Renting vs Buying a Home

Should you rent a home or buy one? Let’s look at the pros and cons of both and make it easier for you to decide between renting vs buying.

This is a common dilemma that many people face (generally in their 30s and 40s); whether they should buy a home or just keep on paying monthly rent and enjoy the freedom of not being attached to any land for a long time. In this article, we are going to discuss the pros and cons of both owning and renting a home. Hopefully, you’ll be better able to choose between renting vs buying after reading this article.

While you will see some obvious advantages and disadvantages to owning/renting a home; it is important to note that there is no rule of thumb that can take a final rational decision for you. You have to evaluate your own circumstances, financial health, and other factors; then you can make a decision for yourself. Although owning a home may make sense for some people, it is not true for everyone; and renting might be an effective approach for a lot of people too.

Without any further ado, let’s get straight to the point (Renting vs Buying a home).

Renting a Home

Renting simply means that you regularly pay some amount of money to the owner of the property that you’re living in; and you can move out of the flat without paying any penalty at the end of your lease term. Reciprocity applies, so the owner of the flat can also ask you to leave at the end of the lease term without having to pay any penalty or damages to you. It’s like no-strings-attached where you are only bound to the place for a fixed amount of time; as mentioned in the contract; and can move out any time after that.

One of the biggest misconceptions that people have about renting a place is that you are wasting money on the rent that you’re paying; since you could’ve purchased your own home and stayed without paying any rent. This is not true; living anywhere would cost you money, in one way or another. A major disadvantage to renting is that you’re not building any asset which will appreciate in value with time. However, this reason alone doesn’t make renting a bad deal; since a lot of times the price of a property can be more than the total amount of rent that you’ll pay on it; even if you choose to stay there for your entire lifetime!

Advantages of Renting

• Lower level of liability and more financial freedom – when you rent, you don’t have to worry about the huge housing EMIs. You have more freedom regarding where you want to spend your money; and it takes a lot of stress off your head. This is assuming that the rental is lower than the housing EMI; which is true in most of the cases. Also, you pay less money upfront in the form of a security deposit; which is much lower than the down payment that you may have to make if you’re buying a house. Generally, people would include down payment in their loan itself; but that would just mean an even higher EMI that will be chained to you until you pay off the humongous loan!
• Proximity to work – Most office spaces are in uptown areas where the property prices are more expensive than city outskirts. While you may not be able to afford to purchase a house in such an area; it may be feasible for you to just rent it out. So instead of buying a home in the outskirts far from your work; and spend hours travelling to work every day; you can simply rent a place near your office and save a lot of travel time.
• Relocation – If you realize later that the place that you’re living in is not really suitable; and you want to move out to a different area/locality/house – you can! This is definitely a challenge when you buy a house; you have to choose the perfect location before buying; because later on it isn’t easy at all to shift your home from one location to another. Examples for this could be if you have a change of job, or you don’t like the schools near your area, or even if you simply want a change of environment!

Disadvantages of Renting

• Personalization of space – There’s only so much modification that you can make in a rented place. The owner might disallow hammering nails into the walls, so you may not be able to hang your favorite wall-painting there. You may want to make some changes to the kitchen, or even the color of some wall; but you’d need to ask the owner for permission. Although you’ll be living in the house, but you may not be able to absolutely personalize itself to your exact taste. Even in cases of repair & maintenance, you may need to ask the owner for permission before you get anything done; and you may have to live with what you have until the landlord gives their approval.
• Your rent may go up in the future – Since the rental agreement has a fixed term; the rental amount is renegotiated at the time of renewal of the contract. As time progresses and inflation goes up, it is normal for the rent to go up as well. Along with the increase in the property price; it is only reasonable for the rent to also go up accordingly. Therefore, you have to consider the increase in rental as well; when you are calculating your future budget as part of your personal financial planning.

Buying a Home

When you buy a home, you pay some amount upfront (down payment); and the remaining money is to be paid in EMIs (or instalments). Once the property is in your name, you do not have to pay any rent on it to anybody; but you do have to pay the required property taxes and the maintenance charges for your society. In addition to this, you will also have to pay for any permanent repairs or maintenance that is needed with the construction during the lifetime of the property. The biggest attractive point of buying a home is that you can build an asset and pass it on to your future generations.

Advantages of Buying a Home

• No fixed monthly pay-out – The biggest advantage of owning a home is that you don’t have to pay any fixed monthly rent on it that will keep on going up year-on-year. You do have pay your monthly instalments; but that is for a limited period of time and you’re building an asset.
• Sense of stability – Since you will own a home in your name, it will give you a sense of stability and security. There is no landlord who could come and evict you out of the place because you broke some rule. You don’t need to relocate at the end of your contract, and there’s no need to repeatedly pack/unpack your stuff every time you need to change places. Also, you don’t need to go through the hassle of renewing your rental contract every year.
• Personalization – You own the house, and you can make your own rules regarding what you want to do with it. You can completely modify and personalize the house as per your liking and convenience; and you don’t need to ask for anyone’s permission for it.
• Personal wealth – When you own a home, you are building an asset; therefore, you’re increasing your personal wealth with it. If you choose a good investment location and the price goes up with time; you can end up making a lot of money from it.

Disadvantages of Buying a Home

• Liability goes up – You’ll most probably have to take a home loan for the purchase of property; this would mean that you’ll be paying EMI on it for several years. This would increase some stress in your mind regarding your income; since you’d need to have a regular and stable stream of income to be able to pay off the loan in EMIs.
• Relocation is very difficult – You’re bound to one location when you buy a home. It is a long-term commitment; and you may not be able to easily switch your location if your job demands it. You’ll be stuck to one place and would be hesitant in exploring opportunities outside that place.
• Unstable Real Estate market – The value of a property may go up and down; so, there’s no guarantee that the location that you’ve bought would give you a good investment return. It may go in your favour; but it can also go against you and prove to be a bad investment.

Conclusion – Renting vs Buying a Home

When it comes to Renting vs Buying, There’s no one size fits all rule when it comes to renting a house or buying one. You have to think about what you want, what is important to you; and then make a rational decision based on your situation. For example, if you’re a person who would need to frequently change your location due to your job; or you want to stay open to opportunities in different cities; then renting may make more sense for you than owning a home. On the contrary, if you’re a person who has a stable business at one fixed location; and don’t foresee any frequent location change in the coming years, then it may be a wise decision to buy a home instead of paying rentals.

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