Rent vs Buy Calculator: is it better to buy or to rent and invest?
Type the price, the loan, the rent and the return that you think your investments will give. The calculator compares the wealth of a buyer and a renter who use the same money, and converts the result to present value.
Default example: a ₹1 crore home, ₹80 lakh loan at 8.5% for 20 years, rent ₹35,000 with 7% increase each year. Buying gives approximately ₹13.7 lakh more wealth in present value.
The most important number: the rental yield (yearly rent ÷ price). At approximately 4% or more, buying usually gives more wealth. At 3% or less, renting and investing usually gives more wealth, but only if you invest the difference each month.
How the calculator compares the two
The two persons use the same money each month. The buyer pays the down payment, the stamp duty, the EMI and the costs of the owner. The buyer also gets the tax decrease of Section 24(b) and 80C in the old regime.
The renter pays the deposit, the brokerage and the rent. The renter invests the remaining part of the money that the buyer pays at the start. Each month, the renter also invests the difference between the costs of the buyer and the rent. When the rent becomes larger than these costs, the renter uses money from the investment to pay the difference.
At the end, the buyer has the home. The calculator subtracts the loan that is left and the capital gains tax if the buyer sells (12.5% plus 4% cess on the gain, with no indexation). The renter has the investment and the deposit. The present value converts the two values to the value of money at this time.
The calculator does not include the cost to sell the home, repairs, or the value of a stable home. For the full method and an example, read rent vs buy: the NPV calculation.
Rent vs buy: frequently asked questions
Is it better to rent or buy a house in India?
It changes with the rental yield in your area, the years that you will stay, and if you invest the difference or not. With the default numbers, buying gives approximately ₹13.7 lakh more wealth in present value after 20 years.
What is rental yield?
The yearly rent divided by the property price. Example: ₹35,000 a month is ₹4,20,000 a year; on a ₹1 crore home, the yield is 4.2%.
Why does the renter invest money each month?
To compare correctly, the two persons must use the same money. The renter invests the money that the buyer pays at the start and the difference between the costs of the buyer and the rent. If the renter does not invest it, buying usually gives more wealth.
Does the calculator include tax?
Yes. For the buyer, it includes the old-regime deduction for interest (₹2 lakh) and principal (₹1.5 lakh), and the capital gains tax at sale (12.5% plus 4% cess, no indexation). For the renter, you can type the tax decrease from HRA. The investment return must be after tax.
What does the calculator not include?
The cost to sell the home, repairs, changes in the interest rate and the value of a stable home. Add these to your decision.