There are two ways to look at ‘Real Estate’ for end use. First, is ‘Ownership of the property’- here the person needs to decide if they could make a permanent decision by taking complete ownership.
Dr. Mohit Ramsinghani, Chief Sales Officer- Luxury, Shapoorji Pallonji
The second is ‘Renting a property’ - here they can take temporary ownership. There are pros and cons to these options which need to be analysed before any decision is taken. Full ownership requires a sizable investment and commitment for many years, the reward to it is capital appreciation in the long term and a secure feeling of owning a home. One can also opt to pay recurring rents and use the property at their convenience, though the sense of security of a home will always be missing, especially post covid people have realised the importance of owning a home. Here are some tips which will help an individual in taking this important decision:
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Expenses:
One needs to decide based on financial status and needs for life, family, and other factors. It’s required for them to think through whether buying a house is financially suitable or going for a rent option would be beneficial considering their financial status. The best way to do this could be to get a hold of the annual expenses. Buying a house will have a fixed one-time down payment, recurring expenses toward mortgage EMI’s, monthly maintenance & property taxes. Renting a house will have a recurring expense of rental which will be a pure expense, wherein when one buys a home the mortgage EMIs go towards the debt payment. Merits towards owning a home is that money is being purely invested to own a secured asset for life & capital appreciation. Though one needs to understand the financial feasibility & affordability before getting into it as it is a sizable investment for life. Renting has its own merits of flexibility to move out and change but it is a pure expense as the money is not being parked towards capital appreciation.
Future Value:
When an individual takes expenses as data to compare rent vs buy, it is also important to calculate the future value of the property in the next 10 – 12 years. Property appreciation in a decade will make the property reach the affordability of buying. Hence one needs to practically accept that though rent will always give the flexibility to change & will also have no committed expenses for the long run but the decision of not owning a property can create a risk of not having affordability to own property ever in the future due to price appreciation. There is also an advantage of compulsory savings towards a home when a person owns a property as they will always stay focused to repay their mortgage at the earliest & hence will end up saving more than spending. Capital appreciation is a critical component as this will make a huge impact on the financial calculations.
Risk:
The decision for proceeding with a rent Vs Buy house is also aligned with the associated risks. Some people have no worries about the mortgage they are entitled to, and they are comfortable going for it. However, some people are extremely sensitive to this information as the mortgage increases the risk due to the interest component added to it and the unpredictable market changes. The personal net worth of the individual can easily change with the market conditions so it’s important to bet and get loaded with mortgage value at the right time.
Flexibility & Stability:
It’s more seen as a stable life and option once a person makes an investment in real estate. As they own their house, they also have the flexibility to décor their house and set their dreams true with all the wishes they have with the new home. On the other hand, renting does involve moving from place to place, city to city based on the rental agreements. This hampers stability as compared to buying your own house and settling down.
To conclude, rent vs buy is an emotional decision at the same time being practical as compared to your needs and financial situation. Analysis plays a key role however it might be difficult at times to predict the future correctly. One needs to understand the overall risk associated, their needs, expectations and stability aligned while they take a call to answer this Million Dollar Question: 'Rent or Buy'.
This article is written by Dr. Mohit Ramsinghani.
You can contact him through his Linkedin Page: Dr. Mohit Ramsinghani .
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