Rent Vs Buy: Decoding The Most Debatable Real Estate Question

Table of Contents​

1. Renting vs Buying A House #1: Traditional Thoughts on Home Ownership​
2. Renting vs Buying A House #2: Benefits of Buying a House
3. Renting vs Buying A House #3: Buying a house also comes with costs and expenses
4. Renting vs Buying A House #4: Benefits of Renting a House
5. Renting vs Buying A House #5: Disadvantages of Renting A House

"To Be or Not to Be” is the proverbial question often facing an individual on whether "should I rent or buy a house." 

Both buying or renting a house come with their benefits and cons. This important decision is quite emotional, logical, psychological, mathematical and its ramifications can be long-lasting.

Also Read: 5 reasons why you should buy a home

In this blog, we'll closely examine factors that would help you decide whether you should rent or buy a house.

Traditional Thoughts on Home Ownership

Since time immemorial, we have heard phrases like "House is a defensive asset," "House is an essential roof to have over your head," and so on. 

These create an emotional and psychological association towards owning a home rather than renting it. This is the primary reason why housing projects are marketed with an emotional angle to sell homes to consumers. Various financing avenues are also available to enable consumers to buy properties. 

Benefits of Buying a House

Buying a house has several benefits, including:

• Asset creation and subsequent appreciation on investment.

• An asset like a home can come in handy during a financial crisis.

• A steady and permanent stay is a benefit that comes up from owning a home.

• Protection from inflation.

• Freedom to decorate your house and equip it with suitable furniture.

• Income tax rebates on principal and interest repayment are available for individuals buying a home.

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Buying a house also comes with costs and expenses, including

• Interest or EMI cost if the property is bought on loan. 

• Taxation costs, such as stamp duty, taxes, and registration costs, are borne during property purchase.

• Maintenance expenses, including insurance and property taxes.

Benefits of Renting a House

• Flexibility to change home if the personal or professional circumstances change, such as relocation to a different city.

• Tax rebates on house rent through House Rent Allowances (HRA).

• No maintenance or taxation charges.

• Maintain liquidity by not blocking significant amounts of capital in an illiquid immovable asset.

Disadvantages of Renting A House

• Lack of stability and temporary nature of stay: The property owner can terminate the rent agreement early, choose not to renew, or sell off the property. In all such situations, the tenant must move out on a short notice and look for a new home, disrupting daily routine. 

• Inflation risk: Rents increase in line with inflation and prevailing market prices. Most rent agreements have an annual escalation clause.

• Lack of access to facilities in residential societies/groups: Most cooperative housing societies impose various restrictions on the tenants, including their participation in cultural and community activities – which might create a feeling of alienation.

Having examined the above benefits and demerits, the decision on buying vs. renting a house comes down to the following factors:

• Financial capability: If you have the necessary financial assets to purchase the house with zero to minimal loan upfront, you can opt for the property as it would be economical in the long run.

• Investment Purpose: If the intention for the property is for investment, then it makes sense to buy a house if you are convinced of the high net return (net of interest cost) from the investment in that particular location. In case you want to live in the house you purchase, the equation is determined by factors including the debt component, interest rate, and the individual's financial capability: the lower the interest rate, the more you are inclined to buy the property.

• Psychological and Emotional Factors: Sentimental values, stability, sense of asset ownership, freedom on interior decorations, also play a role in deciding whether to buy or rent a house property. The higher the inclination towards such emotional factors, the more the preference becomes for purchasing the property.

Drawing A Conclusion: Buy Or Rent A House?

A home is where a person spends nearly half of their life. Hence, buying or renting a house is a crucial decision in an individual's life. Psychological and emotional factors are weighted more towards buying a house. But tangible economic considerations such as financial capability, taxes, and interest rates offer a more concrete basis towards temporarily renting a home while preparing yourself financially for a real estate investment. Ultimately, there is no right or wrong answer to this question, and it is driven purely by an individual's choice, requirements, financial situation and circumstances.