Years of adhering to the 'rent and SIP' strategy no longer holds its appeal
Parth Parikh, a finance and research veteran with over a decade of experience, has recently embarked on a new journey – homeownership. After years of living in rented flats in Kandivali, a suburb in Mumbai, Parikh has finally bought his first house.
For Parikh, the decision to buy was not an impulsive one. He considered various factors, weighing the benefits of long-term financial growth, stability, and personal control against the flexibility and lower maintenance costs associated with renting.
One of the key advantages Parikh found in homeownership was the potential for long-term equity building. Each mortgage payment he makes partly goes towards owning more of his home, creating an asset that may appreciate over time. Unlike rent payments, which are expenses, mortgage payments build equity, which can increase his net worth if the property value rises.
Owning a home also offered Parikh a sense of stability and control. He now has the freedom to modify and personalize his living space without landlord approval, and a stable living environment without the risk of rent increases or forced moves. Moreover, for homeowners with fixed-rate loans, monthly payments remain steady, unlike rents that may increase at lease renewal.
The emotional satisfaction derived from owning his home is another factor that appealed to Parikh. Many find a sense of pride and belonging from owning their home, which renting may not provide.
In addition, homeowners can sometimes deduct mortgage interest and property taxes, reducing taxable income, though the benefits depend on individual tax situations and current laws.
However, renting does offer some advantages. It provides flexibility and avoids maintenance and property tax responsibilities, as well as the risk of property depreciation. Renting also allows investing money that might otherwise go into a down payment or home upkeep into other vehicles like Systematic Investment Plans (SIPs), which can grow financially over time.
Parikh bought his first house largely through investments, having done SIPs for years. He suggests considering questions like flexibility vs continuity, staying in the same city for the next five to ten years, and the trade-off between moving often and investing more versus staying grounded and building slower when deciding whether to buy a house or continue renting.
The rental yield (cost of renting from a property owner's perspective) has increased from around 3% to 4%, making buying a house more financially attractive. Over 20 years, investing ₹40,000 per month through SIPs could potentially grow to more than ₹2.5 crore, assuming an annual return of 12%.
However, not owning a house comes with costs such as paperwork, brokerage, shifting costs, and deposit adjustments every 11 months. The cost of renting a 1BHK flat in Kandivali has increased from ₹25,000 to ₹40,000 over the past seven to eight years.
The EMI for a house loan became an anchor for Parikh, bringing focus and simplicity to his financial decisions. It changed how he thought about spending, making him more deliberate and less likely to say yes to non-essential items. Long-term planning became easier for him due to the consistency of the EMI.
In conclusion, the decision to buy a house or continue renting depends on individual circumstances and priorities. While renting offers flexibility and fewer maintenance costs, buying a home provides long-term equity building, stability, control over the living space, and potential tax advantages. Parikh's experience underscores the importance of careful consideration and long-term planning when making this significant financial decision.
Investing in SIPs for years helped Parikh to buy his first house.The housing market's potential for long-term equity building appealed to Parikh.Homeownership offers the benefit of stability and control over living space, unlike renting.Parikh finds the emotional satisfaction of owning his home to be a significant factor.Very often, homeowners can deduct mortgage interest and property taxes, reducing their taxable income.
