By Sarika Shetty
As more people migrate to metro cities across India seeking better jobs and an enhanced quality of life, the demand for rental housing is on the rise. As per a Techsci Research report, India’s residential rental market is anticipated to reach $26.78 billion by 2030, growing at a CAGR of 4.56 per cent. Given that property prices and home loan interest rates are already going up, many urban professionals are choosing renting over homeownership.
Renting offers freedom and mobility. However, it lacks the economic security that comes with owning a home. Rent forms 30-40 per cent of a person’s income. In that context, a lot of tenants face challenges such as lack of savings and limited asset-building avenues. Without a proper financial plan, long-term renting naturally leads to financial instability for most. Therefore, managing one’s money is extremely crucial. Here are five tips to help renters build wealth and make renting a sustainable choice.
Assess Financial Status Carefully
Before taking a house on rent, one should assess their current financial situation. This includes analysing income, regular expenses, savings, and outstanding debts. That will help them decide how much rent they will be able to afford and find a house accordingly.
Budgeting apps or even a spreadsheet can offer a clear view of where the money is being spent every month. For example, if one tends to use a high proportion of the income on non-essential subscriptions, it is imperative to redirect some of that towards investments. A rule of thumb is to keep housing costs plus utilities within 30–35 per cent of the monthly income.
Set Clear Financial Objectives
Once clarity is attained on the financial standing, it is crucial to outline the long-term goals. Renting could be a preferred choice, but it should be supported by planning. One needs to have answers to questions like: Am I likely to move frequently for work, and how will that affect my savings? What standard of living do I want to maintain while renting?
Based on these, one must build financial goals that are Specific, Measurable, Achievable, Relevant, and Time-bound (SMART). These will enable quicker decision-making, and ensure that renting remains sustainable.
Create and Maintain an Emergency Fund
Though renting involves lower upfront costs than buying a house, it does have its own set of issues like rent inflations or unexpected relocation needs. One’s financial stability can be easily hampered by these. An emergency fund can be a safety net during such instances. Financial advisors generally recommend allocating 3-6 months’ worth of essential living expenses in a different account. This must cover utilities, rent, groceries, healthcare, and any debt obligations.
One can even set up recurring transfers from the main account to the emergency fund. Over time, this reserve will be helpful in managing crises.
Make the Most of the Rent Credit Score
So far, rent payments were never counted in one’s credit history. This meant that even if rent was paid timely, it did not actively contribute to building financial credibility. But things are changing now.
Fintech is allowing tenants to build a Rent Credit Score. This can be an effective tool for those choosing to rent long-term. A strong rent credit profile can open pathways for financial benefits such as loans for home ownership. Moreover, it builds trust with landlords and can be useful for rental applications or lease negotiations.
Prepare for Rent Increases and Inflation
One of the less calculable aspects of long-term renting is the likelihood of frequent rent hikes. In places like Mumbai, Delhi, and Hyderabad, annual rent escalations of 5 per cent or 10 per cent are quite common.
To avoid being caught off guard, taking rent inflation into consideration while budgeting can be helpful. Each year, one should save a minor percentage of the income for a potential rise in rent. This proactive move can make sure that living costs remain manageable without needing to adjust one’s lifestyle in a significant way.
In a nutshell, renting a house can offer freedom and mobility in the longer term, but it must involve planning and financial discipline. By charting clear objectives, maintaining an emergency fund, and utilising rent payments to build credit history, one can enjoy the benefits of renting and secure their future.
(The author is CEO and Co-founder of RentenPe)
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