Tying the knot was the easy part. The tough part is trying to create a lifestyle that you both love.
Ever since one can remember, there’s an association of “settling down” with marriage. So much so, that social commentators and elders in our family have collectively turned the “when are you settling down?” query into a pet peeve of millions. And once you do get married, the burden of having to settle down may seem to set in. Instead of finding your roots in the right place, there’s often the pressure of well, settling for what you can get.
This can be seen right after one gets married—looking for a sub-prime apartment to buy on affordable EMI, looking for the second or third best appliances to buy, looking for expensive looking furniture in bargain stores and finally, settling for a “practical” car because of course, anything that you cannot buy is considered impractical. The mentality usually stems from a fear of not owning assets, at least not in the traditional way. And this mentality often frowns upon renting because “Why rent when you can own it?” or “But it’s not mine if I rent”.
The mentality usually stems from a fear of not owning assets, at least not in the traditional way. And this mentality often frowns upon renting because “Why rent when you can own it?” or “But it’s not mine if I rent”.
Somewhere within this mess of settling and not owning lie questions that every newly married couple should ask themselves before finalizing on renting vs buying. These 5 questions should help you make up your mind about buying or renting, for good.
1. Where do you see yourself in five years?
You don’t need to have one single answer for this. You could be planning a child, starting your own company, or looking for a job overseas, or even going back to college to pursue a doctorate degree. In any of the cases, you realize that the future is uncertain and full of opportunities that you may want to explore. If you don’t have a fixed vision of five years down the line, you probably wouldn’t want to buy. Tying yourself down with EMIs and non-liquid assets, especially at an age when you could any day have to bear the burden of raising a child or funding a relocation, hardly seems like settled-down. This applies to not only buying a home but also white goods and consumer durables, the latter being some of the fastest depreciating assets in the market.
2. Can you afford the upfront and sustained expenses?
When you buy anything, be it real estate or consumer goods, apart from investing huge capital upfront, the weight of maintenance falls upon you. Consider the typical costs of maintaining a home, a car, furniture, and the basic appliances for a 2bhk over the course of 10 years. The cost isn’t just exorbitant, it also adds no value to the products (except real estate), which continue to depreciate in value with each passing day.
On the flip side, if you both can afford the upfront and the sustained cost of buying, and hold the whole “At least it’ll be mine” concept dear to your heart, you may find buying a more assuring option, especially if you have your 10 year plan laid out in front of you and owning something for good fits right into that plan.
3. Is your credit score good?
From home loans to personal loans, your credit score plays a huge role in the interest you pay on your EMI. And yes, 0-interest monthly installment is a myth (you might want to read the fine print on that one). If your credit score is good and you can positively predict it to hold up for a couple of decades, taking a home loan may actually benefit you with tax cuts and rebates. However, if you default on the loan, it may harm your credit score, and your ability to fund future opportunities, if needed. Also, credit cards, while loaded with third party and vendor benefits, don’t offer any exemptions from tax laws but can still be defaulted upon, levy a high rate of interest, and can ultimately bring down your credit rating. Taking the impact that a loan (or an equivalent financial service like credit card EMI) will have on your credit score into account can help understand the holistic picture for you and your spouse.
Renting may get a huge thumbs up here too, as it doesn’t affect your credit score (for now) and does not harm your long-term ability to own any assets.
4. What is your exit strategy?
Most millennials are familiar with the term exit strategy. You can call it a blessing from the hook-up culture era, or a faint reminder of the startup boom—exit strategies are supposed to be the way that you can get “out” of a commitment with the least possible amount of loss, and if applicable, maximum profit.
For renting the exit strategy is fairly simple: companies like RentoMojo provide a convenient Rent, Relocate, Swap, Return or Own policy on their furniture, appliances and bike rentals, making it simple to stay in or out of the asset commitment at any point. Same goes for renting an apartment, where once you give a notice period to your landlord, you’re free to look for your next abode. You don’t profit, but there’s no loss either.
With buying, the buy-out is much tougher (and much more expensive). For real estate, it could be months, or years before you find the right buyer or the right valuation for your property. After negotiation and taxes, your profits will be dependent entirely on the market conditions at the time (which is said to be improving for home buyers in 2018). For consumer goods like furniture, appliances, and vehicles, the situation is probably worse as you’d have to sell the goods on a highly depreciated value and might incur additional logistics cost, adding to your overall losses.
Your exit strategy will also be critical to you if you have to relocate due to your spouse’s career, which makes it essential to ask this question as a couple.
5. What is your lifestyle?
We’ve saved the most important question for the last. Look around you and you’ll find the rise of subscription, sharing and access economies. From Netflix to AirBnB to RentoMojo, our lives are increasingly being molded into the convenience of having access rather than having assets. This is further exemplified by subscription boxes for everything from fashion to men’s razor blades going on to form billion dollar enterprises. Chances are if you’re reading this, you and your spouse are already a part of this growing trend. Your lifestyles, defined by the ease of getting cabs, entertainment, and groceries with the tap of a button, is not bound by your purchasing power. Access is no more a “premium” service reserved only for those with platinum and diamond credit cards.
With this lifestyle, you and your spouse may always be looking out for the best opportunity – for yourselves, your career and your family. You also have to consider your natures – Are you both on-hands when it comes to asset maintenance? Will you be comfortable with the idea of debt and credit that go on for decades? Do your long-term plans involve investment in areas other than real-estate or consumer durables and white goods?
What you’re willing to do for the services and lifestyle you access can be the definitive factor to help you choose between buying and renting. Unless you’re born with a silver spoon, buying may not always grant you access to what you want. And sometimes, even if you do have the funds, buying (like in case of furniture and electronic appliances) may not be the wisest investment for your family’s future.
Live the best life, now!