When deciding whether to rent or buy a house in India, it's important to weigh all options.

While owning a home provides security, it also comes with high costs and long-term debt. Renting may be cheaper if the housing market is expensive and you have limited funds.

In this blog, we explore both the options and help you figure out which one's best for you!

The Emotional Parameter

It’s really easy to get emotional when it comes to buying a house. Or if you’re someone who’s thinking really long term and is keen on creating a legacy for your future generations, then buying a house is a good option.

The Financial Parameter

There's so much that goes behind buying a house, and before you begin you need to know if it's the right time for the same. So, let’s objectively look at how this works. First, let’s understand the costs of buying vs renting a house in India.

Factors to Consider When Buying a House

• Down payment: An upfront amount paid initially, giving partial ownership of the house. So if you’re buying a house and the down payment is 10%, you will have proportionate ownership of the house.
• Interest on loan: Next, you’re probably going to take a loan to pay the remaining 90% of the cost. This is basically the cost of taking a loan. If you look at it, this is also a form of rent that you pay as EMIs to a bank instead of a landlord.
• Maintenance cost: Since you’re the owner of the house, it becomes your responsibility to take care of it. This includes a monthly maintenance charge that you can’t avoid.

Read this blog for a more detailed analysis of how to plan and what to prioritise when buying a house.

Factors to Consider While Renting a House

1. Rent: The amount you pay to the landlord. In many metro cities, you also need to pay an upfront deposit when you move in. This can be 2 to12 months of your monthly rent, depending on the location (and landlord). This amount is refundable when you move out of the house.
2. Maintenance cost: These are monthly expenses to keep the house in good condition, especially if you’re living in an apartment. FYI - costs like electricity bills, water bills etc., are common expenses in both cases, so we’re excluding them here. Before diving in further, let’s look at a super important concept you shouldn’t sleep on when you rent or buy a house.

What is Rental yield?

Rental yield in India is typically between 2% and 3%. For example, if you own a 4BHK apartment in Noida worth ₹5 crore with a monthly rent of ₹65,000, the rental yield is 1.56%. This means it would take close to 65 years to pay for the house's actual value through rent, assuming the growth rate of rent and the house's value are the same.

How Risky Is It to Buy a Home?

Here are some risks associated with buying a home as an investment:

1. Being in financial debt for a long period: Owning a home provides security but involves huge costs. You will most definitely take out a loan to buy one, which puts you under debt spanning decades. A major chunk of your income will go into paying EMIs.
2. Risk of defaulting: If you’ve taken a loan, then there’s a lot riding on you to pay EMIs every month. And if you fail to make the payments, then the repercussions are severe. The bank will take back the house, and your credit score will take a beating. You may also not be able to purchase a house in the future, and even if you can, the rates and terms will be unfavorable.
3. Getting obsolete: Owning a house becomes your responsibility to upgrade it as per the market standards constantly; otherwise, you may lose out on the value when you give it for rent or decide to sell.

Is It Cheaper to Rent or Buy? Crunching the Numbers

According to the above comparison, it is better to rent than to buy a house since the net benefit from renting is ₹1.73 crore, whereas the net benefit from buying is ₹1.61 crore. While there is a debate on whether buying a house is an investment, the current status suggests that renting is a better option.

But things may change. For instance, if the property's value increases to 12%, then it may be beneficial to buy a house in such a situation. So there is no absolute answer to whether to rent or buy a house as it all depends on your location, rates and market conditions at the time.

If you've decided to go ahead and buy a house, here are 5 great tips for first-time home buyers.

Try the Fi Money Rent vs Buy Calculator

But if numbers make you dizzy, then check out Fi’s Rent vs Buy calculator, where you just need to plug in a few numbers, and the calculations will be done for you. Now that’s neat, isn’t it?

Investing in mutual funds can be a great way to save up for down payments when you choose to buy a home. With Fi Money, you can select from over 900 direct Mutual Funds, and invest daily, weekly, or monthly via automatic payments or SIPs — all with one screen tap. Plus, Fi's 100% secure as it functions under the guidance of epiFi Wealth, a SEBI-registered investment advisor. And with zero penalties for missed payments, Fi offers 100% flexibility to help you reach your home-buying goals.

Frequently Asked Questions

1. Is it better to rent or own a home?

The rent vs. buy decision depends on factors like location, housing market, and finances. Renting may be cheaper if the market is expensive, the individual doesn't have a large down payment or steady income. Owning may be more affordable in the long term if the market is stable and the individual plans to stay for several years. The decision depends on individual needs and finances.

2. Is renting cheaper than owning a home?

The debate between renting and buying a home depends on factors such as location, housing market, and financial situation. Renting may be cheaper than owning if the housing market is expensive and the individual has limited funds and unstable income. However, owning a home may be more affordable in the long term if the housing market is stable and the individual plans to stay in the home for several years. To quickly determine if you should rent or buy, use this calculator.

3. What should the rent-to-property ratio be?

An ideal ratio for purchasing a property in India is less than 15%. However, factors such as location, city, and housing markets can affect this ratio.