Rent in a Metro, Invest in a Tier-2 City: A Smart Financial Strategy
For those planning to settle long-term or retire, investing in a Tier-2 city while renting in a metro can offer significant financial benefits and stability.
Real EstateTier2 CitiesProperty InvestmentRental IncomeProperty AppreciationReal EstateSep 27, 2025
Rising home prices are a major concern for over 81% of property seekers across India, according to an ANAROCK survey. This is unsurprising, given that ANAROCK Research finds that average residential prices in the top seven cities have risen by more than 50% over the last two years, from ₹6,001 per sq. ft. in Q2 2023 to ₹8,990 per sq. ft. by Q2 2025. For many in cities like Bengaluru, Mumbai, and Gurugram, owning a home has become unaffordable. In this context, some buyers choose to rent in their workplace city while investing in more affordable Tier-2 cities. For long-term or retirement-focused buyers, Tier-2 cities can also offer higher yields relative to risk, as even modest price increases translate into significant percentage gains from a lower base.
The appeal of Tier-2 cities is growing. Prices are still affordable compared to metros, which gives buyers more space and better entry points. “In fact, cities like Indore and Surat have seen strong appreciation in the past few years, driven by rising industry bases and improved infrastructure,” says Sanjay Daga, CEO and Managing Director of Anex Advisory, a real estate consultant. Another advantage is connectivity. Lucknow and Coimbatore, for instance, are benefitting from new airports and expressways, making them far more liveable and better connected.
For long-term or retirement-focused buyers, Tier-2 cities can deliver higher yields relative to the risk, since even modest price increases translate into strong percentage gains from a lower base. The attractiveness comes with value for what you’re paying for—more open spaces and lower ticket sizes, says Daga.
Cost plays an important role. “The portion of income to be allocated to EMI or rent depends on one’s personal and financial goals. Therefore, all expenses should be considered before deciding how much income to spend on buying or renting a home. Staying within this decided range can help keep room for savings, investments, and other essential expenses,” says Deepak Khandelwal, Principal Partner and Chief Sales Officer, Square Yards, a real estate platform. In this case, you have to pay rent plus the EMI, even though it may be lower than the EMI you would have paid for a house in the metro city. You need to be sure that you will be able to comfortably pay both these costs every month.
Buying in a cheaper city makes sense only if it fits long-term lifestyle and family plans. If the city has good healthcare facilities and family ties, then it might make for a retirement destination. The strategy works best when you have clarity on where you want to retire. If you are certain to move to a smaller city, ownership there makes sense.
Once you own a house, you can earn rental income from it. In smaller cities, yields typically range from 2–3% annually. While this may not be substantial, it still contributes to your overall income. When calculating potential returns, it’s advisable to use a conservative estimate for rent.
Keep property appreciation in mind. While not as high as a metro, even smaller cities may witness property appreciation if the area is located near a highway or a new metro project. However, there is a word of caution. “While some Tier-2 cities are rising fast, the growth is uneven. Not all smaller cities have the same governance, infrastructure, or demand drivers. That means investors face higher variability in outcomes compared to the relative stability of metros,” says Daga.
This can be a viable strategy, and it is highly personal. Weigh all the factors, including affordability of EMI and rent, long-term plans, rental yield, and property appreciation. If you are confident, the ‘rent in metro, buy in Tier-2’ approach can be considered sensible.
Frequently Asked Questions
What is the main benefit of renting in a metro while buying in a Tier-2 city?
The main benefit is the combination of flexibility and liquidity from renting in a metro, while building long-term stability and potentially higher returns from owning property in a more affordable Tier-2 city.
Which Tier-2 cities are seeing the most growth in property prices?
Cities like Indore, Surat, Lucknow, and Coimbatore are seeing strong appreciation in property prices, driven by rising industry bases and improved infrastructure.
What factors should be considered before investing in a Tier-2 city?
Factors to consider include the cost of EMI and rent, long-term lifestyle and family plans, potential rental income, and property appreciation. It's also important to assess the city’s governance, infrastructure, and demand drivers.
How can rental income from a Tier-2 city property benefit an investor?
Rental income from a Tier-2 city property can provide a steady stream of income, even if it is not substantial. It can contribute to overall financial stability and help cover other expenses.
What is the risk associated with investing in a Tier-2 city?
The risk is primarily due to the uneven growth in different Tier-2 cities. Not all cities have the same governance, infrastructure, or demand drivers, leading to higher variability in outcomes compared to the relative stability of metros.
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