Controversial Debate on Buying vs Renting a House

POSTED BY Jagoinvestor ON July 11, 2010 7:04 pm COMMENTS (158)

There is a very good debate going on in the previous article I wrote about EMI and how it can change your decisions regarding Home loan and other Loans . A lot of readers have put their thoughts about Home loan and wheather they prefer Buying or Renting , we got a lot of readers who supported Buying and some said renting is better , the conversation went so in flow that It was worth mentioning here and getting every one’s point of view . So please go through these views on Buying Vs Renting and put your comments and views on why you support Buying or Renting. The main points discussed where the opportunity cost , Emotional satisfaction and what are the prospects in return over long term in real estate .

Buying vs rent which is better ?

#Conversation 1

Meena Says’s

I liked this article immensely and echoes my sentiments exactly. I agree with you regarding the way people go overboard on the car loans and personal loans to satisfy their craze to keep up with their friends and neighbours. But I would differ on the home loans. For most people, buying a first home is an emotional decision especially if they want to occupy it for personal use. Even if the value of a self-occupied house appreciates substantially, it is only notional as you don’t want to sell it.
I want to relate my personal experience on the home purchase. We are a joint family and about 14 years back, we (my husband and I, both working and earning) purchased a 2 BHK flat in a Delhi suburb for 11 lakhs. We wanted 3 BHK flat badly but could not afford the EMIs although it costed only 2-3 lakhs more . But a few years down the line, both our incomes increased and on hindsight we repented the decision of not going for the 3 BHK flat. Now the cost of the same 3 BHK flat is close to 80 lacs which is quite unaffordable. So my point is, while deciding on the home purchase, look for present affordability as well as future earning potential. Also buying a house is any day better than renting it out if you have no plans of relocating to any other place.

My Reply

I agree that the decision would depend on the the current affordibility and the future earning potential . However in your case as you said that you were not able to afford the 3 BHK that time , does it mean that you were not able to pay any EMI if you took 3 BHK or for next several years . I think the mistake happened in not able to factor out your earning potential of future ? Correct ?

I would like to hear your views on why you said that “Buying a Home is anytime better than renting out if you are going to stay at same place? “. Under what assumptions do you say that ? Will it be true for any case , do you also consider the other alternative of investing your money some where else ? Are you biased towards emotional attachment related to this overall buying home issue ?

Meena’s Reply

Hi Manish,

We anticipated that after paying EMIs for 3 BHK flat would have resulted in a liquidity crunch for some time. So we did not take the risk at that time. But what we did not factor in, was that the liquidity crunch would have lasted only for a very little time as the incomes also increased.

When I said that the buying is better than renting, is not an emotional decision but a pragmatic one. 1. For one, investing in a house is good for your asset allocation – you are spreading out your investments in Equity, debt, real estate etc. 2. I do not buy the argument that the money spent on EMIs are better deployed in other investments like MFs or stocks. Atleast in metros like NCR, the real estate gives decent returns over the years (a CAGR of 12-15% in 10 years as in my case). 3. Also renting a house has many hassles : Rents increase @ 10% p.a. and you are at the landlord’s mercy as he may ask you to vacate anytime. 4. You get very good tax breaks when you own a property. All these are good arguments for many people to invest in atleast one property.

My Reply


I will agree with some of your points .

1. Asset Allocation : Yes , you acheive asset allocation by investing in Real Estate, but in the early phase if your debt and equity is not high , then even asset alllocation is streched on real estate side much , for example , if one has just 2-3 lacs in Debt and 4-5 lacs in Equity and buy a real estate of 50 lacs , that 85% Real estate , 5% Debt and 10% Equity , though there is some asset allocation , but still most of the portfolio is in Real estate , However what you say about allocation makes sense when there is good balance between all the 3 .

2. This can depend on what kind of investor you are and your concept about “owning home” . For a investor profile like yours , it will actually not makes sense because your priorities are much different , you feel more satisfaction in “owning home” and thats your priority , however there are many readers i have interacted with and know them who are more comfortable with the option of renting out and that makes them more comfortable , It might make sense for them to deploy the EMI – rent money in other investments , at the end , if you know what you are doing makes sense .

Also regarding the returns from real estate , there are 25% returns , 15% returns and even 5-6% returns also in last 10 yrs depending on the location and timings . In the last 10 yrs the situation has been very different and next 10 yrs will be different than those , What you get in returns as % terms at the time of selling the property will actually matter and not for the time when you actually Hold . So its my rough guess that if you live in the same flat for next 20-30 yrs and then sell the flat , you will find out that the returns over the period of times will be in single digits , may be 10% max .

Historically real estate has never given more than 9-10% over very long term (very long term again) in the last many decades (even centuries) , so I dont see why it should be different now . Real estate runs in cycles and they are long , a 10 yr return in real estate can be very differnt than very long term returns figures , while I say this , I will also say that real estate in india is promising and next 1-2 decades can be exceptional and give returns on the higher side of average till date .

3. Renting has hassles , but has advantages too , just like owning our own house has hassles and advantages of its own , so what you call as hassles might not look like hassles to some one else . Its different for different people , and every one is right for them selves .

4. Thats very temporary and introduces some years back only, in the DTC earliar there was proposal to take the tax breaks out , but with updated draft I think its still there. no one knows if that will remain or go away in another few years . So tax breaks is not a criteria to decide if one wants to go for real estate or not . You should read real estate articles ,you will get a clear picture on what I am saying

Conversation 2#

Pramod Says

Manish,  This is absolutely right. There is a big industry flourishing on “how to get you into debt trap” mantra. The best remedy against this trap is self discipline. The temptations are high which tend to divert your attention. My wife is asking me to buy own house but I have only one answer thee are expensive. She asks, Property has been expensive for last 100 years, it will never become cheap. Right but for me inexpensive means within my reach. The house I want to buy should not come bundled with Headache, High BP and insomnia. What I tell her is that we will buy a house when 1. the total cost of the house is not more than my 4 years income. 2) We have enough savings to pay a down payment of at least 30-40% of the price. 3)EMI must not be more than 10 years long. So now for me to buy a house either prices have to come down or my income has to go up. BTW I am betting on the prices to be stagnant and my income to be growing for at least next 3 years looking at the supply that is coming up in NCR. In Greater Noida alone where I live, more than 70000 units will be available within 15 Km in next 3 years.

For car, I prefer a second hand car from Maruti, It is always good. Most of the depriciation takes place in first two years so let someone else pay for that and you enjoy the ride.

My Reply

Haha , Wife is a very scary word when it comes to decision of buying Home , I have already talked to several people here who’s wives are bugging them like anything for owning house . You are correct on the “industry working on getting everyone in Debt trap” . over the pricing of real estate , the bubble is strong and I cant say when it will burst , but whenever it does , it will be very bad day to see .

However even if it does not burst , Still living on rent is so affordable in todays times that we can do it for next several years .. after all if everyone will buy and buy only , who will live on rent ?

Pramod Says

Yes, Today I am residing in a flat with a rent of 7000. If I were to buy that it costs 30Lacs. At 80% loan which is 24lacs the interest @ 5% (flat equivalent to 10.5% reducing) comes out to be 10000 a month. Remember I am only talking about interest here so that comparison should be only in the costs. Add society maintenance, maintenance (paint, pest control, seapage repair), property tax, etc to the cost & surprisingly you will find that rent is cheap. Also if I add the oppertunity costs i.e. investing the EMI and front cost minus rent in a MF with only 10% return it will become 1.32 Cr in 15 years so if the flat in which I live today is available for 1.32 Cr after 15 years, its OK, Nothing to worry.

Secondly detatch emotions from house & treat it like a commodity. I often ask people when you dont have car do you whine about using public transport or do you feel embarassed about hiring a taxi. If no then why the hell you shy living on rent. Just pay that cheque & save all the bothers of becoming a landlord. One more benefit of rented house ” You can always change it easily when your astrologer tells you that it is not VASTU Compliant , Will you ever get such wonderful chance to enhance you luck so easily in your own house

My Reply

Pramod , you are one of the rare found die hard fan of renting . While your views are more biased on renting , which I fully agree . You have taken out some of the things which drive people to own home and that can be pure emotional reasons and its fine . Some people will feel suffocated enough to live in rented house and the idea of not having their own home will kill them each day , this idea of renting if better than owning and blah blah will not work on them no matter what one does

While I am with you on renting , the point I want to make is renting vs buying has its own positives and negatives and nothing wrong about it , just that a person should understand which boat he wants to sail in . What do you say pramod ? Read Meena’s comments above , you will get what I am saying

Pramod Says

Manish, I am a fan of renting as long as the rent remains with in the 3-4% range of the property value. As I shared with group I am also planning to buy a house but only when it is affordable. I do not want to spend next 20 years of my life in stress & sacrifices. As far as Meena’s points are concerned, I am 120% in agreement with her on point no. 3 and that is the single most reason that provoke many to buy a house. But in these days of apartments you can negotiate well as owners know that an empty flat is going to cost him the maintenance and it always depend on your relations as well as demand supply situation.
Coming to other three. Point

1- House as investment, An investment by def. is something which you are going to encash upon value appreciation. So your first house is never going to fit into this axiom. Are you going to sell it after 20 years ? 99.9% people wont, so what kind of investment?

2. The investment in MF vs Real estate depends upon your kitty. Till the time I have 5-6 lacs accumulated cant even dream of buying a property even on loan so it always depaend on your networth and no arguments on this point as it is very personal.

3. On this point I agree but again it is emotional and depends on market. In Gr Noida where I live 50% city is empty so no dearth of flats on rent and I can negotiate.

4. This is one thing which comes as the ultimate logic for buying a house. Lets see. The principle amount is incl in 80C so after PF, Children fees & insurance what the hell is left. For interest you can claim amx 1.5 Lacs. Any one who can buy a house worth 30Lacs must be earning 50K & in this salary the HRA usualy is 10000 approx. so if you take benefits of 1.5l interest payment you have to forego 1.2 lacs benefits of HRA which brings it down to 30k. Is it worth to buy a house to save maximum 9000Rs. Better not watch some crapy movies and save 200 rs on a popcorn which is available for 10 Rs outside the cinema hall.

Finally indeed renting and owning has its own pros and cons but here we are discussing these things from personal finance angle not emotional otherwise nothing can replace the joy that I can see on the faces of may family if I take them to switzerland but can I afford it And also we have seen many old people who spent their lifetiime savings owning a house and are still struggling to meet lifes basics in the last stage of the life. Is house really an investment ? So remember 1st house is always a commodity that you are going to use and 2nd, 3rd …nth property is investment only so do not buy the argument of returns however use these “returns” to check the affordabilty factor for you say X years down the line if you will still be able to buy that flat.

My Reply

You have made some excellent points . However on one point I would like to comment . You said

“Are you going to sell it after 20 years ? 99.9% people wont, so what kind of investment?”

Yes, you are correct that most of the people would not like to sell and will not sell. However if the price of the house is a lot and one has got soem good return like 15-16% CAGR in last 20 yrs, one will be sitting on a very expensive house and it can act as like an emergency fund to them , If a person house is costing say 2 crores and they can buy the same kind of flat on the other place at 1 crore , may be in other city , in the times of job crises and loss of income , one has an option of selling the first home and moving to the same quality/size house at other place and cash on the rest in some instrument which will act as a monthly income to them .

So overall I would say , even if a person does not sell a house , he/she has some good unused advantages .

Meena Says

I totally agree with Manish’s views that even if you have no plans of selling your house, you are sitting on a wealth which would give great peace of mind when you have repaid all the EMIs and the house is all yours. My father bought a house in a prime locality in Delhi 40 years back for Rs 30,000. I calculated the CAGR of the property keeping the current market value in mind. It is a cool 18% return that we see here. If my father had thought like Pramod and other fans of renting, he would have a tougher life as a retired person living in a rented accomodation in some outskirts where rents are cheaper.

I also agree with Pramod that the first house is more a commodity than an investment. But if you are not going to buy the first house, where is the question of buying second property as investment. The tax benefits of the second home (if you can afford) is even better. You can get the deduction of the entire interest amt from the taxable income. So by totally ignoring this avenue of wealth creation, you are missing out a vital component of your asset building. Mind you, I am not discounting the importance of PPFs, MFs etc here.

I am still a great fan of owning the house in spite of very persuasive arguments put forth by Pramod, Manish and others in favour of renting

Raja Says

Wow!! that’s a really a interesting conversation going on here. Just would like to add my 2 cents here.

1. Rental price as we discussed, is a function of demand and supply. Essentially meaning that the renter is not so much in control of how much he might have to pay for the same accommodation on a future date. Just calculating it as 3-4% of the current property price and ruling out the future rental price appreciation doesn’t sound too prudent to me. When a person buys a house on loan he basically locks in his outgo in form of EMI to a certain extent. Of course drastic interest rate changes on upside can alter his calculations. But i think in the mid to distant future India has a better chance of seeing interest rates softening like so many developed nations than it moving drastically up from current 10% range. Whereas when someone is depending on rental mode of accomodation he is exposing himself to drastic future variations in rent.

Take for example the case of a tier-2 city like Bhubaneswar. Not so long ago (around 5 years back) the rent for a decent 2 bhk used to be in the range of 2-3.5 k. In just 5 years time it has sky rocketed to the range of 6-8k for the same accomodation. The rise is mainly attributed to a rerating of the city as small IT hub and factor’s like growing number of IT professional employed with Infy, Wipro, Satyam etc…Now someone who had the affordability to buy a house 5 yrs back but didn’t do it is surely ruing the decision. Of course property prices too have risen in similar fashion so buying now is even more difficult.

2. I am not aware of the statistics but i guess most of the new houses are bought by people when they are of marriage age. So, probably the age profile will be in the range 26-34. This means the main cash outgo in form of EMI will be ove by the time they in age range range of 41-49 (Assuming an average 15 yr loan). There is a good 16-24 yrs of life left after that (Assuming life expectancy of 65 years). What am trying to say is with buying a house one will be done with the most of hard work in his prime working years. Whereas rent is a never ending story, one has to keep on paying the rents for his lifetime.

3. Reverse mortgage – Even if one were to see some bad time during old age reverse mortgage can come to rescue.

4. If the roof over the head is assured it’s easier to live off one’s savings for few months/years if one were to see bad times in form of loss of income. isn’t it ?? I mean it’s not impossible to live with just food-transport-communication expenses in the bad times. Add the rental expenses to this list of expense and suddently the it would seem little difficult to manage. Of course the assumption here is the bad times are after one has paid off the EMI’s

Conversation 3#

Rahul Says

Dont quite agree, Manish this time.

Lets take the example of the couple with the 3-BHK flat. Recently married, they will need a 2-BHK (AT LEAST) in the next 3-4 years, as they will start a family. If they have frequent guests, like parents, (of both husband and the wife ), relatives, friends etc., they will need at least 1 bedroom extra, making it a 3-BHK, which is the minimum requirement nowadays.

There can be several other cases requiring such a flat. If either parents’ stay with them, or they plan to have 2 children or they have relatives/guests/friends staying over, a 3-BHK becomes a minimum requirement. Also. once they buy a bigger flat, they will pay it off in say 15 or maximum 20 years, if not earlier. It takes off a big headache, once you have your roof over your head. No tension till you retire ! With property prices rising, it is a good investment too. On the other hand, if they buy a small flat, in addition to daily problems of staying in a small place, they will have the constant headache of looking for a better,bigger property. And with increasing proces, it may not be in their reach too. So , better buy it now and finish it off.

What do you think? Do you have better ideas?

My Reply


You have not take the article in right sense . I am talking about people who buy beyond their capacity just because EMI is available . I have clearly stated in the article that people who have requirement and cant do without buying something have to buy it .

What about the family (only 2 people , married) who can not afford a 3 BHK and can only afford 1 BHK . Dont they get guest or dont start a Family ? They do . They make adjustments and how many times do guests come , it also depends on that . I am little crude on this , but I personally would not like to buy a 3 BHK because my guests come for 4-5 days in a year . I rather sleep on the floor and offer them the room . Thats a better choice , atleast for the initial years till I am capable of affording a bigger house .

Another point you made was that if the couple is starting a Family soon ? Wh y is it neccessary to assign a seperate room to kids till they are 7-8 . You can manage thigns somehow . We are talking about the cases where a person can not afford a bigger house . Dont you think so ?

Rahul’s Reply


I think if you buy a smaller house and then go for a bigger one after 6-7 years, it may get out of your budget by then, especially the way India is progressing and infrastructure is developing. Practically all Indian cities are bound to expand as more and more people move to the cities and our country becomes an urban country from a rural one.

In such a scenario, it makes sense to accummulate as much land(flats etc.) as possible. It is almost certain that land,flats’ prices will keep rising for the next 20-25 years. Besides, practically speaking, paying off steep EMIs just beyond your reach inculcates a habit of savings too. One has to pay the high EMIs come what may, so expenditure is automatically checked. I have seen this in numerous real life examples I have also seen that having 4-5 residences gives one a feeling of financial security and achievement too ! Keeping all this in mind, im all in the favor of paying steep EMIs, just within your reach (leaving just enough for daily expenditure and a 5% room for emergency exp.) to accummulate as much land/flat as possible.

and Manish you said about sleeping on the floor when a guest arrives. Really, that is taking it too far! I mean, the house you have should have some spare capacity. Homes in which we live is the best indicator of our financial status. What point is served being a crorepati, if one has to sleep on the floor if a guest comes in !! And what if by chance there are 2 guests staying overnight?? really embarrassing !

What do you think?

My Reply


You took it too literally . Sleeping in the floor means sleeping on the matress , not “on the floor” . Dont we do it ? There will be instances when you have it no matter how big your house is , even if you have 3 BHK , It can happen that you have many guest which can be accomodated on beds and in different rooms , That is the time you always shift on the matress on the floors , Thats what I meant .

And it depends from person to person what is embarassing for them or not , I personally would rather be embarrased squeezing my financial life and being in debt upto neck rather than sleeping literally “on the floor” . Its a personal choice , nothing wrong . What do you say on this ?

158 Replies to “Controversial Debate on Buying vs Renting a House”

  1. Raghu says:

    It was the right thing to discuss. I think buying is the better option than renting. A common person dream is to be a owner of the house. In my way buying is the best one.

    1. Thanks for your comment Raghu

  2. LifeRenter says:

    I have read all the posts here . One thing I want to point out that there is a fundamental difference between things like gold, equities, interest rates etc . and real-estate . The former things price is same where ever you go . But real-estate price is different even within the same locality depending on the social class of the people. For example in Pune where I stay say a flat rent is 15 K , you can find a place with the same sq feet very nearby with a rent of even 5K . Yes the quality of the flat , or the neighbours may not be good . It is a kind of a thing that has been very subtly created by the builders and the government because you need all in a city . So you have these walled apartment complexes thriving side by side the dwelling places of not so well off working class people . Some of my friends who are from upper middle class and rent at very high price are shocked when I tell them that I stay very near them with a larger sq feet area and at cheaper rent . The only thing is my neighbours are of working class background. I even asked a real estate guy about it . He clearly stated that they purposely increase rent/buy price in some localities to let high class people stay away from the low.
    Another thing I want to point out that those 2 BHK flats which costs 70L – 1Cr today are not heavenly bodies . They are just 2 bedrooms or so in a tiny packed place . If somebody is buying them for capital appreciation and expects to sell them for say 2Cr in say 7-8 years time they would be totally dissapointed . Firstly these flats will be out of reach of the top 1% elite salary persons by then . Do you believe the rich will pay 2Cr to stay in these kind of flats ? , even the rich will not buy them . So I believe that basically these flats will not appreciate further unless they are very deluxe suits . On the other hand if we invest the same amount to buy say 3 flats which costs say 30L each the I would say it is highly likely that by 7-8 years time they would give high returns seen totally.
    Another thing is that I believe that in the coming years there will be plenty of plain neighbourhoods inside the inner city which will be going to be developed into towers by the developers . So there will be no shortage of flats at correct prices . Yes today the flat which costs say 70 lakhs , that particular flat in that particular neighbourhood will never be affordable by me but I believe I can always by a similar flat at basically the same inflation adjusted price in a very nearby locality . So here there is a difference between comparison with other stuffs and real estate . When gold goes up you cannot buy any gold , but when real estate goes up its just only in some localities you can always buy some real estate in some other nearby locality in the city . I think certain parts of Mumbai and Delhi may be exceptions but in general all cities are full of not so well developed areas . There will be hige pressure by civic bodies/ and developers to develop them . Instead of paying a high interest why not buy later.
    One very good strategy I believe is that one can by a flat at a very very cheap price just outside the city say at 15-30K in Pune , also stay in a good flat inside the city until retirement say at 15K . If some one asks about flat say that I have bought one . It really builds confidence and credibility when you can show that you own something croncrete , not a piece of paper . As long as you are working you can rent it out , after retirement you will have options , 1. Move in the flat 2. Sell it and buy another one . 3. Just carry on as before .

    1. Hi LifeRenter

      I think you have made very valid points. Real Estate is not always the best option. You need timing and careful buying

    2. Prajith says:

      Hi LifeRenter, I gonna bookmark this comment 🙂

    3. Abhishek says:

      Hi Liferenter

      Can you please tell me your society name and area so that I can have a look and understand it. It looks very interesting..

  3. Nikhil says:

    I recently happen to ponder over this question from a purely return point of you. Being a devotee of mathematics I couldn’t resist myself from deriving an equation comparing buying a house versus investing in equity. So lets get out hands dirty:

    F/A = f.(d^360) + (((0.00892)(1-f)((d^361)-1))/(d-1)) – n.(((rd)^361)-1)/(rd-1)

    Pls find a google doc link for a better view of the equation:

    A = cost of asset (home here)

    f = down payment fraction (usually 20% i.e. 0.2)

    Loan term is assumed to be 30 years with EMI of 892 pm for each lakh; i.e. 0.00892 Rupees for 1 rupee of laon (this fits with 10.20% home loan rate)

    n = monthly rent as a fraction of home price. So if the home costs 50 lacs and a similar home is available for rent at 10,000 pm then ‘n’ will be 10,000/50,000,00 i.e. 0.002 which is also a typical number.

    d = monthly rate of return on your investments; had you put your money in stocks/MFs instead in home loan EMI. Should be taken ~1.0% monthly (==> 12% annually) or more for long term investments

    r = monthly increase in home rent every year (usually 0.4% monthly OR 5% annually)

    F = your final corpus had you not taken loan and gone for investments. So it’s a good idea to see (F/A) ratio; which for typical values of f,n,d and r should turn out to be > 1 if you want to favor investments instead of home loan.

    With typical values of f=0.2, n=0.002, r=1.004, d=1.0095; we get
    (F/A) = 9.266
    that means had you not gone for a 30 year loan on a 50 Lac house, you would have around 4.6 crores with you after the loan term of 30 years. So here you have to weigh 4.6 crores of cash versus a home which costed 50 lacs 30 years back. So what return would make those 50 lacs worth 4.6 crores today ? It turns out to be 7.7% p.a. So if you can get (or hope) for a 7.7% or more return on your home for 30 years then going for it is a good deal; otherwise its not. Personally, I don’t believe that indian real estate could give such good returns on real estate over such long period. Home prices ought to follow inflation rate sooner or later.

    However, if you happen to be a little optimistic and assume these values f=0.2, n=0.002, r=1.004, d=1.012 (15.4% return p.a.); then
    (F/A) = 19.77
    and this makes you crave for 10.45% return on your home property over 30 years.

    So, choose wisely 🙂

    Note: I have not taken tax adjustments into account. But I believe they favour if you rent your home as HRA is for whole life but interest deduction is only for the period you pay interest. Secondly, the loan term is taken as 30 years and installment is taken is 892 per lac for 360 months. You can work out your own equation with replacing proper values. Needless to say that 360 is the number of months in 30 years. Also you would be left with a 30 year old home; so judge the future value of your home accordingly. Lastly, owning a home also causes regular repairs which have been kept out of equation.

    1. Nihil

      THats a bit heavy when I look at it for the first time. Thanks for working on it . Is there any 1 para conclusion out of your derivation ? I will check it out in detail later

      1. Nikhil says:

        Yes Manish, its heavy cause its very general in its treatment of EMI and house rent; however at its core its just compound interest. And the inference part is the conclusion. In simpler words, I would say:

        (i) If you assume 12% return on your investments then you’ll have 4.6 Cr now had you not taken the 50 Lac loan 30 years back for your home. And you have to somehow weigh your 30 year old house which you bought for 50 lacs versus 4.6 Cr you have in cash now. It turns out that you would need a 7.7 % appreciation on your aging house for break even. If you think your property will appreciate at 8% or more than buying a home is a good idea; otherwise not. I personally don’t believe that one could get such good returns on your property for a long period; sooner or later property prices ought to follow inflation rate. Present huge property prices are due to heavy demand and they will settle down in future.

        (ii) Now if you were a little optimistic and assume 15% return on your investments, your equivalent corpus after 30 years becomes 10 Crores and you would crave a 10.5% return on your aging property for 30 years to even things out.

        1. Thats a great point and analysis. I am myself a strong believer that real estate is a short-medium term speculation product which can really create good wealth for someone (one of my client bought a 30 lacs property few years back and selling it for 1.4 crores now) .

  4. Pramod says:

    Well, in India and with the amount of money being printed world wide we need to invest in real assets – like houses. However, there is always a possibility of a bad deal.

    Another interesting article that I read along this lines is here:

    1. Pramod

      thanks for that link , yes the decision of buying or renting should depend a lot on the rental yield !

  5. Jassi says:

    A good blog:

    May not be relevant here, but gives a different perspective.


    1. Jassi

      This is really a great perspective 🙂 . But I am sure in Western countries, housing prices are not moving north in high speed, hence this thinking 🙂 , In India this article will not be taken seriously !

  6. Shaman says:

    Hi Manish,

    I have a query , can you please give your opnion.

    1)I have the understanding that both HRA and Home loan interest cannot be claimed for tax exemption.we can just claim just one of them right..?

    2)If my HRA is say 18000 Rs (Approx 2 Lakhs Annualy), and my Home loan interest does not cross 30,000 Rs Annualy , For a loan of 10 Lakhs (4 years tenure) , it does not make sense for me to claim the Home loan interest part for tax exemption. So i can still stay in my own house and claim rent with in 15000 Rs. Possible right..?

    3) But if i am going for a second home , will i be eligble for full tax exemption on interest part.?

    1. There is no restriction like what you have mentioned

      You will get 100% tax exemption in interest part if the house is on RENT !

  7. Sameer says:


    Firstly, I would like to add another dimension of Location to this debate. All the examples I have read do not even come close to the Dilemma…

    I have been living on rent in Mumbai for the past 8 years. It is easy for someone to tell us to take the big leap (We are very much proud of all of you who have bought a house… and at the right time!!)

    I live in a 560 sq.ft. carpet 1 BHK in Santacruz (E) at a rent of 18,000 while the property is rated at a BARE minimum of 800 sq.ft (Built up) x 12,500 Rs./sq.ft = 1 Crore.

    If I were to buy this house, given the current state, would imply that I put down 20 Lacs as down payment and pay at least around Rs. 80,000 EMI!!!

    The simplest answer would be to locate to a farther place!! But WHY??? And even if I did, a place in Mira Road would set me back by 30 Lacs implying 6 Lacs DP and 26,000 EMI, thereby paying a total of 47 Lacs + Society charges + Taxes over a period of 15 years (I have not even begun to talk about the opportunity and time cost of living this far away from office!!!).

    It is just simple maths as to how many years you can go on rent without breaking your bank. Although I am on the lookout for a good deal to buy a house, for people like me, who do not have the hard cash or endowment from Family or In-Laws, I think this is the smarter and ONLY option.

    I am definitely open to a different opinion and a way out of this RUT!!! The only reason the Real estate market is booming is because of NRI brothers and those lovely businessmen who think that Real estate in India is the best way to get returns!!! They simply buy up flat after flat in search of appreciation whereas no one bothers to think about what they are doing to the prospects of a genuine buyer!!

    Secondly I would like to extend my heartfelt thanks to the Builder community who has stopped constructing 1 BHKs within the city!!!

    Thirdly I would like to congratulate the Architect/Brain behind including Swimming Pool+Gym+Spa+Club along with EVERY SINGLE PROPERTY to spiral the Built-up area to beyond 30% of the total area!!!!! Which in turn makes a 1 BHK a minimum of a 1 Cr affair within city limits!!!

    Lastly I would like to say that I do not know whether I am right or wrong… but this is how I see it. I am open to have my opinion changed.

    1. Sameer

      I really enjoyed reading your comment and that has come from your heart , no makeup’s 🙂 . I echo the same thoughts , but living in Pune I can see that buying house can have its own advantages 🙂

  8. Dharmesh Chitaliya says:

    Hi Manish,

    Actually i plan to prepay my home loan which is around 6 lacs remaining. i have nearly 2 lacs capital and for remaining 4 lacs i plan to sell gold. is it right strategies to opt from home loan. i pay monthly emi Rs .11000 , my plan is just prepay my loan and then invest that amount(EMI amount that is RS,11000) in mutual fund to get my money back withing 2 to 3 years. by this manner i can save interest which i should have to pay as EMI. But my big worry is about gold price.How much chances of increasing in gold price in near future. can you guide me. can i go with plan or you have any better suggestions.

    1. Dharmesh

      I think this would be a good strategy .. without worrying to much about gold prices , focus on now , deal with the current and get rid of loan ..


  9. Kevin Dsouza says:

    Hi Manish & Nandish,

    Hope you guys are doing well. Been reading articles on your website from time to time.

    With regards to Rent vs Buying, I have a few queries.

    One when it comes to buying and we talk about 15% returns, is it possible for you to illustrate the returns when buying a home with a home loan and 20% down payment. Suppose one goes on to sell it after 10 years, what kind of returns are possible.

    Also, Salman Khan of Khan academy has made an excellent video regarding the same rent vs buying analysis. One very important point he makes is that when you choose not to buy, your down payment money as well as the monthly amount you save by renting ( renting is usually cheaper than buying the same house on loan) is getting accumulated and earning interest in your bank account.

    Looking forward to your thoughts.

    1. Kevin

      Did you see the article which we did on returns from real estate in long run – .. also your question requires a long discussion , can you ask it in compact form ? Or better would be to initiate a thread on our forum to discuss it –


  10. Nitin Gupta says:

    Hi Everyone,

    I compared both the scenarios mathematically/financially.
    I have taken few assumptions also for simplicity. i hope all of them are close to reality of real state 🙂

    Buying: suppose a person buys an house of 50 Lakh. He takes loan for this entire amount at 12% for 10 years. The EMI he will bepaying is around 72K per month. He puts this house on rent for 12K. so for 10 years he will be spending around 60K(EMI- rent) from his pocket. for simplicity i assume that increase in rent will balance the increase in EMI and the money that he spends from his pocket will remain constant for 10 years. Now at the end of 10 years, assumin 15% appriciation in value of house. He will be having house worth around 163 L and he can get this amount if he sales it.

    Rent: suppose instead of buying the house he opens a monthly recurring deposite and puts the same 60 K per month. in this scenario at the end of 10 years, he will get amount around 138 L, obviously without any headache and risk :).

    i am not making any point here that which one is better, just wanted to compare scenarios. suggestions/ improvements are invited.

    1. Nitin

      Good calculation ,but this from basic point of view and there can be few things considered for betterment . I am just putting the points which has to be considered , I am not saying they are right or wrong

      1. This analogy is purely from the maths point of view .. but we also have to see emotional angle .. like Own house , self of satisfaction , no fear of loosing the rented place .. one can do what ever rework one wants ..

      2. For a 15 yr period , in second case , why to put money in debt instrument , when its a long term period and once can choose atleast balanced funds if not pure equity funds .

      3. The assumptions of interest rates increase and rent increases should change a lot of things ..

      4. The volatility part .. the journey is also very important .. job loss .. inability to pay the EMI in some cases , extra cash crunch and price fluctuations of house are not taken into consideration . Which can impact a lot of things


      1. Nitin Gupta says:

        Hi Manish,
        I know, there are many factors that i am not considering. but i see that factors are in favour of are against both the scenarios so they will be balancing each other.
        Also i am considering people who change there job and city frequently so even if they buy house with an emotional factor, they end up with giving it on rent only and it becomes a pure investment only. so i dont want to consider this emotional factor here.
        Regarding considering debt instrumnt only, it was just for an example. anyone can calculate it eaisly using EMI calculator using 15% or any other interest rate if considers equities. I wanted to see that what happens if a person wantes to play safe and simple. And i conclude that he is not missing a huge amount.

        1. Ok points well noted .. lets see if i can make a post on that 🙂

  11. Ganesh says:

    Interesting read indeed!

    Question to the forum:
    1. Has anyone experienced a situation where there was a correction in the rental rates for residential / comercial properties in India or anywhere in the World (excluding under developed economies) during the last 30-40 years?
    i.e. did rental rates also reduce with falling property prices or did the rental rates always scaled up gradually regardless of fluctuations in property prices?

    1. Ganesh

      You can discuss this on forum : .. This is pretty old post for readers to look at


  12. Vijay says:

    Very good discussion and debate on sensitive topic
    here are some points from side
    Looking at the discussion what i think is we are considering House more from Economical point. We also need to consider social angles of owing house.
    -If we are taking house on rent and moving from here and there when will we develop good relationship with neighbours .
    -You need to provide some stability to your family as well. Your kids will need some friends with which they are there for long time
    -You can form a group with your neighbours and enjoy celebrating festivals,outings etc

    Having said that I agree that one should not buy house beyond his capacity and EMI should be manageble.

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