To Rent or To Buy a property for your studio? A financial take.

Several factors, including your financial stability, long-term ambitions, and personal preferences, will determine whether you should buy or rent a property to run a sound recording studio.

This article will outline the advantages and disadvantages of buying versus renting. In the same way that your VU metres show, the statistics speak for themselves. Moreover, there is no “Undo” function for real estate investments.

Here is an illustration, using figures from market sources, for December 2022:
Location of commercial property: Off Link Road, Andheri West, Mumbai.
800 square feet of super-built-up bare shell studio (or office) at Rs. 20,000 per square foot would cost around Rs. 1.6 Crore.

At the end of 10 years, what is the scenario?

Let me give you an actual instance:
In 2010, it costed Rs. 52 Lacs to buy a 500-square-foot super-built-up commercial office in Malad West, Mumbai.

In December 2022, the same property was available for Rs. 1.20 crores. It might be argued that the price doubled in ten years. Superb, isn’t it? When we calculate, this is just 7%! You obtain the same through a simple fixed deposit with your bank, without any real estate-related hassles!

Property investment does not look to provide a respectable appreciation over time given the state of the Indian real estate market, and due to the government’s efforts to control prices nationwide in order to make them affordable to all. We can only hope for an annual growth of 5% to 7.5% in real estate for now. The table above also shows the ROI for these growth rates.

Your peace of mind is the most crucial element in this type of financial planning which is a “must-have” criterion for the smooth operation of a creative mind.

With Option 1 (BUY), you are rigidly bound by a sizable EMI payment. You might choose to have some flexibility from month to month depending on your cash flow, given the irregular, or delayed, payments in the music/audio industry.

Option 2 (RENT) offers a great deal of flexibility, because you can alter your monthly investments by your financial flow. And you have full control over the amount.

God forbid, if you require money for an emergency, selling the property would be a mammoth process in itself which would include finding a reliable buyer, negotiating a fair price, receiving payment on schedule, etc. In contrast, you can withdraw any tiny (or large) portions of your investment in financial instruments, as and when you need them!

Advantages of renting and making investments continuously:

• You utilised the location as you wished for ten years.
• If necessary, you have the option to select a larger and better location.
• You are not bound to an outdated commercial building/property/house that might or might not be marketable.
• What is the finest aspect of renting a space? Instead of making an EMI payment, Rs. 1.30 Lacs invested each month grows to Rs. 3.6 Crore in 10 years at a return of 15%. Note: This amount becomes Rs. 3 Cr at 12% returns, and Rs. 4.4 Cr at 18% returns!
• For the profit amount over & above Rs. 1 Lac, a Long Term Capital Gains (LTCG) tax rate of 10% was implemented starting in 2018. So, in this example at a return of 12%, the tax owed upon complete redemption of the investment would be Rs 20 Lacs.
• The net sum in hand equals Rs. 3.40 Crore  after tax. Use this money in any way you like – for a vacation, as a second source of income, to keep paying rent on the same studio, or to open a new studio or engage in whatever you like. It is, after all, your money.

Reinvesting this Rs. 3.40 Crore generated in 10 years, in lieu of renting instead of buying…
> Will then generate an annual income of Rs. 50 Lacs at a return of 15%.
> Let’s say that, after ten years, the rent doubles to reach Rs. 1.50 Lac per month, or Rs. 18 Lacs annually.
> 50 minus 18 equals a balance of Rs. 32 Lacs saved over a year = Rs. 2.7 Lac per month saved, even after paying the rent. And this will continue forever!

The earnings have no expiration date. You will never outlive your money.

Sounds too good to be true?? Indeed, it is! This is the power of compounding when employed in conjunction with organised investing and “good” counsel. Has this occurred? Yeah, it has, and across several periods. To confirm this, utilise any publicly available data for any period. This is not a one-time deal.

In real estate matters, it is vital to undertake research and thoroughly study such numbers to verify that your investment is a smart financial decision. Be sure to carefully consider your options before choosing to make the best decision possible, given your unique set of circumstances.