At some stage in life, many of us often face this dilemma- is it better to take the plunge and buy our own home, or should we just rent one? The “EMI versus rent” debate has been going on for quite some time. Where on one side financial advisers propagate home buying as an ideal option, there are others who feel renting a home could be a good deal too. To help you evaluate the two options, we list out the pros and cons of both sides. With different financial implications, the option that may suit you greatly depends on your financial needs. Read on to understand this.
Option 1: Buying a House
Definitely, one of the biggest financial decisions in life for many is buying a home. From deciding on the perfect home to arranging for loans and finances, the process may seem long drawn and sometimes tedious.
- Asset Creation
Buying a home is not just about owning concrete space. The money spent through down payment and EMIs actually go towards creating a valuable asset. When you rent a home, even after years of monthly rentals, you actually don’t get any asset in hand.
- The Investment Angle
Value of a home increases over time. Depending on the property prices and the demand in the neighborhood, you could generate considerable profit from your property if you decide to sell it at a later stage.
- No Landlord Issues
Pesky landlords could often be quite a pain for tenants. Owning your home means no interfering landlords and your freedom and privacy is guaranteed.
- The Emotional Aspect
There is definitely an emotional string attached to owning your own home. This is something that a rented home would not give you, especially for first time home buyers.
- Question of Affordability
You should take the plunge of buying a home, only if you can afford to pay the down payment and service the monthly loan installments. With hikes in interest rates by the Reserve Bank of India recently, many borrowers are feeling the pinch. Also, a sudden financial crunch may sometimes cause havoc in payment of EMIs. Home rents are much lower than EMI payments. And if you are in financial crisis, all you need to do is move into a home with a lower rent.
- Returns and Timing the Market
It is true that real estate is an investment. But what one must remember is that real estate is cyclical. Your gains are greatly dependent on when you have made your purchase. Buying at the market peak, in the long run, net of all loan costs etc… may actually not fetch great returns. Also there exists a risk of the property not appreciating owing to reasons which really aren’t in your hands. If the market isn’t right to buy a house, renting serves as a better option.
- High Maintenance Costs
Most apartments and gated community properties these days possess additional expenses towards maintenance and amenities. You must consider such recurring costs in your budget before you plan on buying a home.
Option 2: Renting a Home
Renting a home could work out to be a much simpler and convenient option for many. With rents being lower than EMIs, if the difference amount is wisely invested regularly you could earn favorable returns in the long run.
In times of a financial crisis or if you are moving to a new city, rental homes offer flexibility. You could opt for a rental home on the basis of your affordability and when your economic condition improves, you could always move on to a better home.
- Commuting and City Limits
Commuting to work, especially if your office is in the heart of the city, could be quite harrowing. If you are the kinds who do not like to travel long distances to work each day, renting a home within city limits, is a good option.
- Lack of Security
There is no guarantee of how long you could stay. If your landlord decides to cancel your agreement, you would be left with no option but to vacate. Such frequent changing of homes could be quite a nightmare and a chaotic affair for you and your family.
- Lack of Freedom
Modifications, alterations or setting up your rented home the way you desire, may irk many landlords. There is seldom freedom to have it the way you want it, and sometimes impossible too.
Evaluating the Options on the Basis of Your Need
In the long run, buying a house as early as you can definitely is a better of the options, as you not only build an asset, but it also appreciates in value. Nevertheless, no option can be considered as the ultimate and perfect option. When it comes to financial planning a practical evaluation of options on the basis of individual needs is what counts.
You must have a holistic approach in your decision making process, considering all factors, such as your lifestyle, job and personal preferences. Where ownership comes with a lot of responsibility, renting could be cumbersome too. Thus weigh the pros and cons of each side practically. The tax impact on both the options is more or less similar. Where you save tax on EMIs paid, you save tax on HRA, when rent is paid. From a financial viewpoint, either decision must be integrated into your financial plan to ensure that you do not derail the other goals of life.