Which one is a financially smarter decision: Renting or Buying a home?

By Rohit Kothare on Apr 16, 2019 5:37:31 PM

Renting vs. owning a home is a dilemma that the majority of the audience faces. When it comes to renting, people often argue that rent costs less as compared to EMIs. And those who favor buying can cite long term benefits and freedom it offers. Every Indian dream of owning their own house but the sky-rocketing property prices keep all decisions at the shore.

Buy or Rent your home

What should be your ideal choice? It depends on various factors, needs, and goals. Let’s discuss this in brief to simplify your decision.

When you start your professional career renting a house is an obvious choice because of the flexibility it offers. You don’t have to pay a lot and still can lead an affluent lifestyle with decent money in hands. But as time progresses stability and investment decisions become priorities.

In this case, especially insufficient information can lead to disaster. So let’s discuss the advantages and disadvantages of renting a house.

The first and foremost benefit of renting a house is flexibility. For the short term stay renting would be a viable option. As it doesn’t require any commitments.
Anyone who is thinking of starting their business can encounter job or income instability. For them, money and location are more important than having a home.
And lastly, renting has lower risks associated. One time brokerage and regular rent are only outgoing cash. No maintenance, no taxes, and no commitment can be the driving factors of your decision-making process.

Rent your house

On the other hand, there are many disadvantages to renting a house as well. Let’s have a look at them.

Your landlord can remove you with a 30-day notice if he/she wants to use the property or just sell it. Unease always persists in mind to limit your actions or any infraction can bring the landlord to your doorstep.
Year-on-year inflation pushes up. The rent goes up by 5-10% whereas a home loan comprises fixed monthly payments regardless of inflation.
Your monthly rent has no future return associated with it. Though many would argue that rent is comparatively lower than the EMIs and the difference can be invested for future returns. But people are prone to use the cash to lead a lavish lifestyle instead of disciplined investment.
Most landlords don’t allow renovations, decorative changes or even furniture shifts. Decisions are only in the owner’s hands. If you need to paint the walls, put up unit spaces or keep a pet, the owner will always be the decision maker.
Giving up renting also has financial incentives. You can receive tax credits for becoming a homeowner from the government.

The above-mentioned cons are heavily overshadowing pros. Is buying the right solution to avoid these cons? Let’s see.

If you are certain about the city in which you are going to stay in the future it is highly recommended by experts to own a home. Owning a home forces savings in the form of EMIs, which are otherwise spent if you rent a property.

But there are many other big advantages of buying a home like:

The key to decision making comes in your hands. You can build, construct or demolish as per your wish. Make all the changes in the interiors or don’t change anything at all, your wish.
No restrictions. A landlord free home. Nobody can ask you to vacate or pay more rent.
Security, comfort, stability, and assurance. A home brings security to you and your family. Comfortable living under one roof brings stability and assurance in life. Plus, a sense of achievement arises by owning a property.
You can reap the benefits after many years when your EMIs are over. You can either sell or just stay in the current one without paying any money to anyone.
Most importantly, buying a house is not just a property decision it’s more than that. Your happiness, surprises, excitement, parties, functions, etc. are all associated with your home. And a house filled with enough memories becomes a home.

Buy your home at Kohinoor Group

Now that we have understood what are the advantages of owning vs renting a home. We have enough reasons to justify why buying is better than renting? But do finances also tell the same story?

Let’s take an example of three friends Sameer, Anand, and Jacob. (All figures in rupees)

Sameer - Pays rent for 20 and more years.

Anand - Pays EMIs for 20 years.

Jacob - Pays rent for 20 years + investing 10,000/monthly.

Sameer (Rent only)	Anand (Buy only)	Jacob (Rent + Investment)
Rent - 15,000 appreciating @8% per year	House value = 50,00,000. Loan amount 40,00,000 at 8% interest	Rent - 15,000 appreciating @8% per year + 10,000 investment per year
In twenty years rent becomes 69,914/monthly	EMI = 46,607. Total amount paid in 20 years = 1,11,85,680	In twenty years rent becomes 69,914/monthly
Total rent paid by you in twenty years becomes 89,99,350	Property value appreciation at 8%. The total value of the property after twenty years = 2.33 crores	Total rent paid by you in twenty years becomes 89,99,350
Lived affluent life in initial years but later rent becomes a burden.	No rent burden. Owns a house.	Rent becomes a burden. But at the end of 20th year gets 48,61,468. And rent continues...

Even after deducting taxes, maintenance and interior costs buying a home would be a better decision by huge margins. Yes, there are conditions in buying a house but the benefits you will reap in later years are convincing enough to go ahead with the buying decision.