Renting vs. buying a home: Which one makes more sense for you?

Representative image

For many individuals and families, the decision to rent or buy a home is one of the most significant financial choices they will ever make. Home ownership has traditionally been considered a status symbol and signal of economic stability and security. Yet newer work patterns, rising property values, and adjustable lifestyles have made rental housing an attractive choice for some.

There is no across-the-board solution to rent or to buy. The right choice would depend on several factors—your current financial situation, long-term goals, security of your job, family plans, and even the state of the real estate market in your area. Clear information regarding the trade-offs can help you make a well-informed and future-oriented choice.

The case for renting

Renting is convenient, especially for those who may need constant shifts in location due to work or other personal reasons. Renting also demands less initial expenses, with a security deposit and first rent only typically demanded, unlike the huge down payment and stamp duty required upon purchasing a property. Renting also prevents you from being saddled with property upkeep, extensive repairs, or fluctuating interest rates.

In high-cost urban centres such as Mumbai, Delhi, or Bengaluru, the rental-to-price ratio typically renders leasing more budget-friendly in the short to mid-term. Instead of locking significant sums as down payment or EMI, renters can park the same amount elsewhere for perhaps better returns.

The advantages of purchasing

Buying a house brings financial and emotional security. It provides a sense of security and allows one to personalize the home without restrictions. A house can even become an asset for the long term, especially in urban or appreciating property areas.

With a home loan, consumers also receive tax relief under Sections 80C and 24(b) for repayment of principal and interest, respectively. For those who remain in one location for over 7 to 10 years, the costs of buying can turn out to be lower than renting, particularly if rent hikes are high.

Financial parameters to consider

Another well-known way of estimating the rent versus buy dilemma is to calculate the yearly rent against the down payment on the same home. If the cost of the home is more than 20 times the annual rent, then it is probably better to rent. The rule of thumb doesn't account for your own goals, income stability, or the advantage of the down payment elsewhere, however.

Prospective buyers also have to keep in mind home loan qualification, how they can afford to pay monthly EMIs, property tax, maintenance charges, and potential appreciation or fall in value. Tenants will have to keep in mind the number of years they plan on staying, projected rent hikes, and whether they are comfortable with not building up equity on the property.

Lifestyle and long-term objectives matter as well

Apart from numbers, lifestyle considerations are involved. If you like freedom, less commitment, and fewer dollars tied up, renting is the way to go. If you wish to have children, want to live among others, or have an intense psychic desire to own property, then buying is the ticket, regardless of additional cost and inconvenience.

Some also view a house as an inheritance asset or as retirement planning and others simply invest in equities, mutual funds, or businesses with a separate housing component outside of their investment plan.

Deciding to buy or lease a home is not an economic decision—it's individual. There are pros and cons for either, and what works for one will not work for another. Understanding your fiscal picture, where you envision yourself in the future, and how much responsibility you feel comfortable with will allow you to make the correct decision for both your wallet and your lifestyle.