To Buy or not to buy, that is the question
-Why millennials should rent a home instead of buying one
Lately, people are becoming more educated about their personal finances and so have started weighing up the pros and cons of every financial decision. With that, the age-old tradition of buying a home which has been unanimously taken as a ‘must-have’ by our previous generation, has also come on the radar.
A common argument we have heard from family and friends in favour of buying is, ‘Why would you pay the monthly rent to a landlord instead of building an asset for yourself?’ In reality, there are many aspects like financial, personal, work stability etc. making renting may be more compelling.
So, here are some pointers and a bit of trivia which will give you an idea to choose what is more suitable for you.
Returns on owning a house as an investment
In the last decade, the price for real estate has surged rapidly especially in Tier 1 cities. This can be thought of as just a result of the euphoria attached to the emotions of possessing the property. Had the price for buying the property been justifiable, the real estate could have been a good deal as an investment.
While making a decision so big for many, one should understand to differentiate between having a house for shelter vs property as an investment.
The average 10-year return on real estate investment has been 10 %, based on the reports published by several real estate research firms but may vary if you look at particular cities. In the same period, the average return of equity varied between 12 % to 14 %, and more in some cases. That, along with the frequent expense of maintenance of the house and intermittent unoccupancy, investment in property comes with plenty of timely efforts on the buyer side. On the other side, renting can help you save huge expenses, which makes it pretty flexible and gives the freedom to explore more options for exploring other investment instruments. All of these thoughts establish that there is a minimal element of risk involved in renting flats.
The true cost of homeownership is higher than many anticipate
Whenever the topic of buying vs renting comes, People often argue ‘…but, every rupee you pay in rent is a rupee you’ll never see again,’. That’s true. But, paying rent isn’t a waste of money. Yes, you won’t see that money again, but even in case of buying, you’ll be spending a lot of money on interest payments of EMI, furnishing and maintenance — money you will never see again! These payments are not creating wealth. The interest paid on EMI amounts to more than half and sometimes two-third of actual payment! Even if you want to pre-close the loan, banks charge a pre-closure amount! Certainly, one should analyse all these before making any decision.
Affordability and Flexibility
Keeping all factors aside, if we talk about affordability it will vary from person to person because of the financial situation and element of risk involved within the real estate market.
Many people decide to take out most part of their salary as EMI to repay the home loan only to regret at a later point of time.
Talking about flexibility, for most of the young people switching jobs and hence places and even cities is not a great deal in these times. With that, when the duration of stay is likely to be temporary, then buying won’t be a smart move plus the expenses that it might bring will not be a piece of cake for many, if not all. For young people, without fixing the career moves, if you buy a property first, it may certainly hinder the future course of career as well as financial planning.
Hope, with all points mentioned above you will be in a better position to make a better decision as per your commitments.
