The Renter’s Strategy: Analyzing Numbers

Now, let’s look at how Maya and Tara fare financially in this debate.

Maya buys a 2-bedroom apartment for ₹1 crore with a ₹20 lakh down payment. She takes out a loan at an 8% floating interest rate, which results in an EMI of ₹67,000 over 20 years. Her home appreciates by 6% annually.

Meanwhile, Tara rents a similar apartment for ₹30,000 per month and invests the difference (₹37,000). Tara assumes a 12% return on her investment, while her rent increases by 5% annually.

At the end of 20 years, Maya’s house value grows, but so does her outstanding loan, which means she has to pay off much of the loan amount while dealing with inflation. Tara, on the other hand, sees her investment grow more significantly thanks to higher returns, even after paying rent.

When you do the math, Tara’s renting strategy outperforms Maya’s buying strategy in terms of wealth accumulation. Renting allows flexibility, and investing the savings offers better returns. However, these numbers are based on certain assumptions—adjust them according to your own situation for a more accurate prediction.

Thumb Rule

If your rent is almost the same as the EMI, buying might be the right choice. But remember, quality of life matters too. Tara might get a bigger or better apartment for the same cost, improving her overall living experience.

Final Thought

As Morgan Housel puts it, "Housing isn’t a great investment, but for most people, it’s the best investment they will ever make because it’s the only asset they will leave alone and let compound for 10, 20, 30 years."

Ultimately, if you lack the discipline to invest the savings from renting and fear the stock market volatility, buying a house might be a better fit for you. The key is to make a decision that aligns with your goals and financial situation.