When to rent, when to buy...

Both my sisters are married and, when they get together, they often discuss the merits of buying a home versus renting it. The reason behind these discussions? One of them has bought a home; the other one refuses to do so immediately. The one who bought the home works on convincing the other one to do so.

Having heard a number of arguments put forth in both cases, I am convinced neither is right nor wrong.

The decision to buy a home is not just practical one; it is an emotional one too. Only you (and your spouse, if you are married) will be able to know when the time is right. It will vary from time-to-time and on circumstances too.

When renting is convenient

My younger sister and her husband are around 25 years old and bent on aggressively pursuing their careers. They don't plan to have a child for the next five years.

One of them travels extensively. They are open to moving to another city if their jobs so demand. So, right now, buying a house is far from their mind. They are not even sure if they want to settle in a particular city. They want to make up their minds a little later when it comes to deciding in which city they should buy their home.

When you want flexibility and mobility, the advantages of renting far outweigh those of ownership.

Also, my sister and her husband have managed to save substantial amounts and are looking at good bonuses and salary hikes every year. They figure that when they are ready to have a family and buy a home, their salary will be much higher. This will enable them to get a better loan.

When renting is not a great idea

Of course, it is not that simple. A colleague of mine really likes the house she lives in but has to renew the lease every 11 months. The last time around, the landlord renewed the lease. This time, he told her he wants the house back and she has to move on.

Not only is this stressful and time consuming, the cost of moving even causes a dent in your wallet.

If you buy a home, you get plenty of tax benefits on the interest you are paying on the home loan and the principal amount you are repaying. But you have no such luck when it comes to renting. You can, however, claim House Rent Allowance.

Read Repaying home loan? and Paying interest on home loan? to see the tax benefits on a home loan. Understanding HRA will tell you how House Rent Allowance works.

If you have been paying Rs 6,000 as rent every month, that is Rs 72,000 every year. Over the years, it amounts to a tidy sum that has no benefit for you at all.

If it had gone towards your home, you could view it as an investment. You can eventually sell your home if you don't want it. And you would have got a return. This does not happen when you rent a home. We are not even mentioning the deposit you have to give while renting a home; this earns interest for your landlord, not you.

Of course, you cannot even consider buying furniture or renovating the house according to your fancy. The house is not yours and you don't want to cart around too many things if you have to shift homes ever so often.

It is a good time to buy when...

You have had it with shifting residences and moving from one city to another on transfers. Psychologically, you are ready to buy your own pad.

The good part

• You will be able to get tax benefits on the principal repayment and interest payment.
• You can focus on fixed monthly payments in the form of Equated Monthly Installments and not bother about increased rentals.
• No money is now wasted on the landlord in the form of rent or deposits.
• You finally have a place of your own.
• You can renovate and buy all the stuff you want, no shifting now!
• You now have an investment which will grow in value.
• You can even borrow against your home if you need the money (you need to finish paying off your home loan for this though).

The not-so-good part

• You will have to budget for home loan administration fees and money for a down payment.
• If you take the services of a broker, you will have to budget for brokerage.
• You will have to start house hunting which is very time consuming.
• Your EMIs may be quite high and eat into your regular lifestyle.
• If you find a better home, moving out is not so simple.
• Now that you have a loan to repay, you are financially tied down.
• You will now have to save up society transfer charges if you are buying a home from an existing member of a society. You may even have to look at renovation or at least a coat of paint.

What do you think? Is it better to rent or is it better to buy? Tell us.