Renting vs. Buying a Home: Which is Better?

The debate of buying vs renting a house has been going on for a long time now. Those who seek financial security in the long run often take the plunge and buy a home, even if it means cutting down on their monthly budget to make space for EMIs. On the other hand, those who do not want to cut corners choose to rent a home. These people believe the money they will spend on buying the house can be used to invest in other instruments that are more likely to bring higher returns in the long run. In this article, we try and settle the debate on buying vs. renting a house. 

Buying vs Renting: What is Better from an Investment Perspective?

From an investment perspective, buying a house makes a lot more sense for several different reasons. To start with, when an individual buys a property, they put their money into an asset - the value of which will grow over time. Over the last few decades, real-estate prices have delivered amazing returns. Therefore, Indians see real estate as a safe investment option that has proven to always bring great returns on investment in the long run. Further, Indians associate homes with social and financial security. Almost every Indian dreams of becoming a homeowner one day. Investing in a home, therefore, does not only add to one’s financial health but also their emotional health. 

If you are someone who prefers renting primarily because you do not want to deal with the burden of paying monthly EMIs, you are making a mistake. Home Loan interest rates are at an all-time low and now is the right time to buy a home and become a homeowner. However, if you do not want to buy a home because you wish to use the money to invest in other things, you must choose your investments cautiously so that you at least get the return you would have got on a property, if not more. 

Buying vs Renting: Tax Benefits

If you are planning to avail of a Home Loan to buy a house, know that Home Loans come with tax deduction benefits. Under Section 80C of the Income Tax Act, borrowers can claim tax deduction benefits up to a maximum of Rs.1.5 Lakh and under Section 24(b) of the same act, a borrower can claim tax deductions up to a maximum of Rs.2 Lakh. Thus, combined, Home Loans allow borrowers to claim tax deduction benefits up to a maximum of Rs.3.5 Lakh every financial year. Couples can claim these tax benefit deductions separately and therefore, a couple can claim tax deduction benefits up to Rs.7 Lakh as a family by way of a Home Loan. This is a substantial amount of money and can help one save a lot over the tenor of the loan. 

Also Read: 10 Useful Income Tax Deductions 

One can claim tax benefits on house rent as well – both salaried and self-employed individuals can do so. Those living in a metro city can claim up to 50% of their basic salary and those living in a non-metro city can claim 40% of their basic salary as an HRA deduction. Yet another way of calculating HRA for tax deductions is 10% of a person’s basic salary minus the total rent they pay. However, if the total tax deduction you are claiming under HRA is more than Rs.1 Lakh a year, you will need to provide the PAN card of both, you and your landlord.  

Also Read: Claim Deductions on the Home Loan Interest Paid 

Thus, in terms of tax benefits, in the debate between buying vs renting a house, there is no clear winner as both allow borrowers to save taxes though one may be able to save more taxes in the long run by way of a Home Loan. 

Renting Vs Owning a Home: What is Better?

Let us try and settle this argument by listing out the benefits of renting and owning separately. 

Benefits of Renting a Home

- If you are renting a home because you want to use the money saved to invest in other things and are sure that these investments will bring better returns than real estate investments in the long run, renting may be a good option. 

- Over the last few decades, property prices have increased considerably and therefore, most people find it difficult to afford the home they wish to buy. In this case, renting may be a better option because renting may allow you to live in your dream home but your budget may not necessarily allow you to buy the same. 

- Renting is also better for people who are constantly changing jobs and cities. If you are shifting from one place to another from time to time, it may not be the best idea for you to buy a home and take on the added responsibility of looking after you have shifted to another home. 

- In the case of renting, maintenance and taking care of routine wear and tear jobs is not the tenant’s concern. Thus, when you rent, you get to live in a beautiful house without worrying about constantly spending money on its upkeep and maintenance. 

Benefits of Owning a Home

- The biggest benefit of owning a home is that the real estate sector has given stellar returns over the last few years. Property prices are constantly increasing and therefore, if you invest in a home right now, you know you are building an asset that will bring returns in the long run and also provide social and financial security to your family. 

- If you are availing of a Home Loan to buy a home, know that you can claim tax deductions on the Home Loan. These deductions will allow you to save a lot of money in the long run, which you can invest in other assets to get good returns on your investments. 

- You do not have to listen to anyone. You are the owner of the property and you can use it as you like. You are not answerable to any landlord. 

- Buying a home is not as difficult as it used to be. Today, there are many different online tools that borrowers can use to understand their EMIs for a Home Loan. Knowing everything in advance allows borrowers to plan well and make sure their Home Loan does not become a burden ever. 

Final Words

Renting vs. owning a home: which is better? The answer depends on a person’s long-term financial goals. If you want to build a stable asset and provide social and financial protection to your family, investing in a home is a far better idea. However, if you have already taken care of your financial goals and now you want to have enough money in your hands and not worry about loan EMIs, you should consider renting. 

Also Read: Home Loan EMI Calculator Benefits and It’s Features