To Buy or Not to Buy - The Big Debate
Remember the good old days right after college? Your biggest worries - forgetting your friend's birthday, picking a place to party or buying cool gadgets.Over the years, you have climbed the ladder of success, have a loving family and then, the time comes to make certain decisions. The most important being - to rent or buy a house.Here are some pointers to help you arrive at this crucial decision.
Location Wise
Rented House
A rented apartment offers you the marvelous convenience of picking a location most suitable in terms of distance from work, ease of access to the city's centre, etc.While rent varies depending on the location, it is more affordable than investing in an apartment in the same area - at least on a short-term basis. Plus, if you do not like the apartment, you can always scout for a new place and move after the agreement period.
Own Home
In the larger scheme of things, you will retire from work at a certain age and would want to settle in your own place. There's no predicting how much the real estate market would appreciate by then.Getting a home loan may become difficult when you are closer to retirement.
Solution
If you do not have the budget to invest in a house that meets your convenience, invest in one as a long term, futuristic investment. Identify a location you and your family want to settle down in, pick an area and buy a house from a reliable builder.You can rent it out till a later date when you actually want to move there and enjoy retired life. An ideal way of having your cake and eating it too.
Return on Investment
Rented House
With the ever-growing demand for real estate, property prices sometimes rise steeply and remain there for a long period of time. Rent prices are not immune to this price rise; your rent could increase as most rent agreements have a clause for an annual hike of approximately 10 per cent.However, property prices almost double every year, especially in the metros. So renting may be more realistic.
Own Home
Even with all the steep price hikes, your down payment and home loan is an investment towards a permanent property you will own, whereas rent is an expense towards a temporary abode.If the prices keep moving upwards, you are better off investing in your prime years than waiting.
Solution
There are online tools that help assess your investment. Conduct a risk analysis based on factors such as return on investment, tax benefits, etc. to understand your risk appetite and financial health.You can also do something as simple as calculating the price-to-rent ratio - divide the total cost of buying a house by your annual rent. If the ratio is between 1 and 15, you would benefit more from buying a house. If the ratio is above 15, you should probably rent.
Financial Strength & Flexibility
Rented House
The biggest cost you will accrue while renting a house is the deposit. This deposit is just security money and is most likely to come back to you in full, unless there is any damage.Apart from the rent, there is little monthly expenditure towards maintenance. If you rent a fully furnished apartment, it saves you bucks and leaves you with more disposable income.However, a rented house also translates to restrictions and limitations; you cannot make any alterations to the house or drastically change the decor per your interests.
Own Home
Buying a house is probably going to be the biggest investment you will ever make. It is going to pinch your savings, but at the end of the day, you will have a place you call your own.You can decorate it the way you want, make major renovations - the works!
Solution
You can avail a home loan of about 40% of your monthly income, but you need to make arrangements for the down payment, which could be up to 20% of the price. Additionally, you need to set aside funds for home decor, furnishing, monthly household expenses, etc.Consider these expenditures before you take the big step.Buying a house is a crucial decision and one of the most important milestones of your life. Make a decision based on where you see yourself in the larger scheme of things and what would make you happy. After all, you only live once.
Takeaways
- Evaluate each aspect of both rented home as well as owned home; both have their own pros and cons.
- A rented home gives you flexibility to move.
- Owning a home gives you stability.
- Buying a home is a decision to be made keeping in mind the larger scheme of things.