Rent or Buy a House in India: The Maths Nobody Shows

Most rent vs buy debates compare the EMI with the rent. That is not a fair test. The buyer also pays a large sum on day one and keeps paying maintenance and property tax. The renter, on the other hand, keeps that day-one money and can invest it. A fair comparison gives both people the same money and asks one question: who has more wealth after a set number of years?

• The buyer pays the down payment, stamp duty and registration up front, then the EMI, maintenance and property tax every month. The buyer's wealth is the value of the home minus the loan still left.
• The renter invests the same up-front sum on day one. Each month, the renter also invests the gap between the buyer's monthly outgo and the rent. The renter's wealth is the value of that investment.
• If the rent ever becomes bigger than the buyer's monthly outgo, the buyer invests the gap instead.

This is how the rent vs buy calculator works. It does not ask which feels better. It shows which path leaves more money, under the assumptions you set.

Take a ₹1 crore flat. These are the costs a buyer faces, using the calculator's default assumptions:

Stamp duty and registration charges are set by each state and differ by city, property value and sometimes the buyer (many states charge women buyers less). They are a pure cost: you never get them back. Most of the early EMIs also go to interest, not to the loan. On a 20-year loan at 8.5%, the total interest over the full term is more than the amount you borrow. See how home loan interest is calculated for the month-by-month split.

See the EMI and total interest on ₹80 lakhCheck the EMI, the total interest and the yearly split between interest and principal.Open with these numbers

The renter pays rent of ₹30,000 a month, rising 5% a year. Rent is money spent, like interest. But the renter does not pay the ₹27 lakh of down payment and stamp duty, so that sum is invested on day one. In the early years the buyer's monthly outgo (EMI plus maintenance and tax) is much higher than the rent, so the renter also invests that gap every month.

The model assumes this money earns 10% a year, a long-term assumption for an equity-heavy mix. It is not guaranteed. Equity returns can be lower for many years, and the plan only works if the renter really invests the gap every month and does not spend it.

With the costs above, 5% yearly price growth for the flat and a 10% return on the renter's investments, here is how the two paths compare.

The gap is the difference in wealth between the two paths at the end of the period. The break-even year is the first year-end from which buying moves ahead of renting and stays ahead. If you expect to move or sell before that year, renting comes out better on these assumptions. The main reason for the result here is simple: the renter's money is assumed to grow at 10% a year, while the flat grows at 5%, and a rent of ₹30,000 is low compared with a ₹1 crore price.

The table keeps the flat at ₹1 crore and every other assumption the same, and changes only the starting rent and the number of years. Each cell shows which path is ahead and by how much.

• Low rent favours renting. When a similar flat rents cheaply compared with its price, the renter has a large monthly surplus to invest.
• More years do not always favour buying. The EMI stays flat while rent rises, and the loan ends. But when the renter's investments are assumed to grow faster than the flat, as here, the renter's lead can keep widening.
• The return on investments matters a lot. At a lower return than 10%, renting looks worse. At a higher return, it looks better.
• Price growth matters just as much. If the flat grows slower than the assumed 5% a year, buying looks worse. If it grows faster, buying looks better.

Run your own rent vs buy numbersEnter your flat's price, the rent for a similar flat, your loan, price growth and expected return to see who is ahead each year.Open the calculator

Two quick ratios tell you how cheap renting is compared with buying, before you run the full calculator. Rental yield is the yearly rent as a share of the price. Price-to-rent ratio is the price divided by the yearly rent.

Rental yield = (monthly rent × 12) ÷ price × 100 Price-to-rent ratio = price ÷ (monthly rent × 12)

A ₹1 crore flat that rents for ₹30,000 earns ₹3.6 lakh a year, a gross rental yield of 3.6% and a price-to-rent ratio of about 28. Compare the yield with the home loan rate of 8.5%. When the yield is far below the loan rate, the owner is paying a lot more to hold the home than a tenant pays to live in it, and buying only wins if the price grows well. The lower the yield (or the higher the ratio), the stronger the case for renting on pure numbers. The same flat at ₹50,000 rent has a yield of 6%, and the picture changes: after 20 years, buying is ahead by ₹46.27 lakh.

The same method works for Bangalore, Mumbai, Pune, Hyderabad or any city. What changes is the rent compared with the price. Find two real numbers: the price of the flat you want and the rent of a similar flat in the same building or area. Then work out the rental yield and run the calculator.

For example, a ₹1.2 crore flat in a large city that rents for ₹35,000 a month gives this result on the same assumptions: after 20 years, renting is ahead by ₹1.92 crore. Break-even year: not within 20 years. Use your own city's figures, and check the stamp duty rate of your state, which can be different from the 7% used here.

How much home loan can you get?Check the loan your income supports before you set a budget for the flat.Open the calculator

The calculator compares money only. Some costs and benefits are not in it, and they can move the answer either way:

• Home loan tax benefits. In the old tax regime, interest up to ₹2 lakh a year on a self-occupied home is deductible, and principal repayment counts within the ₹1.5 lakh limit for tax-saving investments. The new regime gives no deduction for a self-occupied home. If you use the old regime, buying looks a little better than shown. Compare both in the income tax calculator.
• Selling costs and capital gains tax. The buyer's wealth here is the full market value of the flat. Selling means brokerage and tax on the gain, so the buyer's real figure is lower. The renter's investments also carry tax when sold.
• Tax on the renter's returns. Gains on equity funds are taxed when you redeem them, which lowers the renter's figure.
• Moving costs and rent shocks. Renters pay brokerage and deposits each time they move, and a landlord can ask them to leave.
• Stability and control. Owning means no forced moves, freedom to change the home, and a place to live after retirement with no rent.
• Concentration and liquidity. A flat is one large asset in one place. It is slow to sell, and you cannot sell part of it.
• Delays and quality. An under-construction flat can be delayed, which means paying EMI and rent together.