SHOULD I BUY OR RENT HOUSE?

One of the classic dilemmas haunting lot of people is the issue of buying versus renting the house for accommodation purposes. Some experts feel that buying a house is the better option as it helps you create an asset in the long run, while some believe that renting is better option considering the prohibitive rates realty commands these days. And by renting one can save money by paying rent which will be lower than the home loan EMI and these savings can be invested for long term wealth creation. So both arguments have their own merits and none can be dismissed easily. Both of them have their own benefits and shortcomings. So, before we decide on which way to go ,we need to fully understand the pros and cons of each of these options.
BUYING HOUSE
PROS OF BUYING

- It creates an asset for you in the long run.

- You don't have to pay for your accommodation after you pay off your loan, which is maximum of 20 years, unlike,in renting where you have to pay monthly rent for every month till you continue to stay in the rented premises.

- You also get income tax benefit. Upto Rs1.5 lakhs of your interest component paid in the year on your home loan is deducted from your taxable income and Rs 100000 principal repayment is also tax free. The same benefit is also available to your spouse in case you decide to go for joint loan for the house.So the total tax able income deduction benefit possible on your home loan could be a high as 5 lakhs for both the spouses.

- House may be used for generating income under reverse mortgage post retirement.

- No hassle of changing house every 11 months,unlike in rented accommodation.

- Fulfills the dream of having roti kapda and makaan.


CONS OF BUYING

- The monthly outgo in the form of home loan EMI is generally higher than the rent.

- Demands long commitment towards EMI payment. You have to commit a large portion of your income towards monthly payment of EMI for a relatively long period of time like 10-15 years or even 20 years. This limits your ability to meet exigencies and financial emergencies.

- Once you buy a house , you give up the flexibility of moving to another locality in the same city or to another city. You are stuck with that locality for ever,unless you decide to sell it off ,which is long and cumbersome process.

- Ownership of house also comes with high bills like society maintenance charges etc which have to be paid monthly/quarterly etc. This can feel like paying rent after buying a house and be very annoying for few.


RENTING HOUSE

PROS OF RENTING

- Lesser financial strain as monthly outflow is lesser.The rent paid for a house is generally much lesser than the home loan EMI paid to buy a similar house.

- Offers flexibility of choosing neighbourhood as and when desired,unlike with self owned house.

- No long term commitment of paying EMI.In case of any financial stress one can always stop paying rent ,if its higher, and move to a smaller place which has lesser rent. This is not possible with self owned house as the EMI is fixed and has to be paid every month .


CONS OF RENTING

- The money paid as rent is an expense unlike EMI which builds an asset.

- Lower IT benefit for money paid towards rent as against money paid towards home loan EMI.

- Forced to change house every 11 months and pay brokerage for new house on rent. This has both financial , emotional and practical difficulties. Changing house every now and then can throw off your social life out of gear. Your kids might have to shift to new school etc unless you manage to find another house in the same locality.

- No income possible post retirement, unlike with self owned house which does offer an option of income through reverse mortgage.

SO WHAT SHOULD YOU DO?Well you must decide for yourself depending upon your need . I would say you should go for buying a house as its pros far outweigh its cons. However, you may consider renting as well in case you cant afford to pay the EMI of the house that you want or are not sure of the certainty of future cash flow .for example if your job etc is not stable.

Comments

  1. Joe AldeguerApril 21, 2009 at 4:11 AM

    Great tips. Very nice blog...

    ReplyDelete
  2. SmartDecember 19, 2011 at 1:27 AM

    Good post.Nice tips.

    ReplyDelete
  3. AnonymousMarch 25, 2013 at 1:25 AM

    Its like you read my mind! You seem to know so much about this, like you wrote the book in it or something.
    I think that you could do with a few pics to drive the message home a little bit, but instead of that,
    this is fantastic blog. A great read. I will certainly be back.


    my blog post ... forex trading forums

    ReplyDelete

Post a Comment

Popular posts from this blog

TAX IMPLICATION ON GIFTS TO RELATIVES

We all do indulge in the practice of giving and receiving gifts both monetary and non monetary. But these gifts at times can attract income tax on it and as such one needs to know the exact tax treatment of gifts both in the hands of the person gifting and the person receiving the gift. Gift to wife or spouse - If you make a gift in kind or cash to your spouse then it is not taxable in their hands. However, any income generated by the gift in kind or cash shall be treated as your income. Gift to fiance - Any gift given in kind is tax free. However , cash gifts are tax free only till Rs 50000. If the gift amount exceeds Rs 50000 then the entire gift amount is taxable in the hands of your fiance. Gifts on marriage - All gifts received on wedding are tax free. There is no monetary limit attached here. Gifts to parents - Any gift in kind or cash is tax free in the hands of your parents and does not lead to any tax liability for you either. In all the above cases, one needs to reco...
Read more

Should you buy Gold from Banks ??

Image
The dream run up in Gold prices in last few years has enticed all and sundry as an attractive investment asset class. It has not only proved to be an excellent hedge against inflation a, reputation it holds with elan since time immemorial, but also, has delivered returns in excess of debt, equity etc as an asset class. Thus , it has emerged as the Best Investment Option in last few years. However, skeptics believe that gold has had its share of dream run and may not be possible for investors who are entering into now, to expect the same kind returns in future . But, if you are on of those who believe that best years of gold as an asset class is still ahead of us and want to invest in physical gold then you must be pondering where should you buy the gold from? These days we have seen most of the banks aggressively positioning them as place where one can buy physical gold bars/coins etc. The other option is offcourse our old Jeweller , both unorganized and large organised players...
Read more

IPO INVESTING IN PSU - GOOD WAY OF MAKING MONEY IN STOCK MARKETS

I have always stayed away from directly getting into equity markets. This was inspite of my firm belief that equity is the best asset class to invest in if one intends to make money over long period of time. The reason why I stayed away was my inability to devote enough time to research the stocks before investing and hence I always relied on Mutual Funds for equity investing. But, I always had this urge of making quick buck in equity markets. The most popular mode of short term investing in stock markets in via trading either intra day or for few days trades. But IPO investing for listing gains can be a great opportunity for common people to make money in stock markets in India. This I can talk from my own experience of investing in CIL IPO. For retail investors there was money to be made in this IPO and I personally made About RS 19000 in this IPO on an investment of Rs 46000. That's cool 46% in less than a month's time. This extra 19000 could be used to pay off my electrici...
Read more