How to maximise your rental savings while living on lease?
Renting a house is a convenient choice for many home seekers, especially those who work in another city or travel frequently. Living in a rented home offers benefits and flexibility but it also increases one’s overall expenses. In metro cities such as Bangalore, Delhi-NCR, and Mumbai, particularly, rental expenses can be quite high. Owing to high demand and employment opportunities, rent tends to steadily increase. This trend is seen in prime locations, especially close to job and education hubs. Rent payments are a recurring expense for a tenant and account for a major portion of their monthly spending, around 30-40%. This limits the chances of savings or long-term financial planning. At the same time, inflation is further limiting people’s financial saving opportunities. However, with smarter planning and the right rental decisions, a person can significantly lower their expenses and save while living on rent. In this guide, we bring some useful tips tenants can follow to reduce their rental expenses burden.
Evaluating rental costs and how it helps
When looking for a rented home, tenants typically see their monthly rent and maintenance charges. However, this may not give a clear indication of the actual cost of living. Tenants must evaluate their overall costs to understand how they can make significant savings.
In addition to monthly rent and maintenance charges, a tenant incurs a significant expense by paying a security deposit to the landlord at the time of signing the rental agreement. Typically, security deposits amount to a maximum of two months’ rent, but can be higher in some cities, such as Bangalore. Moreover, if the property was obtained through a real estate agent, a brokerage fee must be paid. Most tenants overlook the other related expenses of renting a house. Additional costs, such as utility bills (gas, electricity, water, etc.), internet charges, and parking fees, can add up to a lot of money. These aspects of renting a home should be considered when assessing overall rental costs.
Negotiating rental terms
Rental terms are negotiable, but many tenants do not know how to negotiate smartly to reduce their rental expenses. Most landlords are flexible, which is an advantage for tenants. Tenants should be equipped with prior information to negotiate the rent effectively. For this, it is crucial to understand the prevailing rental rates in the locality where they plan to rent a house. Moreover, this will enable the tenant to negotiate the rent increase clause and security deposit amount. Tenants can also discuss the lock-in period and notice duration to ensure they are not financially impacted. Some landlords may agree to waive maintenance costs or society charges.
Making smarter rental decisions can help tenants save their finances in the long run. For example, they can choose a house with a slightly higher rent but lower deposit and maintenance charges. Signing a long-term rental agreement can be beneficial for a tenant, which is yet another practical way to save on rental expenses.
Being aware of the timing is important when negotiating rental terms. That is, certain periods, such as the non-peak season or before agreement renewal, are favourable times for tenants to negotiate. Moreover, the terms should be clearly stated in the rental agreement to prevent potential disputes.
Choosing rented property wisely
Rental costs are directly influenced by property type and location. Rent in core city areas, premium localities, and Central Business Districts is higher than in other localities and developing neighbourhoods within the city and in the outskirts. Renting a house in these affordable areas can help tenants save on their costs. Similarly, rental rates vary by property type. Older but well-maintained properties can cost less for a home seeker compared to a property in a newly launched project. Moreover, properties can be unfurnished or semi-furnished and rent varies accordingly. Home seekers who are single can also consider co-living spaces, which can be an effective way to reduce their monthly spending.
Availing tax benefits
Salaried individuals can save taxes through House Rent Allowance (HRA) benefits. For this, one should be aware of the eligibility criteria. Besides, supporting documentation such as rent receipts and the landlord’s PAN (if the annual rent exceeds 1 lakh) is necessary to claim these tax benefits. The HRA benefits will differ for a metro city and a non-metro city. Employees in Delhi, Mumbai, Chennai, and Kolkata are eligible for an HRA benefit of up to 50% of their salary, while those in other cities are eligible for up to 40%.
Deciding between renewal and relocation
Understanding whether renewing the rental agreement makes more sense or relocating to a new rental home will be a safer option is crucial for a tenant. Landlords usually increase rent at the time of renewal, and this can significantly impact the tenant’s annual rental costs. Tenants can compare the new rent with rental rates in the same area or consider moving to a more affordable area. If a similar property is available for a lower rent, then relocating would be a smarter solution. Although tenants may incur one-time moving expenses, such as packing and brokerage, their monthly rental costs will decrease. Moreover, a tenant who decides to move is in a better position to negotiate rent escalation and retain the same property.
