Should I Buy A House Or Continue Staying On Rent?

By Sanesh Mathew | December 5, 2017

Is it wise to buy a house or should you continue living on rent? We’ll lay out all the important factors to be considered to help you make this decision.

Buying vs renting

I want to move out of my parent’s house! I’m getting married and need a place to live! I’m changing cities because of my job and need my own pad!

The age-old question of whether to buy a house or live in a rented place has always been an important part of personal finance decisions. The shift from being a renter to a house owner is a complex one, both emotionally and financially. But, what are the factors that need to be considered before you make a decision? Well, there are several and we’re going to lay them out for you. We hope it will make the decision easier.

Let’s begin with an example:

Mohit is 30 years old and works with an MNC in Bangalore. He has just got married and needs to move into a new place with his family. Does it make sense for him to buy a house or live on rent?

Let’s consider the scenario below.

  1. There’s a 2-bedroom apartment which comes at a monthly rent of Rs. 20,000. The annual increase in rent is 5%.
  2. There’s a 2-bedroom apartment for sale which comes at a purchase price of Rs. 48 lakh.

Now, let’s assume that Mohit’s gross yearly income is 7 lakh. Under what conditions should he buy and when does it make sense to rent?

If Mohit is planning to stay in the city for more than 10 years, then buying the apartment would be the better option. Why? Taking into consideration the EMIs he would be paying and the initial down payment, it is only after the 10th year that he’ll start gaining over renting.

If his stay is short-lived (less than 10 years), then it is better for him to rent the apartment.

Buying a house

Buying a house is a smart choice. But, before you buy one, here are a few factors that you must consider.

  • Got cash to spare? – Houses and apartments tend to be expensive and if you don’t have the means to pay for it outright, you’re probably going to have to opt for a Home Loan. But here’s the thing with Home Loans; lending institutions usually loan you around 80-90% of the cost of the property, depending on the lender. The remaining 10-20% must be put up by you, the buyer. So, make sure that you have enough cash to make the down payment.

Tip: Creating savings goals for yourself and investing accordingly early in your career could take care of this.

  • Debt-To-Income Ratio – Another important factor is your debt-to-income ratio. This is the number of loans you have taken in proportion to your income. If you’re taking a loan, most lenders look at this ratio to make sure that you won’t default on your loan payments and other debts. Ideally, your debt-to-income ratio should be below 50%.
  • Other Expenses – When buying a house there are other expenses to think about such as property tax, insurance, annual repairs, maintenance and other costs. Do you have sufficient means to take care of these?
  • Mobility – When you buy a house, remember that you give up on mobility. This could be an issue if you shift jobs and your new office is at a distant location from where you live or is in another city. Of course, there are always ways to deal with this but it is something to consider when deciding whether to rent or buy.
  • Area Analysis – Check the real estate prices in the location where you wish to purchase the property and the future potential of the property.

Additional Reading: How to Start Planning for Buying a House?

Moreover, here are some questions you should ask yourself before opting to buy a house:

  • What is my financial condition like and can I afford to purchase property in my current situation? If so, how much down payment can I make from my savings?
  • If I opt for a Home Loan, will I have sufficient money to live on after I make my monthly EMI payments?
  • How are my investments positioned in relation to other critical goals?
  • What are the current property trends in the city where I want to buy? Is there a location advantage? Will real estate prices move up or down in this city?
  • Am I eligible to take a Home Loan? If yes, what would be the loan amount?
  • What should be the value of the property if I choose to buy one? Will the EMI be lower than the amount I would pay as rent?
  • If I choose to continue staying on rent even after I purchase a property, will I get sufficient rental income from the property to make it worth my while?
  • What is my future earning potential and how will my finances change, post this decision of purchasing a house?

Once you answer these questions, you’ll have a clearer idea of whether or not it makes sense for you to buy a house.

Based on the city that you’re looking to buy property in, the price range will differ. Here is a quick city-wise price breakdown (courtesy: Magicbricks – Property rates & trends):

City

Average Price Range Per Sq.Ft.

Bengaluru

Rs. 3,100 – Rs. 18,000

Mumbai

Rs. 4,500 – Rs. 82,000

Hyderabad

Rs. 2,500 – Rs. 6,500
Delhi

Rs. 3,500 – Rs. 20,000

Chennai

Rs. 3,400 – Rs. 18,000

Kochi

Rs. 4,000 – Rs. 6,000

Ahmedabad

Rs. 2,000 – Rs. 7,000

Remember that the price differs from area to area. For instance, a property in Hauz Khas will cost a lot more per square feet as compared to a property in Dwaraka.

Staying on rent

If you wish to live in a rented property, here are a few things you should take into account:

  • The security deposit to be paid to the house owner.
  • The monthly rent you pay.
  • The shifting and brokerage charges you will have to incur every time you shift your house.
  • The annual increase in rent and the hassles of shifting frequently.

If you are a salaried employee, you will receive a House Rent Allowance benefit when you pay rent under the Income Tax Act. However, you will not own any asset and therefore will not reap the benefits of appreciation in real estate prices.

The decision of whether to buy a house or continue renting can also be based on your annual income. The below table will help you make the decision.

City

Rent Buy

Bengaluru

Income < 12 Lakhs Income > 12 Lakhs
Mumbai Income < 25 Lakhs

Income > 25 Lakhs

Hyderabad

Income < 6 – 8 Lakhs Income > 8 Lakhs
Delhi Income < 16 Lakhs

Income > 16 Lakhs

Chennai

Income < 16 Lakhs Income > 16 Lakhs
Kochi Income < 8 Lakhs

Income > 8 Lakhs

Ahmedabad Income < 8 Lakhs

Income > 8 Lakhs

(Info source: ET)

Among cities the mentioned above, Hyderabad and Ahmedabad are the most affordable markets to buy a house or even rent. Mumbai, Delhi, and Chennai are the costliest whether you’re looking to buy a house or rent. Anyway, before you choose to buy a house or rent, consider your income and the number of years you’ll be staying in the city you’re residing in currently (future plans).

In A Nutshell

As seen above, there are a variety of factors to be considered while making the decision to buy a house or stay on rent. Real estate is a good asset class to own and can act as a hedge against inflation. However, you should not buy a house simply because it is good to have real estate in your investment portfolio. A careful analysis of the underlying personal factors as well as the potential of the investment should determine if you should buy a house or continue to stay on rent.

All information including news articles and blogs published on this website are strictly for general information purpose only. BankBazaar does not provide any warranty about the authenticity and accuracy of such information. BankBazaar will not be held responsible for any loss and/or damage that arises or is incurred by use of such information. Rates and offers as may be applicable at the time of applying for a product may vary from that mentioned above. Please visit www.bankbazaar.com for the latest rates/offers.

32 thoughts on “Should I Buy A House Or Continue Staying On Rent?

  1. Divakar

    It’s really a tough decision for anyone that to buy a house or take it on rent. Both of the options have their own advantages and disadvantages. If you have budget and stable income then you can go for buying your own house and if currently you don’t have stable income then you can for rent also. Renting will also give you flexibility. And, you can go for buying your own house after few years. So, you can decide accordingly which best fits your circumstances and budget.

    Reply
  2. Nida

    It depends upon your financial conditions to buy a house to stay in rented house. I am agree with the points mentioned in this article. if you purchase a house through loans, initially you may feel overburdened, but after some years you will come to know that is our investment with high returns. but we should consider all the points mentioned here before buying a house. Anyway thanks for the article.

    Reply
    1. Team BankBazaarTeam BankBazaar

      Hi Nida,

      We appreciate your feedback. We completely agree with you everything you said. Keep reading. We’d love to hear from you again.
      Cheers,
      Team BankBazaar

      Reply
    2. Santosh Patil

      Hi Nida,

      How will you consider a asset is giving high returns?
      Assume a XYZ Salaried person bought Apartment worth 60 Lakhs with 10 Lakhs of down payment with EMI approx 25 K for 20 yrs.
      Assume XYZ person wants to sell the house after 5 yrs, and plan to sell at 80 Lakhs, do you say it as appreciation? EMI he has paid for 5 years is almost nearly 75-78 lakhs with interest.

      Reply
  3. RajanChauhan

    Nicely written Article!!!

    Real estate is a good asset class to own and can act as a hedge against inflation. However, you should not buy a house simply because it is good to have real estate in your investment portfolio. A careful analysis of the underlying personal factors as well as the potential of the investment should determine if you should buy a house or continue to stay on rent.

    Reply
    1. Team BankBazaarTeam BankBazaar

      Hi RajanChauhan, Thanks for your inputs. Keep reading our blog for more insightful topics. Cheers, Team BankBazaar

      Reply
  4. Pavan A

    Hi Sanesh,

    Nice Article..
    Sometimes, it is very difficult to judge whether to buy a house or continue to live on rent. I agree with the points highlighted in this article. If you buy a home through home loan, in the beginning you may feel overburdened but you will feel happy after many years when you clear the loan. However, both the options mentioned in the article have both advantages and disadvantages. Finally, it depends on your financial conditions. I can say that if you are a salaried employee, then move ahead and buy your dream home.

    I would like to read more posts from you Sanesh.
    Thank You

    Reply
    1. Team BankBazaarTeam BankBazaar

      Hi Pavan, Thank you for taking time out and giving us your opinion. We totally agree with you. We have 6,500+ articles on our blog. Keep reading! Cheers, Team BankBazaar

      Reply
    1. Team BankBazaarTeam BankBazaar

      Hi Sarthak, We’re glad that you liked our article. Keep reading! Cheers, Team BankBazaar

      Reply
  5. Alok

    Nothing is worst than staying on rent. Having a home or flat of own is always the greatest option. Today, in the time where loans are available easily, it is good to buy a home or flat. Property builders also provides home loans and other benefits if someone is willing to buy a property.

    Reply
    1. Team BankBazaarTeam BankBazaar

      Hi Alok, While we do agree with you that owning your own home or flat is a better option than renting, it is not always a feasible option. Buying a house is a good option when you want to settle in a particular city. Plus you have the ability to service the costs (downpayment, loan EMIs, furnishing, maintenance, etc) attached to it. However, if you are not certain about your future plans, it is clearly not advisable to buy a house. Renting is a better option. Cheers, Team BankBazaar

      Reply
  6. Shawn Crawley

    Its really a good blog on sell properties roanoke. I appreciate your article. Its important to get sell properties in roanoke. This blog is really helpful to give a light in this issue. So thanks for sharing all that important information.

    Reply
    1. Team BankBazaarTeam BankBazaar

      Hi Shawn, Glad we could be of help. Cheers, Team BankBazaar

      Reply
  7. Shawn Crawley

    Found your blog. This is a very good blog on home buyers. I would like to thank you for all the information you give. Its really important to choose the best home buyers.so thanks for sharing this information.

    Reply
    1. Team BankBazaarTeam BankBazaar

      Hi Shawn, You’re welcome. Cheers, Team BankBazaar

      Reply
    1. Team BankBazaarTeam BankBazaar

      Hi Ben, Thank you for appreciating our article. Also, thanks for sharing your article. Cheers, Team BankBazaar

      Reply
  8. Alanloughlin

    In the event that you have a your own home it is extremely upbeat thing with you however at times because of any purpose behind some time we need to move over yonder like I thing fundamental explanation for it because of occupation. In that condition we need to remain in the lease house yet in the event that we have our own home rather it is so distant from your activity put it’s happy thing for you.

    Reply
    1. Team BankBazaarTeam BankBazaar

      Hi Alanloughlin,

      Okay, great! Thanks for your input.

      Cheers, Team BankBazaar

      Reply
  9. Henry Collins

    A rent is better is a person likes to move frequently. When you buy a house most of the time you got to be willing to settle in one place. I personally prefer renting.

    Reply
    1. Team BankBazaarTeam BankBazaar

      Dear Henry,

      You’re right about that. Keep reading our blog for more insights into the world of finance.

      Cheers,
      Team BankBazaar

      Reply
  10. AlanLoughlin

    Purchase house without contract is novel and new idea and everybody take intrigue and need to know all answers which will be conceived in individuals mind after hear this theme. Yet, your blog clears all the disarray so it’s exceptionally useful and useful.

    Reply
    1. Team BankBazaarTeam BankBazaar

      Hi Alan,

      We’re glad this article was of help to you. Keep reading our blog for more insights into the world of finance.

      Cheers,
      Team BankBazaar

      Reply
  11. Neer Mishra

    Hi Sanesh, I have same question running in my mind whether to buy a house or continue to stay on rent. For me both options are same. Emotion wise everyone wants to live in own home, but when I think about financially then it’s difficult. I agree with Nida as she said it depends upon your financial conditions to buy a house or to stay in rented house. The points mentioned in the blog is very clear and it gives me real time thinking. Your blog is really good and helpful, Thank you for sharing an amazing blog

    Reply
    1. Team BankBazaarTeam BankBazaar

      Hi Neer,

      We’re glad we could be of help to you. Keep reading our blog for more insights into the world of finance.

      Cheers,
      Team BankBazaar

      Reply
    1. Team BankBazaarTeam BankBazaar

      Hi Splendidgroup,

      We’re glad we could be of help to you. Keep reading our blog for more insights into the world of finance.

      Cheers,
      Team BankBazaar

      Reply
  12. buying a house with cash

    Living in rental house is better .whenever you don;t able to buy your own house . you should save the money for buy your house , so that you wouldn’t be suffer from home loans.we buy houses in Connecticut in any condition.whether it is in any condition.you don’t worry about this.

    Reply
    1. Team BankBazaarTeam BankBazaar

      Hi Buying a house with cash,

      Thanks for the info. Keep reading our blog for more insights into the world of finance.

      Cheers,
      Team BankBazaar

      Reply
  13. Ashwin

    Thanks for the valuable information. Need your advice. I don’t have any properties neither in my hometown nor in Bangalore where I have been working for more than 10 years. I can afford to buy a flat around 80 to 90 lakhs maximum with 30 to 40% down payment but I have not been able to decide due to a few reasons:

    1) My work location keeps changing within the city from one end to another end. I can’t manage long travel distance and hence I have always shifted /closer to office location.

    2) I couldn’t find an apartment with proper documentation like OC/CC for my budget in a central location.

    3) With rent around 20K for the past 10 years, I have been able to invest in MF, Stocks and saved a lot of money. This is one of the reasons why I have not been very serious about buying a house.

    However, as I don’t have any real estate property, there is always a thought of buying one in Bangalore. What would you suggest from your point of view?
    1) Should I continue to stay in a rented house and buy a flat in the outskirts from the reputed builder for 50 to 55 lakhs? This way, I would own a property, not much burden on EMI and stay happily in a rented house. I may also get some rental and may be able to sell in the future with profits(>10 years).

    2) Compromise on a few things like a small apartment without OC/CC and buy a house within city limits. This will require a huge down payment and EMI as the cost would be around 75 to 90 Lakhs. Again, this will allow me to own a property within the city and live in the same house until my work location gets shifted far away from the house location.
    3) again, stay in a rented house and buy a plot or even a couple of plots in my hometown as a long-term investment and make it to a wealth creation.

    What makes more sense for the first time real estate buyer?

    Reply
    1. Team BankBazaarTeam BankBazaar

      Hi Ashwin,

      Real estate is an illiquid investment. We suggest that you get the help of a financial planner before you decide to invest in real estate.

      Cheers,
      Team BankBazaar

      Reply

Leave a Reply

Your email address will not be published. Required fields are marked *