Should You BUY a HOUSE or RENT? Check with this EXCEL SHEET! | Ankur Warikoo Hindi

Summary

In this video, the speaker discusses the financial decision of whether to buy or rent a house, using Excel sheets to analyze rental yield and long-term financial implications. They break down the math behind monthly rent payments versus mortgage payments, factoring in variables like rental yield, down payments, loan interest rates, and property value growth. The speaker also explains how the decision to rent versus buy changes over different time periods, with longer periods favoring buying. The conclusion emphasizes making informed decisions about homeownership at the right age and stage in life, while considering personal and financial goals.

Takeaways

• 😀 The decision of whether to buy a house or rent depends heavily on rental yield, which is the annual rental income as a percentage of the property's value.
• 😀 Rental yields in major cities like Delhi, Mumbai, and Bhopal differ, with Bhopal having the highest rental yield among the three.
• 😀 If you choose to rent, your total rental expense over 20 years, adjusted for inflation, can amount to around ₹64 lakhs, depending on the city.
• 😀 Renting also offers benefits like investing the down payment elsewhere and utilizing the extra amount saved from lower rent compared to EMI for a home loan.
• 😀 Over 20 years, renting a house might result in a net positive benefit due to investments and savings from rental income, with varying benefits across cities.
• 😀 For longer periods (30-40 years), buying a home can become a more financially viable option, especially as home values typically increase over time.
• 😀 Property ownership includes additional costs like registration fees, home loan interest, and maintenance, which can significantly impact the overall cost of owning a home.
• 😀 The average value of a home tends to rise around 8% annually, which can eventually make buying a home more advantageous over a long period.
• 😀 If you buy a home, the total cost of ownership, including loan payments, interest, and maintenance, can exceed ₹1.5 crore over 20 years for a ₹1 crore house.
• 😀 The key to making the right decision—whether to rent or buy—depends on factors like your future plans, the city you're in, and your financial capability at different stages of life.
• 😀 It's important to evaluate your long-term goals, mobility, and financial freedom before making a decision. Renting offers more flexibility, especially in the early years of life, before considering property ownership.

Q & A

What is rental yield, and how does it impact the decision to rent or buy a house?

Rental yield is the annual rent income as a percentage of the property's value. It helps determine how much money is earned from renting out a property. A higher rental yield can make renting seem more attractive, while a lower rental yield can make purchasing a home more appealing.

How does the duration of staying in a property affect the decision to rent or buy?

The decision to rent or buy largely depends on how long you plan to stay in a property. For shorter durations, renting may be more cost-effective, while for longer durations (e.g., 30 or 40 years), buying a home might be a better financial decision.

What are the rental yields for Delhi, Mumbai, and Pune?

As of recent data, the rental yield for Delhi is around 2.9%, for Mumbai it is 3.3%, and for Pune, it is 3.8%. These figures help assess how much rent a person pays relative to the property's value.

What factors are considered when calculating the total cost of renting a house?

When calculating the cost of renting, several factors are considered: monthly rent, annual rent increases, advance rent payments (which vary by city), and the duration of the rental period. Additionally, tax benefits from housing rent allowances can affect the overall cost.

How does renting provide financial benefits compared to buying a home?

Renting provides financial benefits because the money that would have gone into homeownership (e.g., down payments, EMIs, maintenance) can be invested elsewhere, such as in SIPs, which may grow over time. This could result in positive returns over a long period.

What is the impact of inflation on the costs associated with renting a house?

Inflation impacts rental costs by increasing rent over time. If the rent increases by 10% annually, the total amount paid over several years will rise significantly. This is an essential factor to consider when comparing the costs of renting vs. buying.

How does the cost of buying a house differ from renting a house in the long run?

Buying a house typically involves a higher upfront cost, such as a down payment and registration fees, along with recurring costs like interest payments, maintenance, and property taxes. While renting does not require these initial costs, the total amount spent on rent can accumulate significantly over time.

What role does the home loan interest rate play in the decision to buy a house?

The home loan interest rate directly impacts the total cost of buying a house. A higher interest rate means higher EMI payments and more money spent over time on interest, which can make buying a house less financially attractive compared to renting.

How does the value of a house typically change over time?

The value of a house tends to increase over time, usually by around 8% per year. This appreciation in value can make buying a home a more profitable long-term investment, provided the market conditions are favorable.

What advice does the script give about buying a house at a young age?

The script advises caution when buying a home at a young age, especially when influenced by societal or familial pressures. It suggests renting in your 20s and 30s to maintain flexibility, saving for a down payment, and then considering buying a home between the ages of 35 and 40, when you have more clarity about your future plans and financial situation.