In our previous article on the Rent Vs Buy, we had discussed about the financial factors that impact the home buying decision. In this article we will cover some of the non-financial factors that influence this decision. Once you’ve done your calculations and arrived at the conclusion that financially you are in a position to buy and maintain a house what do you do? Is it always prudent to buy a house simply because you can afford it?
According to financial experts, personal, emotional and such other non-financial aspects also play a crucial role in home-buying decision. Any buying decision, be it a home, clothes, footwear does get affected in varying degrees by who we are and what we do. For example the clothes we choose to wear would normally depend upon where we are going (i.e., to the office, a party etc) and what we do (i.e., acting, playing, teaching etc). Similarly our food habits also vary depending upon the geographical state we belong to and the weather conditions of the place etc. To put it simply, our buying decisions are influenced by our culture, social class, lifestyle, occupation, and a number of external factors. The thing about these factors is that they are never the same for all. The factors themselves and the way these impact each one of us is normally different.
Over the last couple of decades, buying a home has become easy in India. The stigma which was earlier attached to owning debts is no longer there. Plenty of attractive loan options are available for consumers to fund buying homes. More and more people consider buying a home as an attractive investment option from which they can make profits rather than an asset which they can bequeath to their kin. Despite all these positives should you buy a house just because you can afford it financially? There is no single straightforward answer to this question. You will have to work out a decision for yourself based on your financial, personal /professional goals/aspirations and circumstances. Following are some of the non-financial factors that can impact the home buying decision for most of us.
1. Stage of Life
Our requirements and needs change as we age. For example, the needs of a bachelor will be totally different from that of a married person. Bachelors may find it difficult to handle the responsibilities that come with home ownership like attending to repairs and maintenance.
Take the case of Neeraj, a 20 something IT professional working in Bangalore. He is open about relocating to other parts of the country, depending upon his professional /personal requirements. He may shift to another city if he finds a job with better prospects. He may relocate post marriage if his partner is based in a different city or town.
Under these circumstances, it really does not make sense for Neeraj to buy a house in Bangalore even though he may be qualified to avail a loan to buy the property of his choice in a good location. Rather it would be better to rent an accommodation and postpone his buying decision till such time that he is sure about where he is going to settle down.
A few years down the line, when Neeraj marries and has kids of his own he would have more or less decided about the city where he would settle down. His career path would have stabilized and to meet his growing family needs buying a house would be an ideal choice rather than renting.
Home buying decision will need to be evaluated in the light of both the present stage of the buyer’s life as well as the needs that may arise in the near future. For example, if a married couple is planning to increase the size of their family in the next 2-4 years, they should factor this in while deciding on the size of the house to buy.
2. Stage in career
The stage of a person’s career can also impact the home buying decision. Normally, renting is a better option during the early stage of the career when one may require only a temporary accommodation. Renting is a cheaper and requires little or no effort in terms of maintenance. Since the rent would be a fixed amount, budgeting expenses and managing finances will be easy.
3. Availing loans on the basis of double incomes
By clubbing incomes of two or more people, it is possible to avail loan of a larger amount. Although it may be possible to buy a better, bigger house in a good location, continued employment of both the borrowers would become essential to fund the loan installments in such cases. If a couple borrows to buy a house based on combined income of both the partners, under no circumstances can either of them take a sabbatical if required at a later date.
This is because with one person’s income it may not be possible to fund the loan installments. Hence, even if there is slightest of doubts about continued employment of either of the co-borrowers, it is advisable to either avail a loan on the basis of income of only one borrower or rent.
4. Personal Goals
Owning a home may not be the ultimate personal goal for many of us. Even after taking up full time jobs, many of us may aspire to pursue further studies at some point of time in the future. There may be others wanting to travel the world or pursue a hobby/sport which may cost a lot of money.
It is important to recognize our personal desires and evaluate whether we are willing to sacrifice these so as to be able to buy a house. In short, you must answer the question “What will make you happy? Buying a house or pursuing your favorite sport/hobby” etc. Buying a home is a major decision which cannot be reversed easily. Don’t be under the impression that you can fulfill your personal desires a year or two after buying a house by disposing it off easily.
5. Duration of stay
Unless you are planning to stay in a city for at least 5 years, most financial experts believe there is no point in buying a house. If your job is a transferable one, if you are unsure about job location in the near future or are planning to relocate because of work to another city, renting may be a better option for you. Till such time that you have a job which you plan to hold on and work from the same city for at least 5-10 years, it is better to avoid buying a house.
People looking to buy purely from an appreciation or investment perspective must also take into consideration a minimum holding period. For property prices to appreciate and fetch returns, it always takes some time. Historically it takes anytime between 7-10 years for this to happen. Therefore unless you are prepared to hold on to your investment for 5-7 years, it is pointless to invest your money in buying a house.
Location does not mean just the physical location, but also the neighboring areas, safety of the place, transport connectivity , proximity to medical facilities, schools etc. If your preferred location lacks any of these, then it may not be ideal place to buy a house in.
It does not matter if the house is old or unattractive, you can still live in it. However, living in an area where there are frequent incidents of crime can pose a serious risk to your own life and to those of your loved ones too. So rather than investing your money and buying a house in such a place just because it meets your financial requirements, it is advisable to rent a house in a safer place.
Buying a house in a distant location from which you may have to travel long each day to reach your workplace can be physically taxing and waste of precious time too. Instead, it would be better to rent a house and buy only after you have accumulated enough savings to afford a house close to your workplace.
Where you decide to settle down and live will have a huge influence on your lifestyle too. For example, if you like to entertain or if your job demands it, it may be advisable for you to rent a house with a terrace and a garden rather than buying an apartment which doesn’t have any of these.
Pet owners need to figure out whether the house they propose to buy would suit the needs of their pets or not. Small pets can easily fit in and be comfortable in apartments while larger ones like certain breed of dogs may need a lot of outdoor space to run and exercise.
Both owning a house and renting has its own advantages and disadvantages. When you own a house you will have the freedom to modify the interiors/exteriors to suit your personal needs. The house will be yours for keep – you don’t need to worry about relocating as soon as your rental lease expires. Most importantly owning gives a sense of pride and security which cannot be quantified in monetary terms. The flip side of is the cost associated with maintenance and unexpected repairs that may come up from time to time.
As against owning, when you rent you will be in a position to accurately predict your monthly rental expense. You don’t have to worry about maintenance and repair costs as it would be borne by the house owner. Renting offers more flexibility as you can vacate the house and move out as soon as the lease expires. The main disadvantage of renting is the fact that the house owner calls the shots on all important matters including renewal of the rental agreements.
Buying/renting decision is not an easy one to make. Before you take the plunge you should be clear in your mind about your needs, circumstances and the state of your financial resources. If possible put all of these in writing with a view to match your needs/resources and arrive at a sensible conclusion. Needless to say, you may have to re-evaluate your decision as your needs and circumstances change.