Everyone imagines owning a home one day – a place to call your own. But as property prices go higher and higher, the reality of owning realty can sometimes seem a distant dream. Renting, even in expensive cities, then makes more financial sense. But how do you decide whether renting or buying property is best suited to your situation?
The decision can be complicated – budget, personal and long-term financial goals all come into play. Let’s evaluate the pros and cons of renting and buying a house.
What are the benefits of renting?
There are several benefits to renting a home – especially if you do not have the savings for a downpayment. Here are the main reasons why renting makes sense:
1. The financial investment is not a lot
Perhaps the reason why most people choose to rent over buying a home is that the investment is lower. Paying monthly rent leaves you with much great financial flexibility than putting down a large downpayment in addition to monthly EMIs. There are also other costs that you can save on when you rent. For instance, if you rent a fully-furnished home, you do not have to shell out a large amount of money buying furniture and kitchen appliances. Most household renovations and repairs are usually taken care of by the landlord, too.
All these terms and conditions are usually stated in a rental contract that has been agreed upon and signed by both the landlord and the tenant.
2. You aren’t tied down geographically
When you rent a home, it is always easy to relocate. This can be especially useful when you work in a field that requires you to move every few years. It’s also helpful if you have not decided on which city you would like to live in for the long haul. Renting gives you the freedom to take on work at new locations without having to worry about the financial constraints of having to keep paying an EMI on a home loan. You can be adventurous and move across the country for new professional opportunities and experiences every few years. This is usually a big draw for younger individuals who are still deciding on where to set up base.
3. There is no investment risk
Buying property is not always the best investment. Investing in real estate can turn out to be a high-risk and low-return investment for a middle-class Indian. Often, you have to empty out your life savings in order to buy a property and then take out a home loan for decades, too. As far as investments go, buying a home isn’t always a safe bet. If you don’t want to sink your savings into property investment, renting can be a good option.
Appreciation isn’t the only worry when buying property, risks also include getting duped, construction integrity, and development delays when buying under-construction property. Buying in developing areas may yield higher appreciation than buying in already developed areas but it can be a gamble as development isn’t always guaranteed and you could be left with a low return on your investment. If you are looking to invest for good returns, perhaps shares, mutual funds and other investments can better suit your financial goals.
4. You know exactly how much you will need to pay
When you rent your home, the monthly rent is fixed and agreed upon so you know exactly how much money you need to set aside each month. However, if you take a home loan (with a floating interest rate) your EMIs can fluctuate according to various economic factors. When the interest rates go up, your EMI could increase significantly, needing you to reevaluate your monthly budget and spending.
5. There’s less paperwork
When you buy a home, you have to go to banks to apply for a home loan, submit paperwork and adhere to various guidelines and checks. This can be a lengthy and time-consuming process. Every detail in the contract needs to be read and understood carefully before signing and often requires consultation from a legal professional. The whole process can take weeks to months. With renting a house, a leave and license agreement is drawn up and signed with relatively few hassles as the risk involved is generally very low as the duration of the agreement does not exceed 11 months.
What are the benefits of buying a house?
Buying a home is a dream for many and it certainly has its advantages. Here are some important benefits of investing in a home.
1. It is an emotional purchase
Buying a house is sometimes less about the investment and more about feeling emotionally and physically secure that you have a place of belonging; a space you can call your own. We all dream about living in our own ‘owned’ homes when we are young. Our parents usually owned their home and it’s something that has been ingrained in us since childhood. With the cost of homes increasing drastically year by year, buyers often take the ‘the sooner, the better’ approach, putting down a down payment as soon as finances allow them to avoid paying even more in the future.
2. You can live as you want
When you have a place of your own you can decorate, renovate or reconstruct exactly as you would like it. If you have strong design and style ideas, having your own home is the perfect canvas to showcase your personal tastes. When you rent, however, you are obliged to get permission from the landlord for as little as a drilled nail into the wall. If you rent an already furnished home, you will be stuck with furniture and decor that don’t necessarily suit your taste and personality.
3. Enticing offers
As Covid-19 hit the real estate market pretty hard, builders are giving potential buyers attractive incentives during this recovery phase. Developers may offer good payment schemes and special deals to secure their commitment. For those looking to buy property, now is the time to benefit from such offers.
4. Feeling financially secure
If your EMIs are comfortable for you to pay, taking out a home loan can feel like a step toward embracing greater financial freedom in the future. Regular mortgage payments can cost a little more than monthly rent in some places and the benefit is that you are getting your own place at the end of it. Renting can seem like a waste of money to some people, especially in big cities where the rates can be unreasonably high and unpredictable.
5. Appreciation
When an area is developing, it is likely that property in that area will appreciate simultaneously. Therefore, if you happen to live in a location that shows signs of rapid development and you plan on staying in this area for a while, buying property can be a sound investment. For one, you will have a place to stay, of course. Secondly, you could end up with good returns on your investment rather than just spending money on rent.
Is renting or buying better in 2023?
Investing in property has always been seen as a positive long-term investment in the Indian market. With the government focussing on development and infrastructure, property prices are likely to continue to rise. However, whether this matches up to other investment returns depends on a host of factors. Owning a home is much more about your personal standing and desires than investment for many. But if you are set on getting the most bang for your buck, perhaps you will find that renting is more suited to your needs.
Cooperative Housing Society