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K. ARAVIND

Should one buy a house or live in a rented house? This is a common problem faced by those who live in cities far from their hometown for the purpose of employment. The answer to this question can only be found based on various factors.

The decision to buy a home depends on how long you will be staying at your current place of work. If there is a possibility of moving to other cities as part of your job, it would be better to stay for rent than to buy a house. You only need to buy a house if you intend to live in the existing city permanently.

Real estate is not an asset that can be sold at the intended price at the intended time. Real estate transactions have declined significantly, especially since the banning of Rs.1,000 notes by the Union Government. A large proportion of black money has turned into white and purchase of land and house as investments are less likely now. Therefore, if you buy a house in your current city, you may not be able to sell it at a reasonable price when you move out of that city later.

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If you plan to rent out a house or flat, you are less likely to earn much by way of rent. Less than three per cent of the investment is the annual rent in many cities in India. If you decide to buy a home, you should also consider whether you can afford it. Huge amount of money is required for buying a house. Factors such as distance from place of residence to place of work and required down payment should also be considered. You must have at least 25% of the amount required to buy a house. Banks can lend up to 80 per cent of the amount required to buy a house, but be careful to pay at least 25 per cent out of your own pocket.

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Buying a home should be one of the momentous events of your life. The burden of a home loan should be borne only in a way that does not adversely affect the goals of your children’s higher education. The ratio between rent and house price should also be considered. If the rent is less than three per cent of the value of the house and the rent is paid annually, then it is advisable to stay for rent.

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For example, suppose you intend to buy a flat worth Rs.50 lakh. And also, suppose your current rent is Rs.10,000 a month. That is, the annual rent is Rs. 1,12,000. That amount is less than three per cent of the value of the house. In that case, it would be better for you to avoid buying a house and live in a rented house and invest the amount you have to pay as EMI. Investing in mutual funds every month through a systematic investment plan (SIP) can yield high returns in the long run.