Buying a house vs renting a house: Here is what you should do
Possessing a home is a dream for everyone. Purchasing a house is always considered an achievement and a step towards fiscal success. But it is not easy to buy a real estate property in India, where prices are often beyond reach and almost every buyer has to resort to taking home loan to fund their purchase.
Possessing a home is a dream for everyone. Purchasing a house is always considered an achievement and a step towards fiscal success. But it is not easy to buy a real estate property in India, where prices are often beyond reach and almost every buyer has to resort to taking home loan to fund their purchase. These factors often give rise to a debate of renting versus buying, which is better.
Buying your house gives you the ownership but subject to your financial standing, whereas renting makes it easier to get a house in a good location even if you don't possess enough purchasing power. Let us look at the various arguments for and against both buying and renting a house to find out which is better.
- You get the ultimate ownership of your house once you finally close the home loan, but in case of renting nothing gets vested to you in the end
- Owning a house gives you a safety net and a sense of security for you and your loved ones, you do not depend on a third party (your landlord) and having a house makes you more stable in your financial life
- With your home loans, you are sure about the amount you need to pay towards your Equated Monthly Installments as against the renting, which depends on your landlord and other factors in the economy for example demand and supply
- Owning a house gives you the right to claim various income-tax deductions towards stamp duty, interest and principal on your home loans, while renting gives you the Housing Rent Allowance benefit
- When it comes to renting, the best part is the amount of nominal rent you pay. Trends across Indian cities show that the rent amount generally is around 3 to 4% of the property value on the higher side. This means, if you can buy a property, then the rent you can expect from that property would be around 3 or 4%. So, rather than buying the same property, that money invested in a bank Fixed Deposit or a good mutual fund scheme will give you much higher returns. In fact, this could be the most decisive factor in the whole debate of rent versus buy.
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Most of us want a roof over our heads that is our own and it is a kind of wish fulfillment having and owning a house. One should always analyse the emotional reasons behind buying a house rather than only checking financial parameters. There is nothing wrong in having a house of your own, but buying a second house or more for investment purposes should be avoided. The returns on your investments in real estate and the opportunity cost of investing the same money in an equity market/MF should be judged. Unless you get an appreciation of 20% or more on your second house, it makes sense to go with any other investment option with a potential of 15% returns.
Even for the purchase of your first house, it is always wise to do some number crunching before taking a home loan which otherwise may overburden you. So, in nutshell, buy your first house and wait for the second house until the numbers are in your favour.
By Rishabh Parakh
(The writer is chief gardener at Money Plant Consultancy)