Is Renting a Property Cost-Effective? Let’s Estimate the “Actual” Expenses Involved With It

If you are an Indian, it goes without saying that you will invest in a residential property at least once in your lifetime. For every individual, owning a home is like a dream, simply because that is how most of us have been socially and mentally conditioned. Traditionally, owning a property always seemed like an ideal move as compared with renting out one, but in the current context, the latter seems better; even in the opinion of finance experts. If you look at the top real estate markets, they have all recorded a 7 percent year-on-year rise in per sq. ft prices in the quarter ended March.

Bengaluru topped the list at 7 percent on-year, followed by Pune and Mumbai at 5 percent and 4 percent, respectively. The least price hike was reported in Hyderabad and Chennai at 1 percent. On the other hand, rental charges are much under control across the leading localities and micro-markets of the country. The tardy increase in rental values indicates that rather than tying down a considerable amount to purchase a house, you can rent one at just a fraction of this amount. Living on rent is especially a great idea for those looking for a short-term investment plan, as you lock up a much smaller part of your finances. However, there might be a lot of other expenses you cannot afford to overlook as a tenant. Before you start hunting for rental properties, go through the numbers to estimate the “actual” cost of your rent plus bills.

The “Real” Cost of Renting Unveiled

1. Security Deposit

Whether a residential or a commercial property, landlords typically charge a security deposit when giving property on rent to a tenant. The deposit amount varies as per the luxury a house offers, its locality, maintenance costs, and additional amenities facilitated. Say, for instance, a house is spread over 3,000 sq. ft of area, with approximate rent of Rs. 50,000 and monthly maintenance rounding up to Rs. 20000. A smaller house in the same vicinity with limited amenities might not command as much deposit as the larger one. Thus, by this logic, deposits are never standardized but are usually 2 to 3 times more than your rent. The security deposit is like insurance for the property owner in a scenario where you break terms in the lease or cause damage to the property. So, even though the deposit is refunded after you have vacated the property, it's important to save up so you can be financially comfortable. On a brighter note, having your funds locked up in the form of a deposit is a good short-term investment plan, the value of which can be leveraged later.

2. Moving Expenses

Once you have narrowed down on the rental property, the next step is the move, which is an unavoidable cost for you. Depending on how much you want to move and your access to a vehicle for it; let it be a car, truck, or van, will determine moving expense. Hiring professional movers and packers to shift your belongings in the relocation process can take the stress off you, but at the cost of a service fee, which relies on the location, the number of goods, and preferred mode of transport. You can save up on this bit by moving on your own, but it may demand more time, effort, and resources on your end. So, have a mover and packer help you to relocate hassle-free. They are likely to prove to be a good investment option, as they use the right methods and materials and ensure your assets are protected.

3. Utility Expenses

When looking for a rental, identify if the utilities are accounted for in the rent. This will involve gas, electricity, and water bills. Some landlords cover water and have tenants manage the gas and electricity expenses. Thoroughly check what expenses are included in rent and which are not in order to budget your utilities. The property owner should be able to help you with an average monthly cost.

4. Furniture

If you are moving into a rental space for the first time and own minimal to no furniture, then you may need to invest in furniture and appliances you would need for regular use. When choosing rental properties, you can always opt for fully-furnished flats to be able to temporarily save on this added expense. However, if your long-term goal is to shift to rental apartments and not purchase one in the near future, it’s wise to buy basic furniture items that will come in handy for years together. If you are seeking an alternative money-saving, short-term investment option, consider second-hand or renting out furniture items that fulfill your needs.

5. Travel Costs

Though subjective, this is one of the most critical aspects that influences the expense you incur above and beyond your rent. If your rental property is close to your college, workplace, school, or any other place you routinely visit, you might save up considerably. But if the rental place is located on the outskirts and requires you to commute for hours at a stretch every day, you need to take into consideration the cost of transit and fuel, as well as the time spent commuting, since it will add to your cost of living.

6. Repairs

Typically, your landlord will cover the cost of repairs, say for example a leaking shower, a broken window frame, or cracked tile flooring. However, if you break something in the property during your lease, you may be held responsible for the damages. While this may not be a major cost for you to anticipate, however, it’s important to be prepared for such unexpected expenses.

The Bottom Line: Draw Up a Realistic Rental Property Budget

The onset of the COVID-19 pandemic changed trends in almost all the sectors, but more so in the real estate industry. The biggest shift has been in renting a property over owning it, as a large population; mostly youngsters, are shuffling between their hometowns and workplace locations – thanks to hybrid work models. Moreover, living on rent allows the flexibility of location, particularly for those who have a transferable job or are hesitant to make a long-term investment in real estate. In such a scenario, renting out proves to be the best short-term investment plan.