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Rent Vs Buy - 10 things you must know

To buy or not to Buy is a major decision when it come to buying a home. As the interest rates on home loans are dropping like hell, the rent vs buy debate took more importance. Pay attention to 10 important things to consider before making a final decision.

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We all need a roof over our heads. One option is to rent a house. The other option is to buy one. There are several pros and cons of both renting and buying a home. Here are 10 things you must know about renting vs buying a house before making a decision.

1. The Cost factor

In metro cities, the prices of homes are quite high, so renting is a better option financially, at least in an immediate term. For example renting a house that is worth Rs 50 lakh would cost Rs 10,000 - Rs 15,000 while the EMIs for the same house would be in a range of Rs 30,000 - Rs 40,000, which is a considerable higher outgo every month.

2. Location

For the above reason, one can rent a house in a better part of the town which is nearer to place of work, while it may not be possible to buy a house there because it is outside the budget. A home at a good location always demand more, an important factor for many.

3. Down Payment

When you buy a house, you must make a down payment which is 15-20 per cent of the price of the house. So, if your house is worth Rs 60 lakh, you have to pay Rs 9 lakh to Rs 12 lakh as down payment before you take a loan. The deposit required in case of renting is much lower.

4. Constant Payments

Once you buy a house, you have to make the commitment of paying a certain amount to the bank for a long period of time, even if you face an unfortunate circumstance like a job loss. On the other hand, the EMI for a home loan mostly remains constant as compared to rent which can increase every year.

5. A home is an Asset

A home is an asset which in most cases appreciates in value over time. Once you have paid your home loan, you are the owner of the house. A home is also a financial asset or an investment which you can sell off or pass down to the next generation. However, when you rent, you are giving away money but even after several years you will not be creating an asset.

6. Pride of Ownership

Buying a home is a proud feeling because you are owning your own home. On the other hand, renting is temporary.

7. Mobility

Today, the jobs we have may mean that we need to move from one city to another city or even to another country if there are better job prospects. Buying a house ties you up to one place. If you have to relocate somewhere you need to pay rent in a new place while also servicing the home loan EMI of the existing home. Renting on the other hand gives you the mobility at a lower cost.

8. Tax benefits

When you take a loan to buy a house and occupy it, you are eligible for tax benefits.

  1. Under section 80C, you can claim a deduction of up to Rs 1.5 lakh on your principal payments, including stamp duty and registration fee.
  2. Under section 24, you can also claim a deduction of up to Rs 2 lakh on interest payments.
  3. First time home buyers can claim an addition deduction of Rs 50,000 under section 80EE, if they have exhausted the Rs 2 lakh limit, subject to certain conditions. First time home buyers for whom stamp duty of the property is Rs 45 lakh or less and who are not availing deduction under section 80EE can claim an additional deduction of interest payment of Rs 1,50,000.

9. Customizing your Home

If you have your own home, you can customize it the way you want it. That is not possible in case of a rented house.

10. Involvement in the Community

If you own a home, you are more likely to be involved in the community around you and feel a sense of the ownership with the place, which may not be the case if you are renting.

Conclusion

Whether to rent or buy is a tough decision to make. Knowing how rent and buying differs and analyzing them can help you make a right decision.

Quick Facts

  • Around the world, housing is regarded as a means of long term wealth accumulation and financial stability.
  • India's growing population of 1.4 billion (as on 23rd Nov 2020) people living in an area of 32,87,263 square kilometers. The density of population works out to ~426 persons per square kilometer
  • Only ~45%* of the housing in India are considered as good per certain standards.
  • The demand for new housing is increasing everyday.