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Rent vs Own House

Owning your house is the best decision you will make!

As Guruji famously said to Gaitonde – “Rented ghar ka toh balidaan dena hoga!”. If that doesn’t convince you, please read on.

If you are caught between being unsure of buying your own house or continuing with your rented house, you are at the right page. Hopefully, by the end of this article, you will be able to make this decision very easily. To make a very short argument on this dilemma, a rented house is an investment on which you get 0 return at the end of it. On the other hand, at the end of the investment in an owned house, you get equity buildup, tax savings, privacy, pride in ownership, strong social community ties..the list goes on!

For years, the rule of thumb stated renting is cheaper than buying, so renting freed up money for other things, such as savings. However, that may not always be the case. Shifting real estate markets mean it may be cheaper to buy than rent in certain areas, though you likely need to pay more up front. The right option for you is the one that best fits your goals and finances. Here are a few advantages in buying your own home:

  • Strong Community Ties – Homeownership gives residents a platform to connect with neighbours and increases their social capital. The reasons are simple – as a homeowner, you have a greater stake in your community and have the time and incentive to get to know your neighbours on a more intimate level. Moving from rental to rental is a major inconvenience and a financial and emotional burden
  • Fixed Cost – Unlike in a rented accommodation where the tenant faces a hike every year, a homeowner can be more relaxed and plan his expenses due to fixed EMIs. It forces you to save, homeowners are more financially responsible because they’ve made the effort to save money for the down payment on their home
  • Tax Benefit – Your home loan principal and interest repayment fetch you attractive tax breaks. Renting is more expensive than just the rent you pay. Your cost is higher since you are not earning any interest on the deposit amount paid to the landlord (which is quite high in premium locations) throughout the lease term
  • Build Asset – Unlike a car and many other purchases that decrease in value, a home is a purchase that appreciates over time. While each local market has its own unique factors, the price for a home property goes up each year, even in times of recession. As you pay your EMI each month, your debt amount goes down, while the value of your home continues to rise. This creates the buying and reinvestment power better known as equity
  • Privacy and control over your living space – This could be the top reason to buy your own house! Renters also have to deal with meddling landlords who interfere with any small modifications you would like to do with your home. Renters with changing needs must also deal with changing residences. Homeownership means you can make improvements to your home, and home improvements usually lead to increased home value, both financially and in daily life. The power of equity can give homeowners the extra financing they need to reinvest in their homes when cash funds aren’t an option
  • Your Kids Will Perform Better at School – Yes, you read that right! There is a positive correlation between homeownership and children’s academic achievement. Most homeowners stay in their homes for a longer period of time, they provide a more stable home life for children, which, in turn, affects their academic performance. Children who change schools too often may perform poorer in school, which is probably due to adjusting to a new environment, new curriculum, and different academic standards

Own Home vs Rented Home: Statistics

Case 1: Let us assume that a person lives in a 3-BHK rented home and pays a rental of Rs 20,000 per month. The average rental appreciation is five per cent per annum.

Case 2: A person buys a 3-BHK home for Rs 40 lakhs on a home loan for 20 years. Assuming that a person has occupied the home for 40 years, here’ a look at the financial calculations:

Detail Calculation
Case 1 (Living on rent)
Assumed rent (per month) Rs 20,000
Rent appreciation (per annum) 5%
Expected rent after 20 years (per month) Rs 40,000
Expected rent after 40 years (per month) Rs 80,000
Amount paid in 40 years Rs 2.9 crores
Case 2 (Living in one’s own house)
Assumed home loan amount Rs 40 lakhs
Tenure 20 years
Interest rate 8.30%
EMI Rs 34,200
Total amount paid in 20 years Rs 82 lakhs
Rent amount saved by a home owner who lives for 40 years (i.e., excess amount paid by the tenant in the last 20 years) Rs 2.1 crores

In the example above, the cost of living in a rental property for one’s whole life, would be much higher than living in one’s own home. Moreover, the capital value of a home also increases over a period of time, whereas, you get no such benefit in a rental home.

Homeownership comes with a bevy of benefits, these are only a handful. If you are looking for the dream home and/or the right investment, please contact us.

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