Is it better to rent or buy home? - Perpetual debate

Yesterday while chit chatting with a few colleagues over a cup of tea, we started discussing – Is it better to buy or rent a home/flat? As expected each one had his own point of view on this. While tea got finished quickly, we could not conclude the discussion.

Buy-vs-Rent decision is a complicated one which depends on a number of complex criteria both quantitative (financial) and qualitative ones. Financial criteria include price, affordability, loan eligibility, tax benefits while qualitative ones are lifestyle, security, career ambition etc. And all these vary from person to person, thus there is no one-size-fit all answer.
 
The follow table gives high level advantage/disadvantage of both options:

While the table provides some high level pointers, one has to judge them in context of his own requirement and preferences. For example:

• For a person who has just started his corporate career, easy exit without too much commitment is very relevant. At this stage in life people generally change jobs and often shifts from one city to another in search of better career prospect. For him renting and not buying makes sense. I know of a person working in IT sector who after spending initial years in Delhi shifted to Bangalore because of better career prospect. While in Delhi he had bought a flat for which EMI is being deducted. Now he is looking for a flat in Bangalore. So he is running after real –estate agents at both ends; one for selling Delhi flat and other for buying one in Bangalore.

• On the other hand people who are steady in their job and don’t need mobility, security and comfort of own home is more relevant for easy exit. Regular home shift unsettles many things– kid’s schooling, office commute, neighborhood etc.

• Unlike rented house, own house can be modeled according to one’s style, taste and budget. However, this brings along added responsibility of maintaining the property.  Some people may not like to take this responsibility.

While it is trickier to factor in qualitative criteria, there are a number of calculators that helps with quantitative aspect of the decision – cost-benefit analysis for renting or buying a home. The New York Times provides one such buy-or-rent calculator, which I found very useful and comprehensive. The calculator includes a number of factors which can be used to do “what-if analysis”. While the unit (USD) and some factors used are in US context, the calculator is flexible enough to be used in Indian scenario.

At the end, one has to factor in all these and decide for himself which options best meet his requirement. The debate will not end anytime soon.