Owning a home versus living on rent Which is a better long-term option

When it comes to finding a long-term accommodation, we look at what makes better sense – living in a rented house or buying a property – and the factors that one should consider before opting for each

When it comes to living on rent versus living in one’s own home, people who advocate the former often argue that a rental home costs less, as compared to owning a home. Those who favour owning a house, cite the freedom that it offers. While owning a home is typically the dream of every Indian, sky-rocketing property prices in the recent past have led people to opt for renting, rather than buying,

“However, if one is certain about the city in which one is going to stay in the future and has the necessary funds for the down payment and stable future cash flows, it is highly recommended to own a home. Owning a home forces savings, in the form of home loan EMI payments, which most people would otherwise spend, if they rent a property,” adds Jain.

Advantages of home ownership over rental accommodations

The main benefits of living in one’s own home, rather than a rented home are:

• A sense of security and pride in home ownership.
• You will not have to face increasing rentals.
• When you buy a house with a loan, you are already aware of the EMI required to be paid over the long term. Hence, the future costs are predictable and more stable.
• There is less likelihood of interference in your life, when you live in your own home.

How to decide whether to buy a home or live on rent

Experts advise that youngsters can consider buying a home in the early stages of their career, if they have a commitment to stay in a particular city. Even though it may seem difficult to manage the EMIs initially, after 5-10 years when their salaries increase, while the EMIs still remain the same, it would be a relatively lower proportion of your salary. Moreover, the property prices would have also appreciated multi-fold.

“Landlords in most states also tend to restrict the number of years that a tenant can occupy their house, due to the weak protection provided by the law to the landlords. With lower interest rates and the government subsidy for first-time buyers of affordable homes, owning a home is now possible for many more people,” 

Own home versus rented home: Financial implications

Case 1: Let us assume that a person lives in a 3-BHK rented home and pays a rental of Rs 20,000 per month. The average rental appreciation is five per cent per annum.

Case 2: A person buys a 3-BHK home for Rs 50 lakhs on a home loan for 20 years.

Assuming that a person has occupied the home for 40 years, here’ a look at the financial calculations:

Detail	Calculation
Case 1 (Living on rent)
Assumed rent (per month)	Rs 20,000
Rent appreciation (per annum)	5%
Expected rent after 20 years (per month)	Rs 40,000
Expected rent after 40 years (per month)	Rs 80,000
Amount paid in 40 years	Rs 2.9 crores
Case 2 (Living in one’s own house)
Assumed home loan amount	Rs 40 lakhs
Tenure	20 years
Interest rate	8.3%
EMI	Rs 34,200
Total amount paid in 20 years	Rs 82 lakhs
Rent amount saved by a home owner who lives for 40 years (i.e., excess amount paid by the tenant in the last 20 years)	Rs 2.1 crores

In the example above, the cost of living in a rental property for one’s whole life, would be much higher than living in one’s own home. Moreover, the capital value of a home also increases over a period of time, whereas, you get no such benefit in a rental home.

Why owning a home may be a better choice over a rented home

• Owning a house could also generate additional income, in the form of rentals or from paying guests.
• Rentals may seem cheaper compared to the EMI in the short run but in the long run, it is far higher than the cost of the house and the rental cost cannot be recovered.
• A home owner can mortgage the property but a rental property cannot be mortgaged by a tenant.
• A tenant may have to shift out of a rented home anytime, at the request of the owner.