Is it better to Buy vs Rent

Buying vs Renting is a perennial debate.. 

Strictly speaking from Financial perspective, renting is better than buying in most cases. Exception is only if we are buying in a bull run where appreciation is typically more than historical average. 

Why Buying is good

1. It gives a sense of ownership

2. Family (Spouse, Parents, relatives) are usually happy 

3. It leads to automatic saving

4. You can do custom work (interiors etc)

5. Can stay long term so no need to move frequently 

Why Renting is good

1. For lesser money, can take a better place in terms of location, size etc

2. Can move around frequently including changing city as per the job need

3. Typically works better financially if you invest the savings at the right place (It might be counter intuitive, but it is true in most cases)

4. No need to worry about maintenance and other buig expenses like exterior painting etc

5. Majority of your capital does not need to be locked in the house you own.

Now, Let's take an example for renting and buying and see which works better financially

A person can usually buy an apartment for 1.2 cr for a 2 BHK. The same will rent for 30K per month. For buying the same, let's assume person paid down 20% down which comes to 24 Lacks. On top of it, the person will pay EMI for 96 Lacks which at 8% interest for 15 yrs works out to be 91K per month. Now keen eyes will notice immediately that EMI is 91K while rent is measly 30K. But of course the question of appreciation will come. Let's assume appreciation is 8% a yr. The apartment will be worth 3.8 cr.

let's assume we invest the different of EMI and rent we pay into a MF returning 12% return for the same 15 yrs. In that case, the investment we did in MF will be will be worth 3 Cr (60K, 12% appreciation over 15 yrs). On top of it, in the case of rent, lets assume, we invest the down payment (aka 24 Lacks) also returning 12% a yr for next 15 yrs. That down payment will grow to 1.3 cr over 15 yrs. So total of 4.3 Cr you will have in your MF account. 

Compared to buying the apartment of 3.8 cr so you will be better off by 50 L..

Ofcourse this is simplistic view. Ideally, we should add taxes, maintenance etc and also the rental will increase over time. And the returns are on the high end of 8% to account for that. 

but this calculation should be an eye opener in terms of we should not blindly assume that we are throwing the money down the drain if we are renting. Renting actually makes more sense financially speaking.