Buying vs Renting Homes: The Advantages and Disadvantages

Table Of Contents

1. Introduction
2. Buying: Advantages
• A stronger sense of security
• Tax benefits
• Additional source of income
• Buying Can Be Easier On The Pocket
• More value for money
3. Buying: Disadvantages
• High initial investment
• Less flexibility
• Paying maintenance/repair costs
• Less liquidity
4. Renting: Advantages
• Lesser financial responsibility
• More freedom and flexibility
• Unaffected by property value fluctuations
5. Renting: Disadvantages
• You could be asked to move out
• No asset building
• Limited freedom
• Rising property rates
6. To Buy Or To Rent

Which is a better option – buying a house or renting one? It’s a never-ending debate, with both choices having pros and cons. However, in post-pandemic India, figures seem to be tilting towards the former, with a survey showing that in the first half of this year, over 60% of respondents chose real estate as the best investment. This is a marked increase of 3 per cent from the previous survey. So, what are the pros and cons of buying a house vs renting a house? Let’s weigh both options:

Buying: Advantages

• A stronger sense of security
  Buying a property gives you a sense of ownership, leading to a sense of security not only for you, but your family as well. Living in your own house allows you to ‘settle down’ emotionally and physically, as there’s no regular shifting from one rented accommodation to another. It also instils a sense of stability, especially when one thinks long-term (post-retirement). Imagine renting a car vs buying one. Which one do you feel more comfortable in? Also, buying a home gives you a sense of achievement, as conventionally, it is a major life goal for most people.
• Tax Benefits
  Taking a home loan can give you tax rebates. Every loan consists of two parts: Principal and interest. As per Section 80C of the Income Tax Act of 1961, a tax concession of up to Rs 1.5 lakh can be availed on the principal amount (for loans above Rs 45 lakh) in one financial year. As per Section 24(b), a maximum deduction of up to Rs 2 lakh can also be availed on the interest in a fiscal year.
  Concessions can also be availed on rental income, depending on the house owner’s tax slab rate. The income is non-taxable if the gross annual rent is less than Rs 2.5 lakh. However, if it is more, there are several deductions for home loan EMIs, local government taxes, and a standard deduction of 30% to deal with renovations and repairs.
• Additional Source Of Income
  Don’t want to buy a house because you will not be living in it? Well, consider this: You can give it on rent, and depending upon the location and size of the property, at least a part of your EMI can be covered by the rent. Once the loan is paid off, the rent will be a consistent source of additional income. Buying a house will help you earn handsome returns in the long run and provide you with the much-needed financial security post-retirement.
  With property rates appreciating in most Metros and big cities, you can sell your house later (if you have another one). According to a report, residential property returns (in 10 years) are an attractive 8.98 per cent in Bengaluru. The housing market is witnessing unprecedented growth across the country. As per a recent report, the third quarter of this year has recorded the highest quarterly sales in the past 15 years (since 2008). During the first nine months of this year alone, the market has recorded 91% of the sales in the entire previous year. Bengaluru leads the trend, with 16,000 units sold in the third quarter alone – the highest ever for the city.
• Buying Can Be Easier On The Pocket
  If you are delaying your decision to buy a home because of budgetary constraints, there are ways to ease that as well. For example, booking a home in its pre-launch phase will be cheaper by an average of 30%. So, while you might still have to apply for a home loan, the amount will be less. At this stage, you can also customise your home to some extent, which is impossible in a fully constructed house.
• More Value For Money
  Many people prefer renting to buying because they believe they are saving more money in the long run. But that’s not true in most cases. Here, we have taken the example of a South Bangalore home, bought for Rs 1 crore. At the end of 20 years, the total cost incurred, including all expenses (see the tables below) is Rs 1.95 crore. These figures apply if you are living in the house you bought. If you have given it your own rent, the expenses will be reduced further, as the rent will cover a substantial part of your EMI.

On the other hand, if you rent a 3 BHK in South Bangalore, your monthly rent will be around 45,000. This amount will be hiked by 5-10% yearly. At this rate, you will end up spending Rs 3.1 crore in two decades. In short, you would have spent more than someone who bought the same property and won’t have the asset in your name either.

Buying: Disadvantages

• High initial investment
  Buying a home will, of course, cost more in terms of initial investment. For example, let us assume that you are buying a house worth Rs 1 crore. With 20% of that amount as the downpayment, you will have to cough up Rs 20 lakh. On the other hand, if you were to rent the same house, you’d have to pay two-three months’ rent as a security deposit, which would be much lesser.
• Less Flexibility
  Buying a house can pose a few challenges, especially if you have a transferable job or are planning to relocate. Unlike a tenant who can simply get his security deposit refunded and move on, a house owner will have to make arrangements to sell/rent the property. And finding the right buyer/tenant could take time.
• Paying Maintenance/Repair Costs
  Regardless of whether you have rented the house or are not staying in it, the maintenance charges and repair costs will have to be met by you. There’s also the annual property tax. These, along with the EMI, could be a considerable financial responsibility.
• Less Liquidity
  Buying a house will fetch you financial benefits in the long run. But if you are eager for quick profits, real estate is not the right investment for you. Also, the property has less liquidity. So, if you face an urgent requirement for money, you will not be able to turn the assets into liquid cash fast enough.

Renting: Advantages

• Lesser Financial Responsibility
  As a tenant, your only financial responsibility towards the house is the rent. You don’t have to pay maintenance charges and property tax or foot the bill in case of repairs. There’s no need to worry about hefty down payments, either. All of that is the house owner’s responsibility. A rented house is ideal for youngsters who are just starting out in their careers.
• More Freedom And Flexibility
  You can pack your bags and move out of a rented house whenever you want. Finding a new tenant or selling the property, its upkeep – none of it is your responsibility. While living in your own house gives you a lot of freedom, it can also make you feel tied down. A tenant can move into a more upscale or down-market area more easily, depending on his finances. It’s not that easy for a homeowner to shift so fast.
• Unaffected By Property Value Fluctuations
  As an asset, the value of houses is susceptible to market conditions, and this affects owners more. Renters, on the other hand, are largely unaffected by any sharp rise or fall in property rates. While there will be a slight increase or decrease in the rental rates, it will be hardly substantial.

Renting: Disadvantages

• You Could Be Asked To Move Out
  One of the biggest disadvantages of staying in a rented property is that your house owner can ask you to move out at short notice – usually 30 days, as per the rent agreement. Hunting for a comfortable new accommodation that suits your budget and at a location of convenience could be time-consuming and stressful.
• No Asset Building
  In the rent vs purchase home debate, yet another argument in favour of the latter is that buying a house adds to your asset portfolio. When renting, you pay a fixed amount of money every month without gaining any permanent rights over the property. Want to build equity? Buy a house instead of renting it.
• Limited Freedom
  Want to change the wall paint colour? Or do you feel like replacing the old kitchen sink with a brand-new one? Unfortunately, these are not your decisions to make as a tenant. When renting a property, your freedom to make changes/modifications according to your wish is limited. Want to stay in your dream house? Well, buy it!
• Rising Property Rates
  If you plan to buy a house sometime soon, NOW is a good time to start. As per a study recently released, India’s housing prices have shot up 15 times in the three decades from 1991 to 2021. So, the more you delay it, the more expensive it is going to be.

To Buy Or To Rent
Whether to buy or rent a house is purely a personal decision, depending on many factors. Flexibility or long-term financial stability — what is it that you choose? While both have their pros and cons, in the long run, buying a house is a clear winner as its benefits outweigh those of renting one.