How much rent can you afford on a Rs. 50,000/- salary?

Arranging for a place to stay is the hardest thing about embarking on a career. Safe in the comfort of homes or hostels, most of us never have to worry about a roof over our heads until we enter into a job, often in a strange city. Even otherwise, once an individual starts a family, the need to live apart in his or her own home does crop up.

We have covered elsewhere the importance of the decision to rent or buy. A number of factors influence this, and which of the two is right for you depends on circumstances specific to you. However, for most of us, in a market where real estate continues to be overpriced, renting remains the most sensible option.

That said, how much can you really afford to pay as rent?

Regardless of your salary, the amount you need to pay as rent depends first and foremost on which city you are living in. In India, rentals are higher in Mumbai than anywhere else, whereas even in otherwise metro cities like Bangalore and Chennai, they are much less. So the value of the salary you earn depends entirely on where you are going to live.

Once you have this figured out, the second aspect to look at is the percentage of your salary you should be looking to pay as rent. The thumb rule for this is that upto 30% of your post-tax salary can be used to pay rent. For our hypothetical salary of Rs. 50,000/- (we will assume this is after tax, but if not, the take-home will be in the region of Rs. 45,000/- and the numbers can be changed accordingly), this means about Rs. 15,000/-

Now what sort of place you can get in Rs. 15,000 depends on how you choose to stay. If you are single, it is worth exploring the option of sharing with one or two more people. This will allow you to combine resources to find a much better place to stay, and closer to work as well. In Mumbai, for instance, a rental of Rs. 45,000 (3 people contributing Rs 15,000/- each) can rent a nice two-bedroom flat in Juhu or Vile-Parle, which is close enough to the city center for both work and entertainment as well as a nice, safe locality. A similar amount in Delhi or Bangalore should enable a much larger flat or house in the best areas of the city.

However, if you wish to live alone or have a family, be prepared to stay in a distant suburb where commuting will be harder. In fact, in order to optimise the money you spend with the comfort of living well, it would make more sense to allow yourself a bit of a range when it comes to deciding how much to spend on rent. For Mumbai it might make sense to go upto 40% of your post-tax salary for renting on a non-sharing basis. Similarly, if you are working in a Tier II city or lower, even eight to ten thousand could get you a very respectable place to stay.

Finally, to check whether you are getting a fair quote from the prospective landlord, there is another criteria you can use. Find out the actual Capital value of the apartment you are looking to rent, ie. the sale value. Any real estate broker or even a realty website should give an idea of the per-square-foot rate for buying new property in the area. Once you have an idea of that, check whether the annual rental is more than 5% of the capital value. Ideally, it should be no more than 3.5% in a place like Mumbai, and not more than 5% in the rest of the country in the present scenario. If the rent demanded is more than that, it is best to try and negotiate further.

So there you have it, then. Happy house-hunting!

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