Why Buying a Home Makes Better Financial Sense than Renting One

Ashish Gupta, 35, lives in a rented accommodation in South Kolkata. His parents and relatives are asking him to buy a home, but despite paying high rent, Ashish is uncertain whether to make the big decision. He knows that buying a home involves a huge amount of money. Plus, there are recurring costs, such as property taxes, insurance, upkeep, and maintenance, which can range from 1% to 4% of the cost of ownership.

Baffled by the various suggestions that are coming in, Ashish talks to his investor friend for a clear idea of the pros and cons of buying a property. “I agree, the initial cost can hurt. Arranging a down payment can also be a problematic issue,” said Sudesh, his friend and property investor. “However, you need to look at the larger picture,” he added. “Besides the emotional engagement of owning a property, if you make a smart purchase, you will make a profit. You can also earn a passive income,” Sudesh explained.

In a CNBC report, self-made millionaire David Bach said that renting helps landlords to make profits. Advising millennials, he asked them to prioritize home buying at the earliest. According to David, this will help them live a mortgage-free life post-retirement, owning an asset that appreciates, and also provides income. Here are 5 reasons why buying a home makes better financial sense than renting.

You Can Take a Loan against Your Property

Going forward, when you pay off your home loan, and the property inflates in value, you can quickly and easily raise funds against it. You can use the cash for any purpose, for instance, a business venture, a child’s marriage, or home improvements. You can also take a life annuity, where a bank or a financial institution will pay you a fixed amount every month, as long as you live. People living in rented accommodations cannot enjoy these benefits.

Low Rate of Interest is Making Home-Buying Lucrative

Economic reforms, such as the credit-linked subsidy scheme (CLSS), various incentives for affordable housing, and a low rate of interest on housing finance, are making home-buying possible and profitable for young buyers. Plus, buying a home when one is at the peak of their professional life allows them to manage the costs as well as build security and asset for the future.

Compare that to renting, where you are only spending on rent month after month, with no asset in sight. Plus, a significant cost of renting that people often tend to overlook is the brokerage fees, which often amounts to 1-2 months’ rent. As the rent increases year after year (at the rate of approx. 8-10%), so does the broker’s fees. Ultimately, you’re having to pay hefty brokerage fees after every few years because most landlords restrict the number of years that a tenant can occupy their rented space.

Adding Value to Your Owned House is Easy

From the addition of new paintwork to including refreshing extensions, there are many ways to give a makeover to your house. However, carry out meticulous research on how renovating your home will add value to the property. Undoubtedly, an attractive house will be more valuable than a similar apartment in the same building or locality. Plus, a rented apartment doesn’t give you the freedom to carry out home improvements at your own will.

The Most Important Aspect of Buying a Home is Financial Security

A rented house gives a roof over your head, but owning a property, besides being a home, also gives you financial security. An owned home also gives you peace of mind and stability, eliminating the worries of year-on-year rent increments, or getting displaced by the landlord at his whim. In case you have taken a home loan, you can plan your monthly budget, keeping the EMI amount in mind.

Unprecedented Value Appreciation

Declining fixed deposit rates will not give you the returns you can expect from real estate investments. Property prices increase along with the inflation rate, which fixed deposits do not take into account. What’s more? If you invest in an emerging locality that promises upcoming infrastructure, you will make a staggering profit.

Investment in real estate is particularly lucrative in an emerging economy like India where urban properties appreciate because land is at a premium because of huge demand and ever-swelling urban population. If you can take advantage of the compounded asset price growth, then real estate investment is amazingly profitable. There is little chance of going wrong in real estate like the stock market or mutual fund.

Final Words

Buying a home may seem like a big financial investment — and it certainly is. But the total expenses and downsides of renting is considerable and often goes unnoticed because most renters are focused on what they have to pay on a monthly basis. But if you look at the big picture, home-ownership comes across as a smarter decision than renting.

However, if you’re planning to buy a home, consulting a real estate expert can make a world of difference in terms of the home’s value, return potentials, and your overall satisfaction with the purchase.