Buy vs. Rent a Home: Which Saves More Money?

This is a long, debatable topic. Many people say that we should own a home early in life. However, many others say that instead of investing money in a home, we can rent instead.

Let's understand both points of view.

Why People Prefer Renting and Avoid Buying a Home

• Flexibility: Renting makes it easier to move. For example, someone with a private-sector job may think that if they need to change jobs frequently or move to a different city, renting is the better option, since it does not add more liabilities.
• Money issue: Many people in the early stages of their careers do not have enough money to buy a home, or hesitate to take out a large home loan.

Both are valid reasons for preferring to rent over buying.

Advantages of Renting

• House maintenance has less hassle — it is mostly handled by the landlord.
• No yearly property tax.

Disadvantages of Renting

• Rent is not fixed. It increases every year, often more than the inflation rate.
• Tenants cannot make structural changes, and sometimes even putting a nail in the wall is not allowed.
• There is no feeling of owning a home, since the landlord — not the tenant — decides when it is time to move out.
• Moving between rental homes multiple times adds extra costs: transporting belongings, security deposits, and more.

Why People Prefer to Buy Their Own Home

• Job and location stability: Someone who owns a business they want to keep running, with their family already settled in one place, has no worry about changing jobs or deciding where to settle — that stability makes it easier to commit to where to live.
• Financial readiness: Others have enough money to buy a home with their own funds or with a loan.

Advantages of Owning a Home

• Personal feeling: home buying is a dream for many, and achieving it feels like a milestone.
• No monthly rent, since you are the owner of the place.
• You can make architectural or interior changes as you choose, since it is your own home.
• Owning a home removes the worry of having to buy one later in life. If you rent instead, you eventually feel the need to own a place once you have decided where to live and have enough money — but after a certain age, people become hesitant to explore and settle in a completely new place, or to search for or build a home. This is the most important factor.

Disadvantages of Owning a Home

• Mobility gets limited: since a house purchase takes up the majority of your money, you may hesitate to relocate even if a better opportunity comes up elsewhere.
• You need to maintain the home by yourself. As the owner, all maintenance — plumbing, electrical work, waterproofing, painting — needs to be done by you. This maintenance burden does not start on day one; it typically begins after 10 to 15 years, once each of these needs attention.
• Property tax: as a homeowner, you need to pay property tax every year.

Rental Yield Depends on Supply and Demand

Rental yield depends on the supply and demand of an area. Some places have a high rental yield and a low purchase cost, and the reverse can also be true.

However, a place with strong inflow is generally considered a high-demand area, and it tends to have a high purchase cost but a low rental yield, since rent does not rise as fast as the price of the property.

Also note that rental yield mostly increases every year, while if you purchase a home with a home loan, the outstanding loan balance decreases every year. So, calculated that way, buying is more valuable than renting for a long time, if you have enough money and have already decided on the place to live.

You can run these numbers for your own city and budget below — the calculator works out the year buying overtakes renting on net worth, with your state's stamp duty and the EMI included.

This analysis is for educational purposes only and does not constitute investment advice.