Having a home is one of the most basic necessities of civilised society. But it is also a lot more than that. For someone buying their first house, it’s a moment of happiness and immense excitement, a milestone in one’s life. It’s the feeling that you’ve arrived, and that you are building a life of financial independence and stability. As a woman, it’s even more precious as you know just how many glass ceilings you’ve worked hard to shatter to hold the keys to the house you own.
However, renting a house can mean a lot to people too. It is tangible proof of your brewing dreams and ambitions, of finding solace in something borrowed. Having said that, whether you choose to stay on rent or invest in buying a house, you must choose your path carefully, based on what works for you, financially and not just from an emotional perspective.
We spoke to Sai Bhosale, a chartered accountant and financial advisor, on the finances of buying vs renting a house. Here are a few things you should make note of.
Owning a Home
· A self-owned home is a tangible real asset having the potential of capital appreciation and is created by paying EMIs. Rental payments, on the other hand, are expenses without the creation of a real asset.
· A lot of time and money which is wasted on relocating from one rental accommodation to another is saved when you own a house.
· Your home loan repayment structure can be planned in sync with your retirement age. On the other hand, if you opt for rental accommodations over owning a house, you might end up paying rent after you retire and might have to compromise your lifestyle as your inflow from a major source of income may stop.
· You can avail of the tax deduction for the Interest component of the housing loan paid for self-occupied property up to ₹ 2,00,000 and ₹ 1,50,000 for the principal amount of the housing loan under Sections 24 and 80C respectively of the Income Tax Act.
· Also, if your landlord suddenly decides to sell the apartment, you will need to make immediate arrangements to relocate and you might end up paying a higher amount of rent.
Renting a House over Owning a House
· Rental expenses are predictable and not as burdensome as the upfront down payment for purchasing the house. Only the security deposit which could be equivalent to a two- or three-month rental must be paid upfront, in case of rental accommodation.
· The landlord takes care of all the allied costs like property taxes, maintenance costs, parking space costs, repairs and maintenance bills etc. Your only worry is the timely monthly rental payments.
· You can rent a place which is close to your office or your child’s school to save on transportation and conveyance costs. In the case of homeownership, you are tied to one location and end up spending more than anticipated on conveyance.
· Rental accommodations offer the flexibility of change, unlike owned accommodation. Real Estate being illiquid, needs time, effort and bearing associated costs to sell and distress sale doesn’t get you the expected sale price.
· You can avail of the tax deduction under section 10(13A), as prescribed, in respect of rental accommodation, for which the house rent allowance is received from the employer. Alternatively, an individual who does not receive a house rent allowance from the employer can claim a deduction under section 80GG.
Conclusion
Every person’s financial health and the situation are different, there is no clear answer as to whether buying or renting is the correct choice. One must carefully analyse one’s finances, lifestyle and financial goals to conclude on buying a house or renting accommodation.