where property rates are cheaper.

Both options have their pros and cons.

But how do you decide which one is best for you?

  1. Mobility & Duration of Stay – If you know you’re going to live in a certain city and/or locality for the predictable future, then you can consider buying a home.

However, if your job or work may require you to move to another city or location, Renting may be the better option for you.

Staying closer to the workplace and cutting down commute time is a preferred option for many. If you’re one of them, then don’t bother making the purchase unless you’re getting an amazing deal.

Be wary of committing yourself to an asset that might be difficult to dispose. Property isn’t the most liquid asset.

  • Locality   Buying a home in a rather desirable part of the city may not be as affordable as we think. If living in the city centre is your thing, then you may not be able to fulfil your dream of owning a house as early on as you may want. Renting may then be the more sensible option for you. However, if you enjoy the beauty of more space, a greener community and appreciate the life living in the suburbs offers, then buying a home will be your sought-after goal.
  • Financial Health This certainly is the factor that takes up, at least 50%, if not more, share in helping to decide whether to Own or Rent.

Buying a home is no cheap affair. It requires you to have loads of moolah.

In Tier-1 cities in India, EMIs are generally at least twice the rent, if not more.

Do you have that kind of money to spend?

And you also have to pay a minimum of 20% of the purchase value as down payment.

If you can pay 50% of the value of the house by yourself without taking the help of your parents or a bank, you should go ahead and buy.

For e.g.: If a house costs ₹1.5 cr, and you have ₹75 lakhs to spare for buying the place, then make the purchase. Else, wait for a few years to accumulate that kind of money and enjoy the benefits of renting until then.

A few considerations to make before signing the Home Loan papers are:

  • Your EMI should not be more than 50% of your monthly in-hand salary.
  • You should finance the 20% down payment amount by yourself.
  • The Rent: EMI Ratio should be high. If the Rent: EMI ratio is closer to 1 you can consider swapping rental payment with EMI. However, the lower this ratio is, the farther away your chances are of practically buying a house.

According to a study, the most affordable city to buy a home is Indore where the Rent: EMI ratio is 0.450 (Rent – ₹11,660 vs EMI ₹25885). While the most expensive being Mumbai where the Rent: EMI ratio is 0.236 (Rent – ₹44,041 vs EMI ₹1,86,611).

(Source: The Arthayantra Buy Vs Rent Report 2019)

Tax benefits are offered to both, Renters- in the form of HRA (House Rent Allowance), and first-time Homebuyers- in the form of deductions on the Interest paid on loan. However, don’t let tax savings be a reason for your home purchase.

Try to pay off as much of the Purchase Value in down payment as possible so that you have a lower EMI to take care of.

And if you thought home ownership costs stop at paying the Purchase Value of the house, then beware of the property registration charges, property tax, interior/furnishing costs, insurance payments, etc.

You could invest the additional amount that you were thinking of contributing towards the EMI into a financial instrument and watch it generate returns for you silently.

However, your landlord could decide to increase your rent beyond your capacity too. But that’s a risk worth taking rather than walking into tonnes of debt knowingly. EMIs are not the only expense that need to be taken care of when buying a house. So, make an informed choice.

You don’t want to make an impulse purchase and then be swamped in debt for life. This is a long-term affair. So, think wisely before investing in a home. Evaluate to see that it’s a “Valuable Asset” and not a “Debt Trap”.

Hopefully, now you can astutely answer the question “Why pay rent when you can pay EMI and own an asset”?

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