Moving to a new city? Check if you should rent or buy a house

Renting a property in a city is usually considered the easiest decision when starting out a career in a city until you realise that buying a house could lead to a decent investment than just a drain on your finances. However, it has been a long-standing debate among those who want to stay free from long-term financial commitments. The first reason anyone considers real estate as a safe investment is the return on investments – capital gains from the appreciation in home prices or rental income. But many other factors also weigh in when it comes to decision-making over a house.  Real-estate expert, Ashwinder R. Singh has some suggestions to help you weigh your options:

Consumption of savings
Most financial institutions provide around 80 per cent of the property cost. However, one has to finance the rest 20 per cent. This often involves extracting all available savings to make the down payment. So, at the time of making a decision on a house purchase, one must make a fair assessment of current and future financial goals. Some questions one can ask are: 
Will I be able to manage my expenses? 
Do I have the surplus to spend in an EMI?
Do I have any other major upcoming expenses?
Do I have a financial backup for contingencies?
What is my future earning potential? Will I be able to sustain my finances?
Can I afford to lock in a fixed amount of my earnings to finance a house?

Factors involved in renting property
You have to put together a security deposit which can be anything from one month to 11 months’ worth of rent depending on the city you wish to live in.
Calculate if the money you are spending on rent is higher than the EMI that you could pay for the purchased property. If the EMI is lower than the rent, purchase could be good option.
Staying on rent means having to frequently pay brokerage charges and shifting expenses.
Annual increase in rent is another consideration that one must make while planning to rent.

Stability of owning a house
Buying a house instills a sense of financial security.
It leads to a guaranteed return in the long run. Real estate prices, mostly keep going up. Seldom does one incur a loss while investing in property?
Tax exemptions are an added benefit of buying a house when you avail of a home loan.
Owning a house leads to long-term growth in personal wealth.
Your own house gives you the freedom of usage as well as creative freedom about how you want your premises should be.

Long term commitment
Owning a house is a ‘big’ financial decision because it usually involves a long-term commitment of paying a significant amount of your earnings every month towards EMI.
The home loan can become a liability if your financial planning does not work out as planned. Volatility in the employment market could lead to added problems if you have purchased a house through a home loan.
Advantages of renting
You can live where you want to suit your changing residential requirements.
You can enjoy a high-value property in a prime location of a city with a small rent.
You can upgrade to better houses as and when you want.

(Ashwinder R. Singh is a real estate expert. He is the author of The A to Z of Residential Real Estate.