Which is Better: Own Home or Stay on Rent!

March 20, 2019

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In this post: We look at the age-old question which plagues young Indians – buying own home or stay on rent? We look at what constitutes a good investment and what constitutes saving. Let’s get started.

Real estate – or to plainly put it – buying a home has always been considered as the best investment in India. Not just to park money and get better returns, but a better investment for our future. With raising cost of rent, food, and general cost of living, the price of living in big urban cities is only going to shoot up.

There is a common trend in every major developing economy around the world – like in China and India especially. In the very near future, nearly a third of our population will reside in major cities – Mumbai, Delhi, Bangalore, Chennai etc. When more people are shifting to big cities, there’s only one way the value of land prices can go up.

This is incredibly easy to predict. More people shift to cities, and these people want a place to stay. Most choose to rent a place and a few choose to buy a house. So, either way, the demand for homes will be high. Generally speaking, investing in a house (considering the location, locality, construction quality, builder reputation etc. is good) is a tremendous opportunity to save money (from paying rent every year) and earn money (by putting your extra house on rent).

So far, all reasons point towards buying or investing in a house (first or second house) as the better option. However, it doesn’t suit everybody. Let us explain. As mentioned before, when you buy a house, you either invest in the housing market – where you hope for a better return in a decade or so. Or, you make an investment on your future – where all you want is a good home without any intention to flip it for a profit in the future.

Buying a Home Purely as an Investment – To Turn a Profit by Reselling

Reselling homes is a tremendous way to make a large profit, and is one of the reasons for the housing boom in India. If you are looking to invest in a home (property) purely to sell it in the future to make a profit, then real estate might be the best investment option in the market.

Either you are buying your second or third home, and want to rent it immediately. Which makes a lot of sense. Till the day the property gains the desired sale value, you still generate decent income by renting it out. However, there is one caveat. You see, in the resale market, the value apartments (flats) don’t necessarily grow exponentially. However, the land value does. There’s always value for the land. It can be a simple plot or an independent house constructed on a piece of land.

There are apartments which scale in value more than others. For this to happen, you would have to choose a major builder with excellent reputation. And the one who offers houses with excellent build quality. The location of the property also matters. Choose your investment wisely.

We suggest you to talk to a real estate consultant and discuss your investment options and what you expect from it. This way you can be guided properly to make a smart, informed investment.

Buying a Home Purely as an Investment on Your Future

Like most of us, if you are planning to buy your dream home (once), then staying on rent might make more sense in the immediate future. Young Indians who work incredibly hard, get married, and raise families always want to secure their collective future. And the first step is to invest on a dream home.

If the cost of paying mortgage is on one person, then preparing a home buying budget well in advance is advised. Many of us look at buying a house and paying mortgage in one dimension – “pay mortgage EMI than paying your landlord”. It’s a very reductionist point of view. Paying EMI vs paying rent are two very different things.

When you own a property, you have to accommodate the following in your monthly/yearly budget:

Major repairs and fixes
Annual painting and maintenance
Property taxes
Monthly apartment maintenance
Travel or commute to the office (affordable homes are difficult to find near major commercial and office districts. So we end up buying affordable homes in the suburbs. Which makes commuting challenging)

However, if you are on rent, you don’t necessarily pay these:

Major repairs and fixes
Annual painting and maintenance
Property taxes
Travel or commute to the office (if it’s on rent, then why not rent close to work?)

So, What is the Argument Here? Is there a Winner?

Yes, there is.

Investing for investment sake: It is a win-win situation. You buy a house, rent it out and wait until the price appreciates and flip it for a profit. Considering you do your homework and work with a consultant to find the best property, it’s all good. Buying a home wins.

Investing on a dream home: Buying a home to save rent when you are not ready, is like pushing your car to save petrol. However, if you put down anywhere between 30% to 50% down payment on your new house and restrict monthly EMIs to under INR 40,000. And youpay off your mortgage before your retirement age, then owning a home makes more sense than staying on rent.

However, to save enough money for the down payment, it is always advised to start budgeting in advance – 2 to 3 years in advance. Here’s a guide to budget for home buying Talk to a consultant and explore housing insurance – to plan against unlikely events. Until you are ready, renting is the best possible way. You can move houses, change jobs and cities and still have nothing to worry about. If you are the adventurous, nomadic type, then stick around for a while. Else, the housing market is right for buying affordable houses. Talk to one of our consultants today at +91 7026895895.