Sep 2022
6 mins read

7 Ways To Decide If You Should Buy A House Or Rent

Choosing a house is one of the most consequential financial decisions you will make. Whether you are buying or renting, it constitutes one of your largest expenses, so it’s important to get it right. But how should you decide whether to buy or rent? Use this 7-point checklist to help you choose:

Flexibility versus stability

While Indians have traditionally preferred the stability of home ownership, millennials and Gen Z often prefer the flexibility of renting.

point 1

Difference in cost

Estimate the total cost involved in buying versus renting a house. Always remember that rent is just an expense, but home loan EMIs are an investment in building an asset.

point 2

Inflation versus interest

If you rent a house, you'll feel the effects of inflation in the form of rising rent every year. On the other hand, when you buy a house with the help of a loan, you'll have to pay interest on it. Estimate the rate of inflation versus interest rates over the next 15-20 years, to calculate which rate is lower, and thus more economical.

point 3

Investment versus self-use

It's important to be clear about your priorities. If self-use is your objective, you’ll naturally shift toward buying. Your home will also be an appreciating asset. However, if your focus is more on investments, you’ll still have to figure out accommodation in the short-term. 

point 4

Where do you want to live?

Do you plan to live in the same city or country for some time, or are you planning to make a move to an another country? Your decision should be aligned with your future plans, and renting might be better if you do not intend to stay for long.

point 5

EMIs versus monthly rent payments

A home loan is a long-term affair that requires regular repayments. If the EMI is higher than your likely rent, make sure you can afford it before you choose to buy.

point 6

Alternative investment options

Evaluate other investment options and the potential returns they can generate. Other liquid assets such as mutual funds and fixed deposits can help you build a well-diversified portfolio. Compare all these options against parameters such as return potential, risk quotient and liquidity to see if there might be better investment avenues than buying a house.

point 7
Buying or renting a home is ultimately a personal decision depending on many factors, including emotional and lifestyle considerations. However, you must not neglect the financial implications either. Use this checklist to ensure you’ll always make the right decision.
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