Buying Vs. Renting – Which is More Profitable?

The topic ‘buying vs. renting a house’  has become a subject of debate and widely discussed for several years now. Of course, it’s difficult to arrive at a concrete answer in favour of any one of the possibilities. A lot of factors you should take into consideration, and a lot is at stake. Yet, because this debate has been on for a long time now, it always pays to lend a fresh perspective to it, especially in light of the changing economic situation every year.

Today, we analyse here whether owning a home that he’s always dreamt of is better or it is better to stay at a rented house for eternity.

Renting vs. Owning: Which is Better in the Long Run?

Any financial decision, such as the one to buy or rent a property for residence purpose, must always be carefully evaluated, taking all pros and cons into consideration. It’s equally important to pay heed to valuable advice on the subject either by elders in the family or other senior professionals who possess sufficient knowledge on the subject.

Experts in the domain of real estate opine that the youth, who generally start thinking about home-buying decisions at this stage of life, would be better off buying one during the early years of their career life. Of course, their willingness to stay in a particular city in the long term must be taken into account here. Well, the early job years are thought-out to be the best time to buy a house because:

• With the increase in salary after a decade, the EMI would still stay the same. This means that you only need to pay a very small proportion of your salary every month.
• The cost of the property that you buy today would also appreciate by several times after say 10 years, which would yield higher profits.

Buying Vs Renting House: Doing the Math

Now let’s do a few calculations to understand the potential implications of each of these moves in the long term:

Scenario 1

A person takes a 3BHK on a monthly rent of Rs. 20,000. This amount is appreciated at a rate of 5% per annum every year, amounting to Rs. 80,000 rent per month after a period of 40 years (assuming that he stays in the same house for this duration). To sum up, he’d be paying a total of Rs. 2.9 crores in the entire duration of 40 years on rent.

Scenario 2

The same person chooses to buy a house after taking a loan of Rs. 40 lakhs for a total duration of 20 years at an ROI of 8.3%. For this loan amount, he needs to pay an EMI of Rs. 34,200. By the end of the loan duration of 20 years, he’d have paid a total of Rs. 82 lakhs only.

In short, the person in the second scenario (homeowner) would end up saving a total rent amount of Rs. 2.1 crore in 40 years! The conclusion is crystal clear and for you to decide.