CheatSheet: Buy or Rent a house?

It's a perpetual dilemma - whether one should buy a house or one should rent a home.

Of course, it's a complex question and there's a lot of information online that could guide you to different perspectives. But here's one that will help you decide what should be your course of action.

In an excel sheet map years from 1 to 30. Then jot down the monthly rent for the locality in which you are staying or intend to stay. Add 10% to the monthly rent every 3 years. (This would tend to be faster in some cities and slower in others, so let's work with a 10% increment in rentals every 3 years for simplicity)

Then, create a column with the monthly EMI were you to buy a house today. Take the same locality and calculate the average monthly EMI for the same configuration of the house.

This is typically what your graph will look like:

You will find that somewhere between the 10 year and the 13th year, your monthly rental will be higher than your monthly EMI cost.

What does this mean?

This means if you are confused about whether you should buy a house or not, you should consider how long you will be staying in the locality or city. If you will stay for a period of 9 years or less, then buying a house doesn't make sense.

However, if you are planning to stay in the same place for more than 10 years, it makes a lot of sense to purchase a house today, because then you will be off setting the payout in EMI by creating your own equity - which you will not be doing if you were to continue on rent.

Look at the graph closely again. I have taken an approximate cost of a 2BHK in Andheri East in Mumbai to be around 1.5 cr, the average rent I have taken from the market. At a 10% increment every 3 years, the average monthly cost to rent a home and to buy one become almost equal within 13 years. Post 13 years if you are staying on rent, you land up paying more on rental or on incur similar additional cost on frequent movement of homes

Think this works for you? Have any more queries? Have a different perspective? Feel free to reach out or comment or inmail me!

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