Should you buy or rent? This simple guide compares buying a home vs renting and investing the money you save. We use clear, plausible numbers so you can see likely costs and how wealth might grow over time.
Quick summary #
- In many big cities, rents are low compared with property prices.
- Early loan payments are mostly interest, so home equity builds slowly at first.
- If you invest the difference (monthly + down payment) in equity MFs, that money can grow faster than home equity over 15–20 years.
- Buying still makes sense if you plan to stay >15 years or need the non‑financial benefits of owning.
Core variables #
| Variable | Symbol | Example |
|---|---|---|
| Property Price | P | ₹1.2 Cr |
| Down Payment (incl. costs) | DP | ₹30L (≈25%) |
| Loan Rate | rloan | 8.5% p.a. |
| Tenor | n | 25 yrs |
| Current Rent | R0 | ₹35K / mo |
| Rent Escalation | grent | 5% p.a. |
| MF Return (post tax) | rmf | 11% p.a. |
| Property Appreciation | gprop | 5% p.a. |
| Maint + Society | m | 1.2% value p.a. |
Opportunity cost = future value of the down payment plus the monthly amount you would save by renting and investing the difference.
Year 1 cash flow #
| Year | Annual Rent | Annual Invest Delta | MF Corpus FV | Ownership Outflow | Home Equity | Advantage (MF−Eq) |
|---|---|---|---|---|---|---|
Simplifications: constant ownership outflow (ex tax relief variation), no vacancy, no step‑up SIP; maintenance kept in equity calc, not separate column. For precise decisions build a month‑level model.
Equity vs home equity growth #
Break‑even horizon #
In low‑yield markets the buy path often only catches up after 15–18 years (assuming 11% MF CAGR, 5% property growth). Higher rent escalation or lower MF returns compress gap.
Formula: Find year where FV(SIP + Lump Sum) ≥ (Property Value − Loan Outstanding − Accumulated Costs).
Sensitivity (single variable) #
Structured approach (DIY) #
- Collect real rent quotes (not inflated listings).
- Compute total ownership cost: stamp, registration, interiors, furnishing, maintenance, insurance, tax.
- Amortisation schedule: quantify interest share first 10 yrs.
- State honest stay horizon. (<8 yrs → renting almost always wins.)
- Model opportunity cost: SIP (delta) + STP of down payment.
- Stress test ±2% appreciation, −2–3% MF return, vacancy & higher upkeep.
- Behaviour filter: will you actually invest surplus monthly?
When buying still wins #
- You will stay 15+ years.
- You capture mispriced / redevelopment / distress opportunity.
- High non‑financial utility (stability, control, customisation).
- High income growth enabling accelerated principal prepayment.
Common mistakes #
- Projecting past property boom cycles forward.
- No haircut to optimistic MF return expectations.
- Ignoring upkeep / vacancy / furnishing refresh cycles.
- Failing to auto‑invest the surplus (leakage to lifestyle creep).
Conclusion #
In low yield markets the Rent + Invest the Difference path often produces higher liquid net worth for disciplined investors. Personalise the model before committing — and incorporate lifestyle priorities, not just spreadsheets.
Educational purpose only. Not investment, tax or legal advice.