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.
renting vs buying
Are you renting or buying your home? Let us know in the comments below!

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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25 thoughts on “Renting vs Buying a Home”

  1. Dear MKJ Sir,
    You have pointed out very valid points here. But, apart from above points, it would be really helpful to learn about the taxation rules for both cases. I feel that it could be add on to pros cons for both cases.

  2. Sir I want to purchase own home and now a days I m searching a good home in my budgets b coz own home is present our reputation in society

  3. Owning a home is a better option if u have the capital keeping the bank liabilities low or negligible, If one has more than single source of income and can mitigate the future risk of job loss, down cycle of businesses and events of similar kind still owning a home is better option when in any senario u have d capacity to pay the EMI’s,

    If in case a individual or a family is dependent on 1 source of income they should look at Renting a home rather than taking the uncertain future risk as home loan tenure is very long

    Also one should look at Maths, In major cities the yearly rent payable is approx 2.5% of the property value where in Bank FDs still fetch a monthly return of approx 5.5%, If a individual is looking to buy a property worth 50,00,000/ the monthly bank obligations would be roughly around 42,000/ where in the same property would be available for rent of Approx 10,500/ Bank EMI would be for 20 years but if the individual pays a rent of 10,500 and does a bank FD every month for 30,000 then with Bank FD return of 5.5% he secures a capital of Rs 65,00,000/ approx to buy a home without any risk

  4. Dear sir, All points are valid but most of the people’s already know this. There Should be proper and detail guidance.

  5. Useless article. Every one knows what is written in the blog. You would have come out with firm opinion.
    In my opinion , it is always better to own property instead of draining on monthly rents. That way , you build assets for future.
    Of course , no point in having many properties just for sake of earning rent. This money should be invested in movable assets.

    This blog is below MKJ expectations. We adore you for your You Tube channel.

    1. Hi. If you look at it purely from the numbers perspective, the decision also depends on the location where you want to buy/rent the property. At some locations (where rental as % of property value is quite low), it may be more rational to rent a property than to purchase it; and invest rest of the money in some other asset which would give you a higher return (and also compensate for the loss of your monthly rental expense).

      This is just one aspect from a purely numbers perspective, and multiple other factors also need to be looked into. I’m planning to include these points in a future post.

      Thanks for your feedback. Perfection is a journey of incremental improvements. 🙂

      Stay tuned to the website!

  6. Buying or Renting is the two sides of a coin. Long term, buying is better as you create your own assets whereas renting you are making somebody eleses asset more as he is already purchased the property as investment. Look at some banks where they give you interest on the funds you park in the current account… e.g.

    The SBI MaxGain Home Loan gives borrowers the benefit of using their temporary surplus money to reduce the interest payable on their home loans. For instance, a home loan customer has funds for a while but cannot use it to foreclose the loan, instead has other obligations in the near future, he/she can put this money in the MaxGain Home Loan account. This surplus is deducted from the principal loan amount due, and the interest will be calculated accordingly. The surplus parked is available for the customer to withdraw at any time. This eases up the interest paid with each EMI and helps clear the loan faster.
    The home loan is sanctioned as an overdraft which will operate like a savings bank or current account wherein the customer can use the account as a regular savings account and maximize savings on interest.

    Features and Benefits
    The loan is sanctioned as an overdraft. An overdraft is a credit line which is provided to customers against security. Interest is charged only on the amount withdrawn.
    No extra charges to avail this loan.
    The processing fee is the same as a regular home loan.
    Cheque book, debit card and net banking facility is provided.
    The minimum loan amount is Rs. 20 lakhs. There is no maximum limit.
    Experts recommend saving interest on loans rather than earning interest on investments in FDs. You are likely to get 1-3% higher savings. If the parked amount is higher than the loan amount, you can also earn 4% interest on it.

  7. Owning a home is much require thing at one point of time. And this is beyond the calculation. Life is uncertain. Think about your family in case if some misshappning happen with you. These days loan agencies also provide insurance on that loan. So in case of some misshappning your family will need not to bear rest EMIs and they can live in the house without any tension. Also in case of frequent job changes, if you have a house, you need not to worry for your kids for frequent school changes.

  8. Owning a house is better:-
    1, subsidy by government.
    2. Tax exemption on home loan.
    3.good appreciation with time. Though it is notional but gives a lot of mental satisfaction.
    4. Compulsory saving due to instalments.
    5. Passive income by rent.
    6. Enhance social status at least in a society in which we live.

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