AKG Money

Rent or buy?

Two people with the same savings and the same monthly budget. One buys a flat on a home loan; the other rents a similar flat and invests the rest. Who owns more after 20 years?

These are example numbers. Change any of them to see your own answer.

The flat
₹

= ₹1 Cr

Long-run growth in many Indian cities has been 5–8% a year, and much lower in some periods.

%
Your home loan

Banks lend 75–90% of the price. Put 100% to buy with cash.

%
%
years
Renting instead
₹

Usually 5–10% at each renewal.

%

What the renter earns on money invested, after fund fees. A Nifty 50 index fund has returned about 12% a year over long periods; that is not guaranteed.

%
Compare over
years
Rent and invest

After 20 years, renting and investing the difference leaves you about ₹2.81 Cr better off: ₹6.5 Cr against ₹3.69 Cr, after selling costs and tax. Both spend exactly the same each month.

Cash the buyer needs on day one
₹44.39 L
₹25 L down payment + ₹19.39 L stamp duty, fees and interiors. The renter invests the same amount.
Each month in year 1
₹64,733
Buyer: EMI ₹62,733 + maintenance. Renter: rent ₹20,000 + invests ₹44,733.
Buying wins if flat prices grow faster than
10.5% a year
You assumed 7.3%. This is the number to argue about.
Return on every rupee spent (XIRR)
4.8% vs 9.1%
Buying vs renting and investing, before tax
What each one owns, year by year (before tax)
0₹ 2 Cr₹ 4 Cr₹ 6 CrYr 2Yr 4Yr 6Yr 8Yr 10Yr 12Yr 14Yr 16Yr 18Yr 20● ₹4.09 Cr● ₹7.3 Cr

From year 14, rent costs more than the EMI and maintenance. The renter then takes the difference out of the investments, so both still spend the same.

The two paths, side by side
ItemBuyRent and investBetter off
Owns after 5 yearsBefore tax₹76.59 L₹1.16 Cr
Owns after 10 yearsBefore tax₹1.51 Cr₹2.32 Cr
Owns after 20 yearsBefore tax₹4.09 Cr₹7.3 Cr
After selling and tax, year 20₹3.69 Cr₹6.5 Cr
Total spent over 20 years₹2.26 Cr₹2.26 Cr
Return (XIRR)4.8%9.1%
After 20 yearsRent and invest wins

How this is worked out

  1. Day one: both have the same cash. The buyer spends it on the down payment, stamp duty, registration, brokerage, fees and interiors. The renter pays brokerage and a deposit and invests the rest.
  2. Every month both spend the same. The buyer pays the EMI, maintenance, and once a year property tax and repairs. The renter pays rent and invests the difference. If rent later costs more than the buyer's EMI and maintenance, the renter takes the gap out of the investments.
  3. The flat grows in value at the rate you set; the investments grow at the return you set; rent and owning costs rise each year.
  4. At the end, the buyer owns the flat minus any loan left; the renter owns the investments plus the refunded deposit. The headline compares them after selling costs and long-term capital gains tax.
  5. XIRR is the yearly return each path earns on every rupee spent, timed month by month.

Questions people ask

Isn't rent just money thrown away?

No more than EMI interest, maintenance and property tax are. The buyer also pays a lot that never comes back. What matters is what each person owns at the end for the same monthly spend, which is what this compares.

What's the single most important assumption?

How fast flat prices grow compared with what your investments earn. The page shows the house-price growth at which buying and renting come out level; if you believe prices will beat it, buying wins on money.

Does the renter really invest every month?

The comparison assumes so. If the difference would get spent instead, buying usually wins, because an EMI forces you to save. Be honest with yourself about this.

What about tax benefits on a home loan?

Under the old tax regime you can deduct up to ₹2 lakh of interest (section 24b) and ₹1.5 lakh of principal (80C) a year. Most people now use the new regime, which doesn't allow these, so they're left out.

Money isn't everything. What does this leave out?

Security, not being asked to move, freedom to renovate, and pride in owning a home are real and worth paying for. Renting gives flexibility to move for work or schools. Use the numbers to know what that choice costs.

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