Purchasing V/S. Renting – Property and gold are regarded the finest assets, according to the unwritten norm of the typical Indian middle-class household (of course, after education)

Purchasing a property in India has always been seen as an emotional rather than a practical choice. It is partially accurate, given that it costs a lot of money to be paid ahead during one’s early adolescence.

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Purchasing V/S. Renting: Renting a property appears to be financially realistic in most circumstances, since it provides for more cash flow for other life costs and aspirations. Furthermore, if one has a transferable work that involves frequent migration to other places, renting a property appears to be a reasonable choice.

However, with the COVID-19 outbreak and the ensuing crisis, the value of owning a house has become more apparent than ever. There is a clear preference for purchasing a house rather than renting, highlighting the benefits of both financial and social security.

Let’s see what’s more common: owning a home or renting one. (Rent vs. Purchase)

The Economic Aspect

A 25-year-old business graduate residing in a leased one-bedroom flat in Navi Mumbai. He receives a monthly net income of Rs. 70,000 and will retire at the age of 58. Consider a 5% yearly pay increase over the course of these 33 years.

1. House Renting

As of August 2022, the average monthly rent in a nice Navi Mumbai neighbourhood (such as Airoli, Kopar Khairane, Juinagar, Vashi, and others) is approximately Rs. 20,000 for a 1 BHK flat and around Rs. 30,000 for a 2 BHK apartment.

Consider that he will live in that house for the next ten years, and when his family grows, he will upgrade to a two-bedroom apartment at the age of 35.

Now, assuming a 5% yearly rise in rent, his monthly payments are as follows:

2. Purchasing a Home (Rent Vs Buy)

To be honest, purchasing a property is more difficult than renting one. However, it is not as tough as it is considered to be.

It is only the initial upfront payment (known as the Down Payment) that must be arranged. The balance is covered by a home loan. Buying a home is simple now that home loans are more affordable than ever.

Arranging Down Payment: EX- Assume Mr. Rao saves half of his salary for three years (until he is 28 years old) for a down payment on a house. Consider that he invests Rs. 25,000 in a Recurring Deposit with an annual interest rate of 7%.

He would receive a maturity value of Rs. 10 lacs at the conclusion of the three-year term.

Mr. Rao’s in-hand income will be about Rs.80,000 by the time he is 28 years old if he takes a very cautious estimate of 5% yearly salary rise.

Now, based on his wage, he would be eligible for a Home Loan of up to Rs 42 lacs for a period of 20 years (assuming an interest rate of 8 percent ).

You can learn about how this loan amount was computed based on salary here. Aside from income, lenders provide Home Loans after conducting extensive checks on the applicant’s (borrower’s) repayment capabilities as well as some technical and financial factors of the property being purchased.

Purchasing V/S. Renting

A 2BHK flat in Mr. Rao’s existing neighbourhood would cost between Rs. 80-90 lacs. This will necessitate a down payment of around Rs. 20 lacs, with an EMI of approximately Rs. 55,000- Rs. 65,000.

With this budget, Mr. Rao may look forward to purchasing a property 10-15 kilometres away from his existing residence in areas like as Panvel, New Panvel, Taloja, Kalyan, Ambernath, and others, where a 2 BHK flat would cost approximately Rs. 40-45 lacs, with a loan of roughly Rs. 38 lacs for 20 years. For the following 20 years, the EMI would be roughly Rs. 32,000.

It is now obvious that if a person pays rent, he or she cannot purchase a property in the same neighbourhood with the same amount of EMI payments.

Unlike rent, the EMI now remains nearly constant during the term. The loan payback schedule for…..

Mr. Rao would pay 22-55 percent of his salary as EMI over the next 20 years, leaving him with less cash in hand for living costs at first, but this would increase with an increase in salary since the EMI would remain constant over the next 20 years.

The Aspect of Possibility (Rent Vs Buy)

In the case of renting a house, Mr. Rao would wind up spending 30-40% of his wage in rent for the next 33 years until he retires, and he would still be homeless after retirement. He would therefore need at least a one-bedroom residence. However, by the time he retires, the rent for a comparable 1BHK property will be approximately Rs.75,000 per month.

Now, with no or little income, paying this rent would be tough, especially at an age when one would need liquid assets to cover any medical crises.

Even if we assume that he makes regular contributions in PPF, pension plans, and so on, he will not have enough money to cover his living expenses and medical crises.

Purchasing V/S. Renting

Mr. Rao, on the other hand, would be debt-free at the age of 48 if he bought a property. So, over the following ten years, this sum of Rs. 32,000 a month would serve as extra income that could be used for anything else, such as a child’s education, a new car, a family trip, and so on.

It is only for the first 5 years that the EMI is roughly 50-60% of the wage, after which it steadily decreases every year to around 22 percent of the pay during the last year of the loan.

In the case of rent, Mr. Rao would still have to pay roughly Rs. 61,000 as rent at the age of 48, which would climb to around Rs. 95,000 until he reaches the age of 58.

The Social Factor (Rent Vs Buy)

Purchasing a home in India is a social and emotional experience rather than a financial one. Even if you have limited finances, your friends and family are typically more than happy to assist you in purchasing a property. It offers more social benefits than renting a property, some of which are as follows:

• ·        Having your own house allows you to customise it exactly how you want it. The landlord usually imposes various limitations on rental apartments.
• ·         It ensures the future of your family. Your family will not be concerned about a roof over their heads if you die or become disabled.
• ·         People regard you as a responsible member of society; they cherish and respect you and your thoughts.
• ·         It is regarded as one of the indicators of having settled into a life free of imprudent financial behaviour.
• ·         Having a Home Loan EMI to pay makes you a mature individual who is hesitant to make any poor financial decisions in life.

Calculator for buying V/S renting a home

A major factor to consider before making a property investing choice is whether to buy or rent. While renting a house may appear appealing to some, others value the construction of a long-term asset. This house buying vs. renting calculator is based on various input criteria, including property prices.

• ·        Rate of Appreciation
• ·         Rent is paid monthly.
• ·         Home Loan Rates and Terms
• ·         Rate of Appreciation

You can input the purchase price, number of years in ownership, estimated property appreciation, current rent, monthly gross salary, and so forth. Based on the given data, this wonderful Buying versus renting a home calculator will provide you with a decision.

The Advantages of Purchasing a Home (Rent Vs Buy)

There is no landlord hassle.

When you buy your own house, the first comfort is that you will no longer have to deal with landlords. When you live on rent, you are subject to a lot of constraints, and you are not free to modify your living areas as you choose. A home of your own will allow you to make your own decisions and live your life.

Purchasing V/S. Renting- There are no uncertainties.

When you choose to buy your own home, you no longer have to live in constant fear that your lease or rent arrangement would be cancelled. Home will provide you an unrivalled sense of security and assurance.

Purchasing V/S. Renting- There is no monthly rent.

You are free of the stress of paying monthly rent when you own your own house. You may, in fact, rent out a section of your property and earn a profit. Furthermore, the money saved on rent can be utilised to pay your house loan EMIs.

Purchasing V/S. Renting- Creating Assets

An investment in your house produces a lifetime asset. You do not need to be concerned about where you will reside in your retirement years. Furthermore, this house can be utilised as a mortgage in the event of a financial emergency. Even sell your property in an emergency and obtain a nice return on your investment.

Purchasing V/S. Renting – Conclusion

If your employment demands frequent movement to different locations, your only viable alternative is to rent a residence wherever you are assigned. In such instances, it is recommended that you purchase a house or property in the location where you want or can afford to reside after retirement. Furthermore, while renting offers for greater financial freedom, the need for a home is felt later in life. This is mostly due to the fact that, towards the conclusion of your working life, you would be left with no consistent income but a house rent to pay in addition to your living expenditures. If you had purchased a property when you were younger, you would have had a home without having to worry about paying rent in the face of a lack of consistent income.

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