Rent Vs Buy: To Rent or Buy a Home?

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By IIFL Home Loans | Published On Dec 19 2017 11:45 AM

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Buying a house or a property in India is more of a culture than need, it is a dream most of us grow up with. First thing one needs to decide while looking out for a home to put up at is if to rent in or buy his/her first home. Listed below are some pros and cons, of both the situations, which help you choose the best for you:

Buying a Home

Owning a home is a dream come true situation for most of us. The favorable environment as Low interest Rate, Credit Linked subsidy schemes CLSS, Stable Property rates and implementation of Real Estate Regulation and Development Act, 2016 also well supporting to buy your dream home.

Pros	Cons
Master of your own place If you own the house you live in, you can pull down a wall, rip up carpet, paint and add fixtures as you desire. It a great opportunity to indulge your creative side and make it a true sanctuary without the worry of contract restrictions from a landlord. Owning a home brings with it a sense of pride and often makes you feel more connected to the society, since you feel you own a small part of it	Long-term commitment Buying a home is probably the biggest purchase you l make and thus, you l need to be physically, mentally and emotionally prepared. Why Because you l have mortgage payments for the next 20 to 30 years, depending on your loan tenure.
Stability One of the most attractive features of owning your own home is the stability it offers. One can enjoy the luxury of staying at one place without much likelihood of having to move out when your rental contract expires. It also a big plus if you have great neighbours and love being part of a community.	Opportunity cost This is a cost that is often ignored or at least not factored well. To make an economic decision, you should consider the opportunity costs associated with various options. It refers to the cost of having your money parked in a property versus having it available to use elsewhere. In simple terms, opportunity cost refers to the returns you could get elsewhere instead of putting down a house deposit. That could be returns from fixed deposits say currently about 4%.
Tax benefits A very significant criterion to be kept in mind while considering buying a home through taking a Home Loan is the Tax Benefit. To explain the Tax Benefit on Home Loan, below options available:- Claim deduction for Repayment of the Principal Amount under Sec 80 is Rs.1,50,000. Claim repayment of the Interest on Home Loan under Section 24 of a self-occupied property is upto Rs.2,00,000 Additional claim of Interest upto maximum Rs. 50000 per financial year with some conditions.

Renting a Home

Rent money is dead money or so the saying goes. Choosing to rent is an option for those who want a bit of flexibility, but there are other cost and control related issues to consider.

Pros	Cons
Diversification When you buy your own home, most if not all of your eggs are in one basket. One property in one suburb in one city in one country. That a lot of your total wealth riding on a single investment that can be impacted by a whole list of factors outside your control. Renting allows you to spread that risk across a much broader range of investments	No forced saving Unlike buying where you are forced to contribute to a Home Loan each month which includes interest and principal repayments, renting doesn encourage forced savings. This can make it tempting for renters to spend spare cash rather than setting it aside.
Mobility Imagine that your next-door neighbour just adopted a loud barking dog that keeps you up all night, and a newly planned long-term construction project will cause massive traffic congestion near your home. You would want to move out, right	Always have to pay rent As a tenant, you will always pay rent, which will only increase over time. Your friend may own their home in the next 25 years after having paid off their mortgage, but you would still have your treasured flexibility, albeit at a cost. It goes without saying that you might lag behind on savings, too. Monthly repayments force you to skimp. With no obligations, the urge to splurge may take over. However, financial discipline can help avert this danger. In fact, financial experts say that renters may retire poor unless they become wiser, save harder and invest smarter.

Conclusion

Take a close look at the pros and cons of both the situations and ask yourself, what suits your pocket and lifestyle. You may look at:

Buying a house: if you like to see your hard-earned cash turn into an asset, crave stability and don mind/can afford to spend more to maintain your property

Taking a house on rent: if you like to move around a lot, is unwilling to take on large loans

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