For those who are looking for new accommodation, they have to answer what seems to be the eternal riddle of whether it would be a good idea to buy or rent a home. This is indeed a question that requires careful contemplation. After all, investing in a home is supposed to be one of the biggest investments in one’s life and making any mistakes on this front could have long lasting repercussion on the family. The requirements of each family are different and so one answer will not suit everyone. It is important to go through all the factors one by one and then arrive at the best solution.
The housing prices in every city are skyrocketing by the day. That however, does not prevent the huge number of people surging into the city everyday looking for new opportunities. While having one’s own place in the city is definitely another milestone reached, one also has to think about the financial consequences that such an investment comes with, because of the price per sq feet that one might have to pay. Renting is another option that one could look to but it is important to compare between buying and renting to determine which is cheaper.
Let us take these matters one by one:
To start with, is renting a good idea? Apparently it is, or else why will so many people rent a house or an apartment. It is in fact, a great option if one is low on a budget and does not have the resources to buy a place of one’s own. One can easily pay the rent for the premises and continue to live there on their own. However, one of the factors to remember here is that no matter how much rent one pays, it will never be their own.
On the other hand, today there are a number of factors working in favor of buying a home like home loan interest by banks, CLSS or Credit Linked Subsidy Schemes and stable property rates. However, opting for a loan is a long term commitment. Combined with inflation, the cost of living in a city can be high and so one has to be absolutely sure about keeping aside a chunk from one’s salary each month to be paid towards EMIs. It is important to be physically and emotionally prepared for seeing though this commitment for 20 or 30 years, depending on the loan tenure.
How to Calculate whether to Buy or Rent?
The best way to go about this is to use an EMI calculator will show an amortization schedule, perfectly showing the breakup of the EMIs throughout the tenure and the total cost of the loan at the end of it. Compare this cost with the rent that you would have otherwise had to pay if you were opting to rent an apartment and go for the option that proves to be cheaper. In fact, if you are only in the city for a couple of years, or for any other limited amount of time because you have plans to return to your hometown later, then it is a far better option to rent an apartment rather than paying a hefty price for a place where you would not be eventually staying. This is true for those who hail from other parts of the country and have plans to return again later.
One should also consider the opportunity cost of the property, something that most home buyers fail to look into. This cost refers to the money that is invested in a property versus the same money being available to be utilized in some other areas of life. It refers to the benefits one gets from the money by utilizing it elsewhere instead of locking it to pay the down payment of a house. In that case, you could opt for rent a property instead and spend the money improving your lifestyle or paying for your children’s education.
On the other hand, if you are okay with locking the money and you really want to have a house of your own, then instead of paying for the deposit of rental flat, pay for the down payment instead. And instead of paying the rent, use the money for paying the EMIs. Eventually, the flat will become your own, unlike a rented place. And you will have a place to call your own, without having the insecurity of moving from one place to another in case the landlord is unwilling to renew the lease. This sense of peace and possession is a major factor why many families choose to buy rather than rent, even if they have to put up with some compromises in other areas of life.
What tax benefits can one Enjoy in both cases?
One of the areas where buying seems more feasible than renting is the tax benefits one enjoys while paying the EMIs on their property. That is only possible when you opt for purchase and not renting and there are no chances of any returns from the rent you paid, no matter for how long you have been paying it. One is eligible for tax benefits under Sec 80C on both the principal and interest. So ask your accountant and speak to the banks to determine how much loan you are eligible for and consider all the above mentioned factors before you think of buying or renting a property.
The long term plans of the family will have much to do with whether it should buy or rent a premise. Renting has one advantage- one can always upgrade to a better accommodation whenever one wants to but in case of buying a flat, that can only happen if one is able to sell off one’s previous apartment, get enough money in exchange and then invest in the other new apartment. So try to go through these aspects before you finally want to decide on renting or buying.