Solving The Dilemma Of Buying Or Renting A House

Buying a house you can call your own is the dream and desire of every Indian. Property costing is soaring in metropolitan cities that has made people opt for renting rather than owning a property. When it comes to renting vs buying a home, budget plays a vital role.

The decision between buying and renting a house is a difficult one. In India, most people favor owning a house rather than renting. There are undisputed advantages and disadvantages to both sides.

Difference between renting and buying

The logical distinction between buying and renting a house is ownership. When you buy a house, you own it, and that does not happen when you rent one. But this is not the only thing to take into account. Here are some important factors that can help firmly determine your decision.

1. Rent ratio

It is the ratio of the levy of the property to its annual rent. If the property’s value is 20x the annual rent, it is sensible to buy it. Suppose you incur a monthly rent of ₹25,000 for a home, it amounts to ₹3 lakhs per year. If you reside in that house for 20 years, it will cost you ₹60 lakhs in total. If the property's price is less than ₹60 lakhs, the rent ratio is preferable for purchasing the property instead of renting. But, if the cost of the house is over ₹60 lakhs, renting it makes more sense and logic.

2. Rental yield

It is the measure of funds your house can generate annually as a percentage of the property value. Suppose you have purchased a house for ₹75 lakhs and rented it out for ₹20,000 a month. So, the property is presently generating ₹2.4 lakhs per year, which is 3.2% of its actual value. If you take into account the property tax and sustenance expenses you have to bear every year, the rental return can turn out to be less than 3%. Experts advise that purchasing a house makes sense only if the rental yield is over 5%. Realistically speaking, that is a distant vision in today’s circumstances, especially in metro cities where the rental yield is around 2% to 3%.

3. EMI value

If you take a loan to purchase a property, you must contemplate the repayment expenditure while determining whether the property will be profitable for you. A rule of thumb is, if the equated monthly installment (EMI) exceeds more than 30% of your monthly income, it is not preferable to purchase the property and vice versa.

Advantages of renting a house

1. Minimized responsibilities

Residing in a rental property entails lower responsibilities and costs. You only need to pay the rent and excluding utilities for a rented property while the owner pays for the taxes, repair costs, and maintenance outlays.

2. Decreased upfront costs

Purchasing a property comes with many upfront expenses that may put a bump in your budget. On the other hand, if you rent a house, you may have to pay a security deposit and a few months’ rent in advance. So, it will be more sustainable to rent the property than to purchase one.

3. Easy to relocate

It is easy to leave a rented house as it is by definition a short-term arrangement. So, if you need to change cities, you may easily leave the old house and find another one in the new city you move to.

Disadvantages of renting a house

1. You have no authority

When you rent a property, almost all the supremacy belongs to its owner. They can periodically escalate the rent and even make it unavailable for renting at any given time. These unpredictability make renting a property a risky option.

2. You can never make it your own

You cannot make modifications to the rented house in most situations. Some owners do not even let you hang an art piece and redesigning without their permission may result in the loss of the security deposit.

Advantages of buying a house

1. Security

When it comes to renting vs. buying a house, the one characteristic that gives a significant benefit to buying is security. When you buy a property, you own it and have the authority to decide how long you want to live there. Moreover, you can freely make changes as per your needs, desires and even sell it whenever you want.

2. It is an investment

A house is a valuable asset that elevates in value over time. So, you can look at buying a property as an investment. It gives you the right to sell the house and make a profit. You can even rent it to produce regular income.

Disadvantages of buying a house

1. Major responsibility

Owning a house comes with plenty of responsibilities and added expenditure. You have to bear the maintenance, property tax, utilities, and much more out of your expenses.

2. Arduous to move out

Investing in a house means you will have to reconsider before moving. If you get a dream job in another country, you cannot travel until you find a buyer or tenant.

3. Soaring upfront costs

When purchasing a house, you need to give a lump sum of funds as a down payment. There are also other adjacent costs like registration charges and stamp duty.

How to decide whether to buy or rent a house

Here are a few important factors that can help decide if you should buy or rent a house.

1. Financial circumstances

Your financial situation is the most crucial aspect to appraise. Buying a property demands you to pay a large amount upfront. If you opt for a home loan, you are required to pay EMIs to repay it for over a long tenure, which can be rather expensive. So, financial stability is significant when buying a property.

There are positive changes for the Home-Buyers as reductions have been made in home loan rates. Home loan eligibility depends upon the repayment scope, income, prevailing loans or debts and the age of the loan applicant.

Companies like Tema Fintech are facilitating Home Loans that are financially beneficial such as minimal EMIs where you can space out your installments over a longer tenure, desirable interest rates and some uniquely special advantages. This will help the buyers to attain the sophisticated home and lifestyle they have always been wishful for.

2. Location

The location of a house is permanent. This makes moving to different cities quite chaotic and challenging. Purchasing a house requires you to be certain that you do not have to change your current location anytime soon.

3. Lifestyle

Renting a property means you have to follow your landlord’s rules and conditions. So, if you want to reside on your terms and as per your lifestyle, a rented house may not be the favorable place for you.

4. Flexibility

Owning a house means you can renovate it whenever you want and utilize it for any purpose without any obligations. Renting the property does not permit that flexibility.

5. Real-estate market condition

The property market has seen a lot of fluctuations over the recent years. The real-estate market situation often helps determine if it is a good idea to buy a house. If you are purchasing a property to sell it swiftly, it might not be the ideal choice in a volatile market. Renting makes more sense in such a scenario .

6. Tax benefit

The tax benefit is a critical aspect of deciding whether to purchase or rent a house. Both alternatives can come with tax benefits.

Opting to buy or rent, though, is a huge decision that influences your financial health, lifestyle, and personal goals. Whichever option you choose is subjective entirely on your lifestyle and financial circumstances. Both require a regular and steady income and may also require a specific degree of effort to maintain

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