Renting vs. Buying a house in India: Which One Builds More Wealth?

"Rent vs. buy? A 20-year wealth comparison shows why investing ₹15,000 monthly in equity beats buying a house in India. See how compounding can make you wealthier!"

Renting vs. Buying a house in India: Which One Builds More Wealth?


Introduction

The traditional debate is whether you should buy a property or rent and invest. 

Though most people think of owning a house as the ultimate financial goal, can it really produce more wealth than investing?

Comparing the two over a 20-year period will help us to determine which scenario prevails.

The Numbers: Buying a house vs. Renting & Investing

Let’s assume:

  • Buying a house with ₹30,000 EMI for 20 years. The property appreciates at 7% CAGR.

  • Renting a house at ₹15,000 per month and investing ₹15,000 in equity SIP at 15% CAGR for 20 years.

You can rent and put in ₹2.25 crore more than buy a house.

Let us thus immediately review the findings.

1. Buying a house

  • Loan term—20 years

  • Overall EMI paid ₹72 lakh (₹30,000 x 240 months).

  • House values @ 7% CAGR => Value upon twenty years to be ₹1.35 crore.

Purchased final asset value: ₹ 1.35 crore.

2. Renting house and equity investment

  • Assuming rent of ₹15,000 a month.

  • Equity SIP: ₹15,000 per month at 15% CAGR.

  • 20 years later, this SIP comes to ₹3.9 crore.

Renting and investing yields a final wealth of ₹3.9 crore.

Investing in stocks will help you to be ₹2.55 crore wealthier!

Why over time are stocks more valuable than buying a house?

  • While real estate has offered returns of 6 to 8% CAGR, historically the stock market has given returns of 12 to 15% CAGR.

  • Stocks are sold at any moment; homes can take months or even years to sell.

  • Purchasing stocks allows you to hold several sectors, reducing your risk.

  • Renting allows you to move as per your job, lifestyle, or family needs.

When Should You Consider Buying a house?

While investing in equity is a more financially prudent option, if 

  • You want mental stability and security, and hence having a house could be ideal for you.

  • You're okay with less money.

  • You intend to live in the same city for many years.

Which option is the wiser one?

Clearly, the most effective way to increase your money faster is to rent and invest in stocks through a Systematic Investment Plan (SIP).

Even though you can purchase a house, owning your own will provide you peace of mind.

If you still wish to purchase a house, you could wish to postpone it for ten years, invest in equity first, and then use the compounding gains to cut your debt load.

😉 From which do you wish? Alternatively, should you purchase a house? Discuss it in the comments!


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