Should you buy or rent property

• The question now is: what is the best course of action? Should I buy or rent property Several factors come into play when making this choice.
• When it comes to housing, buying has essentially always been preferred over renting. Some people view renting as “throwing away” money, whereas purchasing is seen as a “investment.”
• Selecting between buying and renting is a difficult decision. It requires extensive emotional and financial preparation. Some people take great pride in being homeowners, while others prefer to rent in order to avoid making long-term financial commitments. 

Renting a property

• It’s normal to rent in daily life. Although you essentially lose out on building equity, and many people don’t think it’s a long-term solution because you don’t own the place you live. While some people may view the cost of renting as a waste of money, what we forgot is discussing the full range of costs associated with owning a home.
• One advantage of renting is that your landlord takes care of property taxes, insurance, upkeep, repairs, homeowner’s association fees, and other expenses.
• Even though rent is frequently set up to partially or completely cover the landlord’s anticipated costs, the landlord must first determine how much those costs will cost. Unexpected crises like a burst water heater, a new gas line or a roof replacement are not your problem.
• On the other hand, if you rent your home, you have less flexibility in terms of making modifications to it. When you leave, your landlord will gain from any upgrades you made.

Advantages of Renting Property

Renting property also presents its own set of advantages:

 Flexibility

Renting offers flexibility and mobility, making it an attractive option for those who may need to move frequently due to job changes or uncertain future plans. 

Lower upfront costs

Renting requires lower upfront costs compared to buying. There is no need for a sizable down payment or closing costs, allowing individuals to allocate their savings towards other investments or expenses.

Easier affordability in high-cost areas

In areas with high property prices, renting may be a more affordable option compared to buying. It allows individuals to live in areas they desire without the financial burden of ownership.

Ability to save and invest

Renting provides the opportunity to save and invest money elsewhere, such as in stocks, businesses, or other assets, depending on individual financial goals and strategies.

Owning a Property

• Owning a property simply means that you can do with it as you please, including updating, renovating, and remodelling it to fit your needs. Since most real estate appreciates in value over time, you will get more equity for the house even if you don’t make any significant improvements. 
• But getting to the “ownership” part is more expensive and complicated than renting and depends a great deal on the economy and its effect on home prices in India.
• A survey conducted by property market experts showed that average home prices in India were forecasted to rise by 6.8% in 2023, which is more than double the increase seen in 2022. This highlights the upward trend in property prices, indicating the financial challenge of entering the “ownership” phase for investors.

Source: Reuters

Advantages of Buying Property

Buying property comes with several potential advantages that make it an appealing choice for many investors.

Long-term investment

One of the primary benefits is the long-term investment opportunity it presents. Real estate has historically shown appreciating value over time, allowing homeowners to build equity and accumulate wealth.

Stability and control

Additionally, owning property provides stability and control over your living space. You have the freedom to customize and make modifications according to your personal preferences and lifestyle needs. 

Potential for tax benefits

Another advantage of homeownership is the potential for tax benefits, such as deductions for mortgage interest and property taxes.

Considerations for Buying Property

Before buying property, several factors need to be taken into careful consideration:

• Financial Considerations: Assess your financial situation, including income stability, credit score, and debt-to-income ratio. Consider your capacity to handle mortgage payments, property taxes, insurance, and maintenance costs. Evaluate current mortgage rates and several down payment options.
• Long-term Plans and Stability: Evaluate your long-term plans and stability in the area. Assess factors like job security, future family needs, and community. Determine whether you seek a long-term investment or a place to settle down permanently.
• Potential for Property Appreciation: Consider the potential for property value appreciation in the specific area you are interested in. This is particularly relevant if you are viewing the property as an investment opportunity. Study market trends and consult with real estate experts to make an informed decision.
• Maintenance and Repair Costs: Understand the cost and responsibility of maintaining the property. Homes require ongoing maintenance and occasional repairs, which can be financially burdensome. Consider your inclination and ability to handle these costs or hire professional services.
• Lifestyle, Family, and Personal Preferences: Consider how your lifestyle, family needs, and personal preferences align with homeownership. Think about proximity to desired amenities, neighborhood characteristics, and any specific features or requirements you desire in a home.

Considerations for Renting Property

When considering renting property, certain factors warrant careful deliberation:

• Flexibility and Mobility Needs: Evaluate your current and future flexibility and mobility needs. Job changes or uncertain future plans may make renting the preferred choice to enable easier relocations.
• Current Financial Situation: Assess your financial stability, debt obligations, and readiness to commit to homeownership costs. Renting may be more suitable if your financial situation is uncertain, or if other financial obligations take priority.
• Rental Market Conditions: Research rental market conditions in your desired area. Evaluate rental costs, availability, and the range of suitable properties within your budget. Consider the potential for rental rates to increase over time.
• Personal Preferences: Consider your personal preferences for hassle-free living. Renting often means reduced responsibility for maintenance and repairs, making it a suitable choice for those who prefer a more hands-off approach.

Should you buy or rent property: Which is better?

Here’s a comparison table:

Criteria	Buying Property	Renting Property
Flexibility	Less flexibility as selling a property can take time and incur costs	More flexibility as you can easily move to a different location after the lease term
Upfront Costs	Requires a substantial down payment, closing costs, and possible renovation expenses	Typically requires a security deposit and advance rent
Monthly Expenses	Mortgage payments, property taxes, maintenance costs	Rent payments, utilities
Asset Value	Potential for property appreciation, building equity	No property ownership, no equity buildup
Maintenance Responsibility	Responsible for all maintenance and repairs	Landlord is typically responsible for most maintenance and repairs
Long-term Stability	Provides long-term stability and potential for investment gains	Can provide short-term stability but may lack long-term investment potential
Tax Benefits	Mortgage interest deduction, property tax deductions	No tax benefits associated with renting
Risk Exposure	Subject to market fluctuations and value depreciation	Less exposure to market risks and property depreciation
Customization	Greater freedom to customize and personalize the property	Limited customization options due to rental restrictions
Lifestyle Considerations	Ideal for long-term settlement and stability	Ideal for those who value flexibility and ease of relocation

It’s important to note that the decision between buying and renting property depends on your financial goals, and personal preferences. Carefully evaluating these factors can help determine which option is better suited to your specific needs.

Making an Informed Investment Decision

To make an informed decision between buying and renting property, follow these steps:

• Assess Personal Financial Situation and Affordability: Review your financial status, including savings, income, and expenses. Determine if buying is financially viable and fits within your budget.
• Evaluate Long-term Plans and Stability: Consider your future plans regarding career, family, and lifestyle. Assess the stability and likelihood of staying in the same area for an extended period.
• Weigh the Pros and Cons: Carefully evaluate the advantages and considerations of both buying and renting based on your specific circumstances. Compare the financial aspects, lifestyle preferences, and long-term goals associated with each option.
• Seek Professional Advice: Consult with professionals in the real estate industry, such as real estate agents, financial advisors, or mortgage lenders. Their expertise and knowledge can provide valuable insights tailored to your situation, helping you make a well-informed decision.

Exploring Fractional Ownership Real Estate: A Third Option Between Buying and Renting Property

When considering whether to buy or rent property, another option that has gained popularity in recent years is fractional ownership real estate.

 Fractional ownership allows individuals to own a portion, or a fraction, of a property alongside other investors. This concept can provide a middle ground between buying and renting, offering unique benefits for those seeking a different approach to property ownership.

Fractional ownership has several advantages to consider like:

• Allows you to invest in high-value Grade A commercial properties that may be financially out of reach as a sole owner.
• Sharing costs with other investors provides access to desirable locations, luxurious amenities, and prestigious properties at a more affordable price point.
• Fractional ownership typically includes property management services, reducing the need for day-to-day maintenance tasks.
• Offers increased flexibility by providing property access without the burden of maintenance and repair responsibilities.
• Allows you to experience various properties and locations without the commitment of long-term ownership, making it appealing for those who like to explore different destinations or have a mobile lifestyle.

Assetmonk, an alternative investment platform offers a fractional ownership model where investments are secured and starts as low as 25 lakhs.

Bottom Line

Investing in commercial real estate can be a lucrative way to build wealth and secure your future. Investors have a variety of options, ranging from direct ownership and fractional ownership to real estate crowdfunding and REITs.

Ultimately, the decision to buy or rent property depends on your specific circumstances and goals. Consider factors such as your financial stability, long-term plans, and personal preferences. Conduct thorough research, consult with professionals, and weigh the pros and cons before making a well-informed choice that aligns with your unique situation.

If you’re looking for a way to diversify your portfolio and generate passive income, Assetmonk is a great choice. For long-term retail investors looking to expand their exposure to the CRE market, Assetmonk’s fractional ownership options, secured by SEBI, offer a high potential earning yield of 14 to 21% annually. Invest now!

FAQs

Q1. What are the advantages of buying vs. renting property?

A. Buying property allows you to build equity, enjoy stability, and potentially benefit from property appreciation. On the other hand, renting offers flexibility, typically requires less upfront costs, and eliminates the responsibility of maintenance and repairs.

Q2. How do I evaluate the long-term costs of renting vs. buying property?

A. When comparing long-term costs, consider factors such as the cost of rent, mortgage payments, property taxes, insurance, maintenance expenses, and potential appreciation or depreciation of the property. Evaluate these factors alongside your financial goals and lifestyle preferences to make an informed decision.

Q3. What are the financial implications of buying vs. renting property?

A. Buying property involves upfront costs like down payments and closing costs, as well as ongoing expenses like mortgage payments, property taxes, insurance, and maintenance. Renting typically involves smaller upfront costs and predictable monthly rent payments, but without the potential for property appreciation or building equity.