The debate on buying Vs renting a home is still on. Usually, owning a home is the first move of every Indian after they have a stable source of income. However, buying a home may not always be a good decision. For some of us, renting can be more viable and economical. Both sides have their pros and cons. Let’s evaluate them.
Buying Vs Renting a Home
Owning a home is the dream of all of us and it’s one of the most critical steps of their life. The choice to buy or rent a home should not be an emotional one rather a financial one. Renting a home offers flexibility and economic advantages.
There are many factors to consider while buying or renting a home including the budget, property location, facilities, amenities, and the market value of the property. But, most people are not aware of the pros and cons of buying Vs renting a home, so they opt to pay hefty EMIs to call a home their own.
Pros of Buying a Home
Asset Building- The primary advantage of buying a home is to build physical assets in the long term. Gradual investment in the property in terms of EMIs helps you build assets whose value is likely to appreciate around 9 – 12% every year.
Sense of Security- Most of us own a home to have a sense of security, stability, and emotional upliftment. Apart from the security, you have the flexibility to customise your own space as per your needs and requirements.
Reduction in Cost of Moving- Buying a home can save you from the stress of moving all the time around the city. Rented accommodation can be unpredictable, with rent increases or lease expirations forcing you to move. Constant moving can be expensive and time-consuming, and it can be hard to find a new place and shift there.
Tax Benefits- Buying a home through a home loan facility by a bank or NBFC gets you benefit of tax deductions on both the interest paid under section 24 and the principal amount under section 80C. You can save even more money on taxes, stamp duty, and interest if you co-apply for a home loan, especially with a woman co-applicant.
Cons of Buying a Home
Huge Investment Cost- Buying a house requires a significant upfront investment, including a down payment, registration fees, and stamp duty. These costs can be daunting, especially if you haven’t planned for them carefully.
Maintenance Expenses- Homeownership comes with lifelong costs, such as maintenance, repairs, renovations, and general upkeep. These costs can add up over time, especially if you have unexpected expenses. And if you want to make changes to your home to customise it to your taste, that will cost extra too.
Illiquid Asset- A house or property is an illiquid asset, meaning it can be difficult to sell quickly and get cash for it. This is especially true during certain economic cycles.
Pros of Renting a Home
Economical Living- Renting is often cheaper than buying a house, especially in the short term. Monthly rent is usually lower than a mortgage payment, so you can live in a nice place without having to tie up a lot of money.
Minimal Upfront Costs- Rent is usually lower than EMI payments, and you don’t need a big down payment. This can be a big help for young people who are just starting out in their careers.
Flexibility in Relocation- Renting gives you the flexibility to move when you want. This is great if you’re not sure where you want to live long-term, or if you need to move for work or school.
Cons of Renting a Home
Increase in Rentals- Your rent is likely to go up by at least 5-8% every year, sometimes even 10% every 11 months, depending on your rental agreement. EMI payments, on the other hand, don’t always go up every year, especially if you have a fixed-rate loan. And if interest rates go down, your EMI payment could even go down.
No Ownership of Assets- The biggest downside of renting is that you don’t own the property (asset). Renters have limited control over the property and must follow the landlord’s rules.
Lifetime Liability- Renting is a lifetime liability, while a home loan EMI is a limited-period liability. You can even prepay the loan when you have extra money.
Wrapping Up– Buying Vs Renting a Home
Choosing between buying Vs renting a home is often confusing, and it depends heavily on your personal financial situation and priorities. Renting may be the best option for the short term and if you are able to save up a down payment and afford the monthly EMI payments. On the other hand, for the long term, buying a home can offer a number of benefits including higher tax benefits, the freedom to stay in your home as long as you want, and the pride of ownership.
In conclusion, the best way to decide whether to rent or buy a home is to understand the advantages and disadvantages of both sides carefully and go for the option that’s suitable for you.