Buy or Rent Home: What Saves Money in the Long Run?

Buying and house and renting it has its own pros and cons, but what weighs in your favour in future?

Dikshant Bhandari’s Dilemma – Buy A Home Or Rent One?

(Photo: iStockphoto, altered by The Quint)

Dikshant Bhandari has a fundamental question: why should he continue living on rent when he can purchase a house, especially if he can avail of the tax benefits that are available to a first time home buyer?

Bhandari earns Rs 5.4 lakh annually. After his expenses, he’s left with an investible amount of Rs 3.6 lakh.

If he starts with an investment of Rs 30,000 a month and steps it up by 8 percent every year, he’ll likely have a corpus of Rs 48 lakh at the end of seven years, according to Amol Joshi of PlanRupee Investment Services.

Taking into account Bhandari’s goal of providing for his children’s education, Joshi anticipates that only Rs 38 lakh will be available for the down payment on the house. So Bhandari will have to take a loan of Rs 1.6 crore. That’s, however, something which he would be unable to do at his projected income level.

But what if he were to settle for buying a house for Rs 1 crore? The equated monthly instalments on the loan would then be affordable.

But, here’s the catch: at the end of 20 years, which is normally the tenure of home loans, Bhandari will have negligible savings for his retirement.

And at that point, it’s unlikely that he would want to sell his house and move to a cheaper accommodation.

As an alternative, on this episode of BQPortfolio, Joshi discusses what will happen if Bhandari were to continue living on rent and investing the surplus over the next 20 years.

(This article was originally published on BloombergQuint)