Looking back at the good old days right after college, your biggest misgivings were forgetting your friend’s birthday, buying cool gadgets or picking a place to party. 

Once you started climbing the ladder of success in your job, it’s time to make an ultimate decision – to rent or buy a house.

While owning a home is the biggest dream that every Indian has, escalating prices in the recent times have led people to rent a home, rather than buying, as rental homes cost less when compared to owning a home.

‘Fools build houses, and wise men live in them’, this British proverb is generally used in arguments against buying a house.

However, investing in a house is an important decision to make, as it might take up almost all of one’s savings. If you are sure about the city in which you are going to stay, have the necessary funds for a down payment and have a stable cash flow, then owning a home is highly recommended. Owning a home also is an indirect way to savings, in the form of home loan’s EMI payments, which most people would otherwise spend, if they rent a house.

Here are some key finders that will help you understand the hits and misses of rented homes:

Financial Implications

The below table indicates the average costs of a person living in a rented place.

Detail Calculation
Case 1 (Living on rent)
Assumed rent (per month) INR 20,000
Rent appreciation (per annum) 5%
Expected rent after 20 years (per month) INR 40,000
Expected rent after 40 years (per month) INR 80,000
Amount paid in 40 years INR 2.9 crores

A person living in a 3-bedroom house pays a rental of around Rs 20,000 per month. The average rental appreciation is five per cent per annum.

The below table indicates the average costs of a person living in his own house.

Case 2 (Living in one’s own house)
Assumed home loan amount Rs 40 lakhs
Tenure 20 years
Interest rate 8.3%
EMI Rs 34,200
Total amount paid in 20 years Rs 82 lakhs
Rent amount saved by a home owner who lives for 40 years (i.e., excess amount paid by the tenant in the last 20 years) Rs 2.1 crores

The above tables clearly indicate that the cost of living of a person on rentals is much higher, than a person living in his own house.  Also, the capital value of the home increases over a period of time, whereas rentals see no benefits.

SOLUTION:  It is always better to pay an EMI and own a house rather than pay rent and make someone else rich.

To make home loans available for all sections of the population, the regulations pertaining to availing home loans are made easy now. The government of India introduced the PMAY Scheme, which aims to provide homes for all by 2022 and is designed for the Economically Weaker Section (EWS), Low Income Group (LIG), Middle Income Group-I (MIG-I), and Middle-Income Group-II (MIG-II). Applicants whose annual income is up to Rs. 3 Lakhs and Rs. 6 lakh can apply for a loan and avail subsidy too. The maximum subsidy one can get is Rs. 2.67 lakh.

 To know all the Key features and benefits of the PMAY scheme, read our blog Know more about The PMAY scheme’s invulnerability and sustainability angles.

Location Wise:

A rented place offers you the convenience of picking a location close to your workplace and easy access to the city’s centre. You can always scout for a new place and move out after the agreement period. But the problem is, your landlord can raise the rent or sell the property and you might have to switch places multiple times.

Solution: Invest in a home and you will have no landlord to answer to and you can also build equity and credit.

 Tax breaks

Rentals have minimal tax benefits.

 Solution: Home loans are eligible for big tax breaks up. The interests on home loans are lower than any other loan. Take a loan and buy a property.

The above mentioned are only key finders, to know more about rentals and their misses you can read our blog Why go for rent when you can own a home at Swarna Griha!

Take away

Evaluate both rentals and home buying; both have their pros and cons. A rented house will give you flexibility but an own house will give you stability. Choose wise, choose what’s right for you!