Buying Vs Renting A House: Understanding The Pros And Cons Of Both Options

It's been many decades since the debate of rent vs. buy has been going on. While many industry experts have expressed their opinions and even the calculations behind their stance, whether it is in favour of renting or buying, the decision ultimately often turns out to be a more emotional one than a financial one, isn't it?

Renting Vs. Buying

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Owning a home is a hugely emotional decision and is traditionally regarded as a significant milestone in one's life. On the other hand, those who prefer renting tend to focus on the flexibility and financial benefits it offers.

But on a large scale, most people still remain confused and are not able to make a conclusive, rational decision regarding whether to buy or rent. If you too are among them, it would be prudent to have a look at the list of pros and cons of both renting and buying, respectively.

Pros Of Buying A House

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1. A long-term asset gets built: One of the primary advantages of buying a house is the opportunity to build a long-term asset. Rather than paying rent every month, you can utilise your money to invest in a property, gradually building equity and value over time through an asset whose price is likely to appreciate around 8¨C10% a year.

2. Fixed liability in the form of EMIs: Unlike rent, which you would keep paying endlessly in whichever house you live in as a tenant, your home loan EMIs, although they may turn out to be higher, are at least for a definite period as per the tenure you choose for the home loan.

After the fixed repayment tenure of say 15-20 years or even 30 years, your outgoings in the form of EMIs will stop, and you can even prepay them whenever you have surplus.

3. Availability Of Tax Benefits: Owning a home through a home loan also gets you the benefit of tax deductions on both the interest paid (up to Rs 2 lakh) under Section 24 and the principal amount (up to Rs 1.5 lakh) under Section 80C. These tax benefits can significantly reduce the overall financial burden.

Moreover, if you co-apply for the loan, especially with a woman co-applicant, the overall tax benefits, stamp duty concessions, and interest cost can be further reduced.

4. Sense Of Achievement Of A Big Financial Goal: For many of us, owning our own home is more of an emotional decision as it provides a sense of emotional upliftment, security, and stability. Besides the mental peace of having a home you can call your own, you also have all the freedom to customise your own space and enjoy the many emotional benefits of homeownership without the stress related to a landlord.

5. Provides Diversity To Your Asset Portfolio: Having a real estate property in your portfolio provides diversity amid other asset classes and investments in your basket, such as gold, cash, stocks, etc. A diversified portfolio not only balances the risk-reward ratio but also helps with economic ups and downs.

Also Read: Assets Against Which You Can Take A Loan

Cons Of Buying A House

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1. High Upfront Costs: Buying a house in itself involves many upfront costs, such as a substantial down payment, registration fees, and stamp duty. These costs can dig a deep hole in your pocket if you have not properly calculated them and can pose a significant challenge if not planned properly.

2. Maintenance And Furnishing Expenses: It's a no-brainer that homeownership comes with lifelong maintenance expenses, repairs, renovations, and general upkeep. All this can increase over time, which can further strain the homeowner's budget, especially in the case of unexpected expenses.

Also, once you buy a house, you may want to make some changes in order to customise it according to your tastes. This will again come at a cost, depending on how much you want to spend on the changes.

3. Real Estate Is An Illiquid Asset Class: A house is considered an illiquid asset since it can't easily be converted into cash whenever required. In fact, selling a property can indeed be a time-consuming process, especially depending on the current economic cycle.

Now that you have a fair idea of what the pros and cons of owning a house are, let's understand the pros and cons of renting now:

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Also Read; Why Most Rent Agreements In India Are Only For 11 Months

Pros Of Renting A House

1. Lower Financial Obligations: Renting tends to be more cost-effective, especially in the short run. Monthly rentals are generally lower than a home loan EMI, which thus allows you to reside in desirable locations without committing to a substantial financial amount in the form of an EMI.

2. Minimal Upfront Costs: Besides lower financial obligations in the form of rent when compared to EMIs, renting also requires a smaller upfront payment in the form of a security deposit, which is typically equal to two-to-three months' rent. This can be a relief, especially for youngsters who are in the early stages of their careers.

3. More Flexibility To Change Place: Renting offers the advantage of flexibility to change the place of residence. You can easily relocate as per your changing circumstances or preferences. This is also beneficial for those who do not want to be tied down to a place too early through a home loan in their career.

4. Room To Contribute More In High-Performing Investments: When your monthly outflow in the form of rent is lower vs. a home loan EMI, the surplus you get to have in hand can be invested for good returns.

Cons Of Renting A House

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1. No Ownership Of Asset: The primary drawback of renting is the lack of ownership and autonomy related to the property that could have been an asset. Renters have limited control over the property and need to adhere to the landlord's regulations, and you are also not the owner of the property (asset).

2. Increase In Rentals Yearly: Your rent is likely to increase by at least 5-8% with each passing year, sometimes around 10% every 11 months, or as per the rental deed. On the other hand, loan EMIs do not necessarily keep rising every year, especially at a fixed percentage. Moreover, loan EMIs can even be lower when home loan rates are on the decline.

3. Lifetime Liability: Rentals will go on throughout your life, unlike loan EMIs that are for a limited period as per your tenure. That is why living forever on rent turns out to be a lifetime liability vs. a home loan EMI, which not only ends when the tenure ends, but you can even prepay the loan when you have surplus funds.

4. Headache Of Regular Shifting: When you are living on rent continuously year after year, you will be at the behest of the landlord, and their decision to sell or discontinue your rental accommodation can result in you shifting homes quite often, which won't be in your control either. All this will not only give you the constant headache of shifting homes but also make you incur the shifting costs repeatedly.

Also Read: Why Most Rent Agreements In India Are Only For 11 Months

Conclusion

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In conclusion, the decision to rent or buy a home will depend on your current financial circumstances and priorities.

Broadly speaking, for someone eyeing a short-term solution, renting can be the choice until one becomes financially capable enough to adequately contribute a down payment as well as repay the home loan EMIs without compromising on other life goals.

In the long run, the benefits of owning a home tend to likely outweigh those of renting in multiple ways when factors like higher tax benefits, the freedom to stay as long as you want in the house, social status, asset ownership, etc. are taken into consideration.

However, purely on the basis of the case scenarios assumed in this rent vs. buying calculation, renting turns out to involve a lower cost than owning a home.

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