5 Unbeatable Reasons Why Buying A Property Wins Hands Down Over Renting
September 1, 2017
The buy vs. rent debate is gaining momentum, especially with the younger generation or millennials veering towards a preference for renting. A number of factors influence this traction, the foremost being a need for flexibility, be it in career or life, the need to having more disposable income in hand, and preference of diversifying risks and investments through various portfolios, to name a few. This is a complete contrast to the older generation, who believe in stability and with their very first job had starting putting aside a certain amount towards buying a house and settling down.
Here’s a look at both sides – the pros and cons and why buying a house still is a wise decision in the long run.
Appreciation – Any investment, especially from a financial stand point, is viable only if it provides a steady appreciation over a period of at least 5 -10 years. Given the see-sawing nature of the economy, particularly in the last few years, people are looking at spreading their investments over various portfolios to minimize risks. The stock market index does touch stratospheric heights, giving the impression that it provides great and quick returns. The reality is that, when looked at from a panoramic viewpoint, one can see the volatility in it. It is good for someone who is playing the market, watching trends on a day to day basis, one who enters and exits as when it is prudent. In short, it is a tool for short term profits. This compared to real estate, which nets a slow but steady appreciation over a period of time. Take for instance that an investment of Rs. 45 lakhs would appreciate to Rs. 2.28 crores in a time span of about 30 years, giving you an internal rate of return (IRR) of 7.4% before taxes. This could, for someone in their 20s, be hard to comprehend, but when in 40s and looking ahead to retirement years in 70s would make sense.
Cost benefit ratio – A 3 BHK apartment in a good locality in any of the metro cities is a Rs. 50 – 90 lakh plus investment. Even though banks are amiable to providing a loan of up to 80% of the cost of buying a property, the 20% that one needs to pay upfront is still sizeable. And paying EMIs for a period of at least 20 years does increase the actual cost of the property to far higher than the actual price. And this doesn’t seem to make sense. But do the math. One would see that the monthly rent plus maintenance would pretty much be the same as a monthly EMI. The crucial difference is this – the rented apartment is never yours. The rentals are subject to at least a 5% increase YoY. As you expand your family, the need to keep moving to a bigger place is inevitable. The possibility of re -modelling your rented accommodation to suit your needs is nil. You’d be lucky to have a landlord who is non-interfering and would give you a decent notice period before asking you to vacate for whatever reason. Vs. a floating EMI that could even come down given the state of the economy, an asset that has your name on it and the freedom to redesign your home any which way you need to. Not to mention that tax breaks that one gets on both the principal and interest amount of your loan. Makes more sense?
ROI – Given the volatility of the job market and that the fact that one is always looking for a better job opportunity, it probably is inevitable that one does not stay in a city for too long. So then why invest into an immovable asset? Well, if one is moving out of a city, there are always 2 moving in. The rentals that one can get from the property can offset the EMI that one is paying. Or even if one wants to sell the property after a few years, the market prices, especially if one has been prudent into investing in a good area, would be far higher than what one paid initially, giving a decent return for one’s investment. Reinvest into another property or park it in FD and use the interest for paying rent at your new premises.
Insurance – Yet again, something that no person below 40 is willing to look that far forward to – old age. One can always, while young and earning, live ‘Carpe Diem’ or ‘Live in the Moment,’ and prefer to stay flexible and rent. What happens when that pay check stops? In the current state of the job market scenario, one doesn’t have to hit 60 for that to happen. The pink slip is always fluttering somewhere, waiting to drop. An asset in your own name that you can mortgage or sell, if God forbid, you find yourself in dire straits or in need of some large capital for health or education or to start a business, provides you more than what you need than what any policy promises.
Achievement – Why does anybody do anything? To feel good at the end of the day of a job well done or the satisfaction of having taken care of not just one’s self but also family. Even if those seemingly never ending EMIs have pinched at times or your property that you let out has proven a hassle, at the end of the day, it’s yours. The pride of having your name on the front door is worth all the trouble. The sense of achievement of having provided your family with a wonderful place to call home, a place that you can come back to at the end of the day or when you retire is incomparable.