Buy Or Rent a House

Let me tell you in the beginning itself that I don’t own a house. Main reason behind not owning a house is not having a family, not planning to have a family in the future and laziness.

Now let’s come to the point; there has been chatter around by finance influencers on social media telling the world that renting a house is a better option than owning it. I saw quite a few tweets saying so in the recent past, so I decided to test how far this statement is true.

Let’s take few hypothesis to test this statement; after all renting a house or owning it will entails cost, which we mention in numbers and savings can also be mentioned in numbers only.

Let us assume you are living in Bengaluru. A 2 BHK flat in decent society will cost you around Rs.60-65 Lakh minus all the government duties and the interior decoration. Bank or housing finance institutions will finance you up to 75% of the cost of the flat. In some cases, bank may finance little more than that as well, but for that, your FOIR should be solidly in favor of you. In this case, bank may give you a loan up to Rs. 50 Lakhs. For a loan term of 20 years, your monthly EMI will be around Rs.45, 000/- (I checked on ICICI Bank Home Loan Calculator and found that it Rs.44, 665/- precisely. Other banks may also be charging something in this range only). In 20 years, you will pay the financial institution back around Rs.1.08 Crore.

Now, let us take us the case of renting the same property. Let us also assume that you remain in the same property for twenty years. Let us assume that rent of this property is around Rs.25,000/- per month. It would be little less if it is in interiors and little more if the amenities are better. For the calculation purpose, let us take the rent of this property at Rs.25,000/- per month. Annual rent increase is between 5-7%. Let us be conservative and take the annual rent increase as 5%. With this rate of increase, you would be paying Rs.63,000/- in 20th year and you will be paying close to Rs.1 Crore as rent in 20 years. ????

According to Frank Knight India, property rates in top 8 metro cities appreciated between 3-10% year-on-year in July-September 2022. Suppose your property continues appreciate by just 5% for next 20 years, then also, it will be valued around Rs.1.7 Crore at the end of this period.

It means, when you rent a house, one the one hand your payout as a tenant is almost equal what you would pay to the financer of your home loan and you don’t get the benefit of the appreciation in the value of the property. You buy the services at the same price of owning the asset and compromise on appreciation value of the asset as well. I don’t know how good this decision sounds….

Our life is sum of our experiences and memories. We create experiences and memories through different actions influenced by many factors. But there is always continuity in those experiences and memories and a common thread which connects all the experiences and memories. For example; as a child you eat, play, have fun but study or learn some skill which helps you to earn your livelihood. Your livelihood helps you get a life partner. After getting the life partner, you create and raise family. Each stages of life gives your different set of experiences and memories, but all are connected. ???

Now, let us take couple of paragraphs from the book “Man who mistook his wife as hat” written by famous neuroscientist Oliver Sacks.

He says:

“ We have, each of us, a life-story, an inner narrative- whose continuity, whose sense, is our lives. It might be said that each of us constructs and lives a ‘narrative’, and that this narrative is us, our identities.

If we wish to know about a man, we ask, ‘what is his story- his real inmost story?’ – for each of us is a biography, a story . Each of us is a singular narrative, which is constructed, continually, unconsciously, by, through, and in us- through our perceptions, our feelings, our thoughts, our actions; and, not least, our discourse, our spoken narrations. Biologically, physiologically, we are not so different from each other; historically, as narratives- we are each of us unique.

To be ourselves we must have ourselves- possess, if need be re-possess, our life stories. We must ‘recollect’ ourselves, recollect the inner drama, the narrative of ourselves. A man needs such a narrative, a continuous inner narrative, to maintain his identity, his self.

Your real story is something which remains with you throughout your life, come what may. You enjoy spending time with this narrative without any external motivation. Whenever there is break in this narrative, your thoughts starts roaming in the realm not familiar to you and you should not be going there. You know this state with the name schizophrenia. ????

Can you build a strong narrative about yourself without strong emotional investment in the place where you come for maximum comfort, build family, raise children, share your happiness and sorrow and many things more? Your school and college reminds you of your teachers and friends and what you learnt there, your ancestral home reminds you of your parents and grandparents and their love for you, your current house helps you with the feeling of togetherness with your husband/wife, children and other close friends and relatives. What are you; of course the sum of these experiences and memories only.

A rented house may today yours but tomorrow it will be of someone else. But your experience and memories will be as strong and enriching as your connection with those places. So, do you want a weak thread which ties all the experiences and memories of your life???

My verdict: Buy a house instead of renting; it is a better choice. It won’t be easy, it will require commitment, it will require lots of hard work to fulfill this dream, but in the end, it will make you strong finance wise, character wise and experience and memory wise.?

#house #home #homeloans #property #asset #assetmanagement