A Rs 1 crore home may cost much more than Rs 1 crore by the time the home loan is repaid. But renting also comes with a cost that rises every year. So, which option creates more wealth over 20 years?
Consider two people with a monthly housing budget of around Rs 70,000.
The first person buys a Rs 1 crore house. He pays Rs 20 lakh as the down payment and borrows the remaining Rs 80 lakh. The second person rents a similar house for Rs 40,000 a month. Instead of paying a home-loan EMI, he invests the money left from his housing budget.
At the end of 20 years, who is richer?
The answer depends on property prices, investment returns, rent increases and the costs of owning a home. But a simple calculation shows why the decision is not as straightforward as it may appear.
The homebuyer starts with a Rs 20 lakh down payment
Assume the buyer purchases a Rs 1 crore property and pays 20% upfront.
| Particulars | Amount |
| Property price | ₹1 crore |
| Down payment | ₹20 lakh |
| Home loan | ₹80 lakh |
| Interest rate | 8.00% |
| Loan tenure | 20 years |
| Monthly EMI | About ₹66,900 |
At an 8% interest rate for 20 years, the monthly EMI on an Rs 80 lakh loan is about Rs 66,900.
Over 240 months, the buyer will pay around Rs 1.61 crore in EMIs.
This includes:
| Component | Amount |
| Loan principal | ₹80 lakh |
| Interest paid over 20 years | About ₹80.6 lakh |
| Total EMI payment | About ₹1.61 crore |
| Down payment | ₹20 lakh |
| Total purchase-related outflow before other costs | About ₹1.81 crore |
The buyer therefore pays around Rs 1.81 crore towards the house over 20 years, excluding stamp duty, registration, maintenance, property tax, insurance and repairs. However, the buyer owns the property at the end of the loan period.
What will the house be worth after 20 years?
The value of the house will depend on how much property prices rise. If the Rs 1 crore property appreciates by 8% every year, its value after 20 years would be approximately Rs 4.66 crore.
| Annual property appreciation | Value after 20 years |
| 5% | About ₹2.65 crore |
| 6% | About ₹3.21 crore |
| 8% | About ₹4.66 crore |
| 10% | About ₹6.73 crore |
These are illustrations, not guaranteed returns. Property prices do not rise at a fixed rate every year. The actual outcome will depend on the location, quality of construction, demand, infrastructure and the broader property market.
The buyer also needs to remember that the final property value is not the same as the total wealth created from the purchase. The buyer has paid interest and other ownership costs along the way. These costs reduce the effective return from the property.
The renter invests the difference
Now consider the renter. He rents a similar house for Rs 40,000 a month. If his housing budget is Rs 70,000, he has Rs 30,000 left every month. Assume he invests this amount through a systematic investment plan.
For the base calculation, assume:
-monthly investment of ₹30,000;
-investment period of 20 years;
-annualised return of 12%;
-no missed investments; and
-no increase in the monthly investment.
At a 12% annualised return, the Rs 30,000 monthly SIP could grow to around Rs 2.97 crore in 20 years.
But there is another important difference. The homebuyer used Rs 20 lakh as the down payment. The renter did not need to lock that money into a house. If the renter also invests this Rs 20 lakh at an assumed 12% annual return, it could grow to around Rs 1.93 crore over 20 years.
The renter’s estimated investment value would therefore be:
| Renter’s investment | Value after 20 years |
| ₹30,000 monthly SIP | About ₹2.97 crore |
| ₹20 lakh initial investment | About ₹1.93 crore |
| Total investment corpus | About ₹4.90 crore |
Under these assumptions, the renter ends up with an investment corpus of around Rs 4.90 crore.
The homebuyer owns a house worth around Rs 4.66 crore, assuming 8% annual property appreciation.
Base-case comparison
| After 20 years | Homebuyer | Renter |
| Main asset | House | Investment corpus |
| Estimated value | ₹4.66 crore | ₹4.90 crore |
| Difference | Renter ahead by about ₹24 lakh |
On paper, the renter appears to be ahead by around Rs 24 lakh. But this does not mean renting always wins. The result depends heavily on the assumptions used in the calculation.
The 12% return assumption is doing much of the work
The renter’s advantage comes mainly from the difference between the assumed investment return and property appreciation.
In this example, the house grows at 8% annually, while the renter’s investments grow at 12% annually. That four-percentage-point difference becomes powerful over 20 years because of compounding. But equity-market returns are not fixed. A 12% annualised return is only an assumption for the illustration. The renter could earn more or less, depending on the investments chosen and the market conditions.
The comparison changes when the investment return changes.
| Assumed annual return on renter’s investments | Approximate value of ₹20 lakh plus ₹30,000 monthly SIP after 20 years |
| 8% | About ₹2.70 crore |
| 10% | About ₹3.60 crore |
| 12% | About ₹4.90 crore |
If the renter earns only 8% on investments while the property also appreciates at 8%, the homebuyer is clearly ahead in terms of the value of the main asset.
At a 10% investment return, the renter’s corpus is still below the house value in the base case.
The renter pulls ahead only when the investment return is sufficiently higher than the property appreciation rate.
Rent is unlikely to remain Rs 40,000 for 20 years
The biggest weakness in the simple renter calculation is the assumption that rent stays at Rs 40,000 every month for two decades. In reality, rent may rise every year or every few years.
If rent rises by 5% annually, a Rs 40,000 monthly rent would become approximately:
| Year | Monthly rent at 5% annual increase |
| Today | ₹40,000 |
| After 5 years | About ₹51,000 |
| After 10 years | About ₹65,000 |
| After 15 years | About ₹83,000 |
| After 20 years | About ₹1.06 lakh |
This changes the comparison significantly.
If the renter keeps his total housing budget fixed at Rs 70,000, the amount available for investment will gradually fall. After some years, the rent could consume most or all of that budget.
If the renter’s income rises over time, he may be able to increase his housing budget and continue investing. But that would require a separate assumption about salary growth.
Therefore, the Rs 4.90 crore figure should not be treated as a guaranteed outcome. It assumes that the renter can continue investing Rs 30,000 every month for 20 years while paying a constant rent of Rs 40,000.
That may not happen in real life.
The homebuyer also has costs beyond the EMI
Home-loan comparisons often focus only on the EMI. But buying a house involves several other expenses.
These include: stamp duty; registration charges; brokerage; maintenance; property tax; home insurance; repairs; society charges; and renovation costs.
These expenses can be substantial, especially over 20 years.
The buyer also locks Rs 20 lakh into the house as a down payment. That money cannot be used for other investments, emergencies or financial goals.
Adhil Shetty, CEO of BankBazaar, says buyers should look beyond the EMI before making a decision. “Buying a home is a big financial commitment, so you should look beyond the EMI and rent,” Shetty says.
He advises buyers to consider income stability, existing loans, emergency savings and the length of time they expect to stay in the property.
He also points out that the down payment has an opportunity cost. “If Rs 20 lakh of your savings goes towards the down payment on a home, that money is no longer available for investments or other goals,” he says.
This is an important part of the rent-versus-buy decision. The buyer is not only committing to a monthly EMI. He is also giving up the chance to invest the down payment elsewhere.
Buying may make more sense if you plan to stay for many years
Renting offers flexibility. A tenant can move to another city for a job, shift to a larger house after marriage or move closer to a child’s school. Selling a house is more difficult. It takes time and may involve brokerage, taxes and other transaction costs.
Buying, however, provides stability. Once the loan is repaid, the owner has a home without a monthly rent obligation.
This can be especially valuable after retirement, when regular income may fall. Shetty says buying can make more sense when a person plans to stay in the property for several years and the EMI is comfortably affordable.
He also suggests that total EMIs should ideally remain within around 40% of monthly income. This is not a universal rule, but it can be a useful affordability check.
A person should also maintain an emergency fund before committing to a large home loan. A household with unstable income or several existing loans may find it difficult to manage a long-term EMI.
A house is not just an investment
The rent-versus-buy debate becomes incomplete when the house is treated only as a financial asset.
A self-occupied home also provides: stability; control over the living space; protection from rent increases; freedom from landlord-related issues; and the possibility of living in the same place after retirement.
These benefits have financial and emotional value, even though they do not appear in a return calculation. At the same time, a house is an illiquid asset. A person may own a property worth Rs 4 crore but may not be able to use that entire value immediately during an emergency.
The renter’s investment corpus may be more liquid, depending on where it is invested. But market-linked investments can also fall in value, particularly when the money is needed urgently. Neither option is completely risk-free.
What happens if the buyer invests the difference?
There is another possible comparison. In the base case, the buyer’s EMI is around Rs 66,900, while the renter pays Rs 40,000 in rent. The difference is around Rs 26,900.
The original illustration rounds this difference to Rs 30,000. For a precise comparison, the renter’s monthly investment should ideally be based on the actual EMI difference.
Similarly, the comparison should include the buyer’s stamp duty, registration, maintenance and other ownership costs. It should also account for rising rent and any increase in the renter’s income. This is why a rent-versus-buy calculator can produce different results depending on the assumptions entered.
The correct comparison is not simply: House price versus total rent paid.
It should compare: the value of the house at the end of the period; the renter’s investment corpus; the down payment invested by the renter; the rent increases; the homebuyer’s ownership costs; the return earned on investments; property appreciation; and the value of flexibility and housing security.
So, which option makes you richer?
Under the specific assumptions used in this illustration, the renter appears to be slightly richer after 20 years.
The renter has around Rs 4.90 crore in investments, while the buyer owns a property worth around Rs 4.66 crore.
But the renter’s advantage depends on three major conditions:
- The renter invests the Rs 20 lakh that the buyer uses as a down payment.
- The renter invests Rs 30,000 every month for 20 years.
- The investments earn 12% annually, while the property appreciates at 8%.
If rent rises, the renter’s investment amount may fall. If investment returns are lower, the renter’s advantage may disappear. If the property appreciates faster, buying may create more wealth.
The decision should therefore not be based only on the question of who will have the larger asset after 20 years.
The more useful question is: Can you afford the home comfortably, how long will you stay there, and will you invest the money you save by renting?
Renting is not automatically throwing money away. Buying is not automatically the best investment. Both can work, but only when they fit the person’s income, goals, location, risk appetite and long-term financial plan.
Disclaimer: This story is an illustrative comparison and not a prediction of future property prices or investment returns. The calculations are based on assumed interest rates, property appreciation, rent, investment returns and other factors. Actual outcomes may vary. The comparison does not include every possible cost, such as taxes, maintenance, brokerage, registration charges, repairs and investment-related expenses. Readers should consider their income, financial goals, risk appetite and housing needs before making a decision. This article should not be treated as financial or investment advice.
Every financial journey has a turning point. What’s yours?
Financial Express is launching a new series highlighting real experiences with money, investments, and the taxman. Did a sudden tax rule catch you off guard? Did a piece of financial advice change your life? Your story could provide invaluable, practical lessons for thousands of fellow taxpayers. Share your experience with us. We respect your privacy: no stories will be featured without a direct conversation and your full consent. Thank you.