Renting a house can make you crorepati in 20 years

Almost everyone has a dream of owning a house even if it means taking a loan and paying EMIs (Equated Monthly Instalments) for years. But is it worth to rent a house instead of buying and investing the remaining in equity mutual funds? Let’s figure out.

Let's assume that you wish to buy a home worth Rs. 1 crore and you pay Rs. 20 lakhs as down payment and on remaining Rs. 80 lakhs you take a loan. Assuming you take a loan for the period of 20 years and rate of interest is 8.6 per cent, EMI that you would be paying is Rs. 70,000 per month.

Now let’s say you have an option to rent the same property by paying rent of Rs. 20,000 per month. This rent keeps on increasing at the rate of 7 per cent. So now you can invest Rs. 50,000 per month in mutual funds. Assuming 12 per cent rate of return to be received in the next 20 years then SIP (Systematic Investment Plan) of Rs. 50,000 per month along with lumpsum of Rs. 20 lakhs you would end up having Rs. 5.47 crore at the end of 20 years which may be more than that of what even your property would be worth after 20 years. This excludes all the taxes that you pay for owning a house like property tax.

Therefore, renting a house rather than buying by leveraging your asset is financially better and can surely make you crorepati.