Owner or Occupant? Fact Sheet

The debate about owning or renting a house will rage forever, and it is clearly evident that the decision will eventually depend on many circumstances. Locations will certainly have an important role to play in the decision making process. Undeniably, either of the two decisions are equally important because the effects of the decision will surely be seen elsewhere. Therefore, never let your brain take the back seat, but carefully weigh all the options and make the right choice. Here are a few important facts that are never to be ignored.

The lowdown on paying rentals

Studies reveal that one out of four tenants spend half of their income on rent. What is noteworthy here is that, these individuals could have easily used the same expenses to build equity over time. A shelter is co-terminus with an individual’s lifespan. Such being the case, the individual will continue to pay rent forever, and not have any property to call as his or her own. When half of the individual’s income goes towards rentals, it certainly is a better option to turn it into an investment that accrues value. Typically, rentals for a decent 2 BHK in a good locality in Bangalore cost upwards of 20,000 INR. Add to that the one time expenses of one month broker fee, a refundable security deposit, the annual hike in rentals, and you have a case of entering a loop of spending without acquisitions.

Turning rental expenses into EMIs for your own home

Turning your rental expenses into an EMI towards acquiring your property is a good idea. It would certainly help to get in as early as possible, to keep your commitments towards EMI lower and to complete the repayment tenure well before your active earning cycle ends. A lesser EMI stretched over prime earning lifetime is easier to digest, and research indicates that 83% millennials seem to have latched on to this idea of getting onboard the acquisition phase early. An investment in a property can yield earnings anywhere between 3.5% to 5% p.a through rentals. Similarly, the ROI on the outright purchase of a home is between 11-13.3%. However, to own a home, the prospective buyer needs to be ready to fork out 20% of the property value as down payment. Depending on how much you earn and the value of the property, this can sometimes take close to 5 years to save towards making the payment. If you occupy the property you own, you will get a tax benefit capped at 2 lakhs. If you happen to acquire a second property, classified as ‘deemed rented out’, the interest that you pay for the loan will be fully deducted without any upper limit. This makes it a good investment option, where you can acquire wealth and gain tax benefits.

Pinning down the advantages

Homes hold a special meaning, and without exception all members of the family would love to enjoy the freedom of designing the interiors or choosing a layout that meets their creative requirements. A residence is all about security, and creature comforts with deep social ties in the neighbourhood being an important requirement. A homeowner will typically be in it for the long haul and will find it easier to develop social relations. This is in sharp contrast to occupants of a rented premise where the feeling of having to move out will prevent similar bonding. And one of the biggest advantages in metros like Bangalore is the opportunity to possess a property with resale value. An own home certainly offers residents the options of enjoying creature comforts and creativity, while building equity and gaining tax benefits along the way.