“Should I rent an apartment or buy a house”, this is a question that has crossed the mind of every aspiring home buyer at some or the other point of time. While some people are strong advocates of becoming homeowners owing to the financial security you can get from owing real-estate, others find that living on rent affords them the freedom to move places as their heart desires; that not paying huge EMIs and remaining indebted for years on end allows them to use their funds to fulfil other life goals. As it happens with every decision you make in life, it is always better to compare by weighing out the pros and consequences. Let’s find out the answer to the question, “is it better to rent or buy a house”.
Buying a house vs renting it
The investment perspective: Real estate investments only appreciate as time goes by. You will hardly ever hear of property prices going down. By the time you decide to sell off your apartment, you would already be booking a decent to high profit. With every EMI payment, the amount of debt reduces, whereas the value of the property continues to rise. However, if you choose to rent a house, you may be paying a smaller amount as rent as compared to the monthly EMI.
Down payment vs security deposit: If you buy a house by taking out a home loan, you are expected to make a down-payment. This constitutes 10%-15% per cent of the actual price of the property. This is almost 10 times the amount your pay as a security deposit. Your landlord typically asks for a security deposit of 3-4 months of the monthly rent amount. Besides, when you vacate the house, the security deposit is returned to you, after deductions as per the lease agreement. People asking should I rent an apartment or buy a house, and not looking to spend a major chunk of their savings on down payments, are better off paying rent.
The monthly payables: When you take on a home loan, you are aware of the tenure of the loan and the loan EMI. As such, you can plan your budgets keeping the EMI in mind. With every EMI payment, your credit scores increase. However, if you choose to live in a rented apartment, your rent amount increases by a minimum of 10% each year. In the long term, you end up paying more on rent while your EMIs stay the same. What’s more, you can even foreclose your home loan and your EMIs can disappear altogether but the rent amounts only increase as property rates increase.
The personal touch factor: When you purchase a property and are shown the floor plan, you can always talk to the builder regarding the modifications you want. You may want a bigger living room and a smaller bedroom; you may want a dining area in your kitchen and so on. All these modifications are possible only when you buy a house. On the other hand, house rent agreement comes with several clauses. One of the most important clauses in rented house agreements is that you cannot modify anything in the house. You really cannot alter, paint or add a personal touch to get an at-home feeling. You need to get creative but you are supposed to hand over the house to your landlord in the exact condition in which you received it.
Financial stability: Owing a home can come in handy on a rainy day. Being a homeowner allows you to borrow money or take out any other kind of loan when you are in a financial crunch. You can get a top-up loan on your home loan or a personal loan by mortgaging your home. Moreover, when you provide your home as collateral, you are charged a lower rate of interest. In case of people who prefer to live in rented houses; even if you do not have a property that you can mortgage or provide as collateral, you can get a personal loan when you are in a financial emergency. That said you may end up paying a high amount of interest if you cannot provide collateral.
Benefits from tax deductions: When you buy a home, you can claim a tax deduction up-to ₹2 lakh per annum on the interest portion of the home loan EMI. Furthermore, you can get an additional deduction of ₹1.5 lakhs per annum on the principal portion of the EMI, unless you sell the property in less than 5 years. Salaried individuals paying monthly rent can also benefit from the ‘house rent allowance’ component of their salary. Salaried individuals living in India’s 4 metros i.e. Delhi, Mumbai, Kolkata and Chennai can avail HRA tax exemption on 50% of their basic salary, whereas as those living in other Indian cities can avail HRA tax exemption on 40% of their basic salary. If you are paying an annual rent exceeding ₹100,000, you must furnish the PAN card details of your landlord. In this case, whether you choose to rent or buy a house, you can reap benefits from both.
The commitment factor: When you buy a house, you enter into a long-term financial commitment that can last for almost 30 years. You should consider buying a property only if you have the discipline and resources to enter into this long-term commitment. If you are the kind of person who prefers not to take on long-term debt, it is better to rent a house instead of buying it.
Maintenance charges and property taxes: Homeowners are responsible for maintaining their home and bearing all the expenses towards the same, even if they choose to rent out a house. For instance, if there are any damages, such as a broken geyser or a broken water-pipe, you have to bear the damages for the same; whether the flat is occupied by you or if it is rented. You also need to pay annual property taxes as a homeowner, even if you are renting the house to other occupants.
It is difficult to leave when the need arises: Owing a house makes it difficult for one to leave a place that is considered a permanent when the need arises. If you or your spouse is reassigned to a different city for work commitments, you have to take the decision to rent or sell your home. There is no guarantee that you will be able to successfully get the rent you desire. As a lessee, you can just pack up and shift town by incurring transportation charges.
Final word: As you can see, there is no definite answer to the question is it better to rent or buy a house. There are pros and cons of each aspect. Whether you choose to buy a house or rent it depends on your personal preferences.