Everyone dreams to have their own home. We look for a sanctuary where they can live and call ours. However, something called economy and personal income can ruin that dreams for many. So they decide to opt for another option called renting to fulfil that dream. Whether one should buy a house or rent it will be a never ending debate. So here’s an article to help you make that decision.
Here are a few pros and cons of buying a house.
Pros of Buying:
When you buy a house, you create a tangible asset for yourself which can bring in more equity. Therefore, it becomes a solid property which can provide you financial backing in case of need. Through this asset, you will also be eligible for tax benefits.
Opportunity for income
Most people purchase properties to give away for renting. In the case of cities like Mumbai, Delhi and Chennai where the property rates are very high, people usually rent apartments instead of purchasing them. Therefore, for the home buyer it becomes a good opportunity to earn extra income and a good one at that!
High resale value
The resale value of real estate is very high and may not drop anytime soon. Therefore, when you purchase a house, you get better and higher value than what you initially purchased the property for. So you are making profit on your investment. You can sell one house to purchase another; a bigger and better one.
Cons of buying:
Cons of buying include the property tax which is levied by the municipal corporations. Also late payment of tax can be charged with a fine of 1-2% every month. Hence, you need pay a chunk of your income for housing to the government.
As the owner of the property, you are responsible to incur its maintenance cost. Hence, with a high value in the economy, many apartment holders have to pay a good amount of cash for the property’s maintenance. Let’s not forget the increase in the cost that place every year.
Financial loss may occur
With a property you get a high resale value, which is a benefit. However, this can turn into loss as finding a buyer may turn out to be difficult. With the increasing renting culture around the world, people migrate and rent properties instead of buying it. Hence, finding a buyer may be an issue resulting in financial loss.
Now let’s flip to the other side of the coin…
Pros of Renting:
If you are the kind of person who has to travel from time to time then renting is the perfect option for you. With renting, it is possible for immigrants to relocate according to their work or family needs. Though the rent may vary from location to location, it still won’t create a huge dent in their pockets.
Good for short term investment
As relocation is easier, the investment for renting is small as compared to buying and may differ for different cities. Therefore, it’s a good short term investment for people with low-medium income and for a short period of time.
No maintenance cost
There is almost zero maintenance cost when you rent a house. The maintenance cost is incurred by the house owner and they may choose to include it in the rent. The final price, is still low comparatively hence it won’t push a tenant into paying a huge amount.
Cons of Renting:
Limited control over house issues
It’s the house owner who decides the structure of the house and it’s interior. Hence, you won’t have any say in its construction or use. You won’t have a say in anything except the rent. Therefore, that sense of belonging is something a tenant never achieves.
As a tenant you will not have any asset. The asset belongs to the house owner and hence, will leave you with no financial security.
The renting cost can be really high even for the smallest properties. In cities like Mumbai, Chennai, Bangalore, Delhi and Kochi, the rent per annum is as high as the value of the property. Therefore, renting cost becomes an issue.
Factors You Must Consider Before Making a Decision:
The main reason you contemplate to buy or rent depends on your income. A person with high income will be able to purchase a house and someone with a low income may be able to rent it. In today’s scenario people prefer renting homes as they may need to relocate anytime. This doesn’t affect their income much as they can pay what they earn in rents and still have money to get buy.
Asset Value and Opportunity Cost
A lot of factors go into consideration when buying a house. One of them is the value of the asset. The value may differ from city to city and our income may not be enough to buy a property to bear the loss if there are no buyers.
Price to Rent Ratio
This ratio helps to make a decision. If the ratio is less than 15 then it would be a good decision to buy, if the ratio falls between 15-20 then you can either rent of consider other options and if the ratio is more than 20 then it’ll be a good idea to rent.
Let’s take an example:
If you are confused whether to buy a property or rent it then you should consider the amount of property and its rent. Let’s say the property costs you around 50 lakhs and its rent is Rs.20,000 per month. Then annually the rent will be Rs 2,40,000, in this case the ratio is 33.33 which is above 20, hence renting is the better option.
Another thing that people prefer to do is purchase a house on EMI, put it on rent and direct the rent money towards paying the EMI. Suppose the EMI of the property you purchased is Rs. 40,000 and you put your property on rent for Rs. 35,000. Then this will incur you a loss. Even if you raise the rent to Rs.40,000 it’ll put you between a financial wall. Therefore, it is advisable to not do this unless you can keep the rent amount higher than the EMI amount.
Lastly you must consider your individual preferences. If you are planning to stay at one location for a long time then renting does not make any sense. If you do not wish to travel to work because your property is located far then renting a place would be the best option.
In the end it all falls on the individual’s preferences. There are many emotional reasons why people buy a house instead of renting them and there are many practical reasons why someone prefers to rent a house. There isn’t a yes or no answer to this debate as your current circumstances, income factors and preferences must make a decision for you.