Buying vs Renting a house in India: Which will be better for you

Owning a house is definitely a dream of yours, but you have the common dilemma of renting vs. buying a Home in India. Here in this blog you’ll be clear out that either you should go for the Rent or buy Housing using the simple Calculation.

27 Oct 2021

Read the full blog to Explore buying vs renting a house in Indian because, in the Bigger cities, sky-rocketing property prices led you to opt for renting rather than buying. However, for people who can afford to buy a house, the tough choice between buying and renting is always a problem. There are different myths with both the options and some key factors we been summarized here.

Some factors that influence home-buying decisions

1. Market conditions- In rapidly-rising real estate markets, owning makes more sense. But, when there is not much room for property price appreciation, renting would be a better option.

2. Your financial condition- An individual should evaluate the expenditure involved when it comes to Paying EMIs or monthly rent and expenses for the family.

Owning a House

Owning a house should certainly be your ultimate goal to lead a comfortable life. Nowadays, you must know With RERA (Real Estate Regulatory Authority), the risks of investing in under-construction properties have been greatly reduced. 

 If you are at a stage in life, where you can afford an outright purchase, or if you’ve saved the sufficient down payment, you can negotiate with a developer and go for a ready-to-move-in apartment.

Advantages of Owning a Home

  • Security and comfort- income low or High, buying a small house is a good feeling that gives home Ownership and a sense of security.
  • Decision maker of your Own House-You can make changes to your Interior, The decorations, maintenance, and many Things.
  • Long-term planning and Investment- Your whole generation could live in this and be a good asset for the Future Generation.

Costing While Buying a House

If we buy a house, we pay an upfront down payment plus an interest on the loan amount, which is like rent (to the bank). And here are the main points that you can decide whether you should go for the Buying process or Renting.

  •   Down payment-When you Purchase a house, at least 20% of the Home value you pay as a Down Payment. But if you take that on rent, you can save that Money and Invest it somewhere else.
  • Interest on Loan- When you take a loan for buying property, you have to pay the Bank Interest.
  • House Maintenance- You have to pay again for renovation and denting/painting which will cost you additional Rupees.

Rent a House

Renting- When we rent a house, we pay a monthly rent - which is your only expense and you can invest your extra money in mutual funds, gold, stocks.

Flexibility- you have the Flexibility to move on where you want to stay.

Freedom- High degree of Freedom, more money you have, More freedom of choice you have with the rental.

If COVID like things-You can go home leaving the current rental.

You need to make your Decision

So the right way to evaluate is - if I could invest that down payment plus interest amount (above the rent I pay), what would happen? 

 So the way to decide whether buying vs renting a house in Indian is to compare-

 Rent: How much am I paying as rent and how much do I earn by investing the down payment amount and the additional monthly interest that I pay to the bank 

 Buy: Ask yourself- How much am you would paying as cost of the house and how much do you getting if you sell the house later on.

Need to access your Financial Condition

It is essential for a home buyer to determine the amount of money that would be necessary, to be financially ready to buy a home. The following points will help you decide either you are financially free to buy a house- 

  • Make a plan at least 2 years before the actual home purchase
  • Able to pay the Down payment amount. 
  • Able to Pay the Home-related expenditures. 
  • Easy to EMIs Payments. 

Financial experts recommend that more than 30% of one’s income should go towards servicing the EMIs. And also there is a maximum limit an individual will be eligible for on the income level that is released by the bank with a certain loan amount.

4% Thumb rule for buying vs renting a house in Indian 

Here is the best rule for calculating either you should opt for buying vs renting a house in India. It’s a very simple rule everyone can follow this. Decide to Rent or Buy a house seeing the financial aspect can be answered with the simplified 4% rule. 

 1. Annual rate < 4 % Home Vale –Rent is good 

 2. Annual Rate > 4 % Home Value- Buy the Property

Let’s understand taking an Example- 

 Let the Price in Renting a 2-BHK be 15,000 Rupees, and the actual value of the Home is 40 lakhs 

 So the calculation for One year (12 X 15,000=1.8 Lakhs 

 Again, (1.8/40) X 100= 4.5 % which is More than 4 % of the Home value so you should buy that property.

Rental yield Method

Very simple and calculative method to know either you should be going to buy a house or rent a house. Rental yield- is the annual rate of rental return that an investor can earn out of his investment in a property.

Rental Yield in different cities in India
Delhi NCR 2.84 %
Bangalore 3.66 %
Mumbai 2.70 %
Ahmedabad 3.13 %
Chennai 2.99 %
Hyderabad 3.22 %
Pune 2.86 %
Kolkata 3.83%

Using the Following method, you could know either you should buy a house or take on rent in the bigger cities. If the Property value is 100 Rupees, and with the Indian scenarios, the Rental yield is between 1-4% meaning the Investor will make 1-4 Rupees yearly on rent. 

 Total House Value= 1.8 Crore Let’s say you are paying the rent of 25 Thousand.

 Annual rental income = monthly rent (25) x 12 = 3.0 Lakhs 

Rental yield = (annual rental income/ property value) x 100 

 = (3.0/180) X 100 = 1.66 %.  If you’re a tenant, and if the house and the Rent grow at the same rate- (8-10 %), for 80-90 Years, you can live at this House to pay the House Value.

 Sometimes you think that…you’re paying rent and think why not buy a house on EMIs. Every month you’re giving to renter…why not own a House. 

 So if your income is not stable don’t know when you leave this city, definitely go with the Rent. 

 Not buy the house to attach with the Loan for Years (20-30 Years) and even fear to not skip the Current Job. Don’t sell the Jewellery or whatever saving you have, and put into for the Down payment for the House.

Conversely, if your Finance is strong, and care for the Generation to live in your Dream House, Definitely Buy a House… a good ever idea.

and find clear-cut your Decision of buying vs renting a house in India Don't know you all financial balance. 

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