The Real Debate of Our Time - Buy or Rent?

There has been significant criticism directed at a celebrity who, despite being a staunch advocate for renting for years, suddenly decided to buy a house. Followers who trusted his advice felt misled and disappointed.

Why did this happen? Why was his personal choice perceived as generic advice applicable to everyone?

His main argument against buying a house is the EMI trap, which binds individuals for 20 years or more. Over such long durations, the total interest paid to the bank often exceeds the loan amount itself. While renting offered financial advantages, the emotional and personal benefits of owning a home tilted his decision towards Ownership.

Let’s evaluate both buying and renting through a combination of factors - financial, emotional and personal.

The Case for Buying a Home

1. Stability and Security

Owning a house—a home—creates roots and provides both financial and emotional security for the family. A home fosters community with neighbors and fulfills the human need for social belonging.

2. Appreciating Asset

In India, real estate has historically been an appreciating asset, withstanding economic fluctuations. Property prices either rise significantly or stabilize at a benchmark. It is rare for real estate prices to drop, except during catastrophic events like wars, pandemics, or economic depressions.

3. Generational Wealth

Homes are often passed down through generations, creating family legacies. Ancestral homes carry strong emotional value and are rarely sold.

4. Tax Advantages

The government provides income tax benefits for home buyers, which can reduce the annual tax burden. With proper planning and multiple homeowners in a family, substantial tax savings can be achieved.

5. A Space of Your Own

Owning a home means having a space designed to your taste and fully under your control. This sense of ownership is rarely felt in other types of investments.

The Case for Renting

1. No EMI, No Burden

Renting frees you from the burden of a monthly EMI, allowing greater financial flexibility. Without the stress of a fixed deduction, you can take career risks, adjust your expenses according to your income, and live life on your terms.

2. Freedom

Renting offers the flexibility to live wherever you choose without being tied to one location. This is particularly beneficial in today’s hybrid work era, where remote work allows people to explore new cities, cultures, and passions.

3. Liquidity

With no large down payment or EMI commitments, renting increases liquidity. This frees up resources for other investments or personal goals.

4. Shared Living

Sharing a rented place can reduce living expenses and foster a sense of community for those working away from their hometowns.

Renting does come with its challenges, such as increasing rents and the inconvenience of frequent relocations, which can make the experience less pleasant.

So, What Should You Do?

1. Check Affordability

• Do you have enough cash for a 10% down payment on the property?

• Is the EMI less than 25% of your monthly income?

2. Understand Market Conditions

• Are current market prices reasonable, or is there a price bubble?

• Research thoroughly to decide whether it’s the right time to buy or wait.

3. Align with Your Aspirations

• Are you planning to stay in the same city long-term?

• Does your work involve frequent relocations or extended travel?

4. Assess Your Need for Stability

• How important is stability for you and your family?

• Would frequent relocations due to rental agreements cause discomfort or disruption?

As your lifestyle and income evolve, the decision to buy or rent may also change. Every few years, reassess your circumstances and use these parameters to make a choice that best suits your needs.

P.S. You can use the help of our financial coaches and home loan planners to create a financial plan which can maximise your home ownership through EMI planning, Pre Payment Strategy and Tax Deductions. Start here -> https://app.truexwealth.com/