- Wealth PMS
The question one often asks when one gets to a comfortable state of personal affairs is: Should I rent a house or buy one?
All your friends are buying houses, or at least have “booked” them. There are good sentimental reasons to do so – owning a house ensures a tiny element of piece of mind – you can change things you don’t like, like the drawers in your kitchen cabinet, or the paint on the walls, or add wooden flooring or a bathtub and such. But does it make financial sense to do this?
There are some advantages of each, but I shall take the Indian perspective. Here’s where we are with Renting:
But there are tax advantages for buying too. Here’s where we are:
Let’s see the comparison for a Rs. 50 Lakh house. I’m assuming that if you were to buy this house you will have a certain amount as “down payment” and pay a much higher EMI per month than the corresponding rent (Rs. 41,000 EMI, vs. Rs. 15,000 rent). If you rented, the extra money goes into the bank as a saving, and so does the down payment.
The return analysis on this, is in an excel sheet I have built, but here’s the summary:
Key points to note:
If you’re in for the long term you should buy, but remember this: If you think the prices will stabilize or come down in the next eight years, delay your decision to buy. After all, renting is far more cheaper and you will have much more money saved up in the longer term.
Also, be more aggressive in your investments to give you a better return, and therefore a better down payment.
Finally, remember that owning your house is important for sentimental and personal reasons too. The happiness you can derive from having an own house perhaps outweighs financial reasons.