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How much rent can you really afford?

By Trulia | Published: Oct 14, 2009 | 11 Comments

Before you choose your dream rental, you'll need to calculate how much rent you can afford to pay. Of course, there may be a difference between how much you feel you can pay, what a landlord thinks you can pay, and how expensive a given area's rental market is.

To avoid signing up for a lease you can't afford or losing out on properties that interest you because the landlord wants to see more income, you'll need to familiarize yourself with three prices: What you personally feel you can pay for rental housing; what local landlords think renters can pay (typically, landlords like to see rent not exceed a particular proportion of your gross income and use that proportion to screen applicants); and what average apartments and rental homes cost in your particular area. Depending on where you are in life and where you live, the proportion of your income that you pay for rent can vary. Also, depending on where you live—an expensive market such as New York or San Francisco or a more modest market in a smaller community—the locally-acceptable percentage of income devoted to rent can vary.

What do you feel you can pay?

To develop a sense of how much rent you are comfortable paying, you'll need to take a look at your income, debt, general living expenses (like groceries and dry cleaning), and social spending. To develop realistic personal expectations, play with budget calculators and get a sense of how much money you're spending on necessary expenses (debt, groceries, medical care) versus discretionary interests (travel, dining out, hobbies). Because each person's debt levels and goals differ, only you can determine what you are personally comfortable spending. Try these budget tools to monitor your spending: http://www.ed.gov/offices/OSFAP/DirectLoan/BudgetCalc/budget.html and http://www.mint.com/features/budget/.

For the record, The US Department of Housing and Urban Development and many state housing authorities recommend that you spend no more than 30% of your gross (pre-tax) household income on housing and utilities. This means if you earn $50,000 per year, you should spend no more than $15,000 per year—or $1250 per month—on rent and utilities. The Mint, a budgeting and personal finance web site, recommends you spend no more than 33% of your gross (pre-tax) income on housing, meaning that on $50,000 you should spend no more than $16,667 per year—or $1388 per month—on rent and utilities.

Ginnie Mae, the federal housing lender, offers a quick and easy calculator that generates a ballpark amount you can afford for monthly housing costs. This calculator was developed for home buyers, whose housing budgets may differ somewhat due to the different mix of expenses and tax offsets associated with owning, but it still offers a conservative idea for renters of what constitutes affordable housing spending.

What's the market norm where you live?

Then there's the question of what average rents are in your market and how much rental inventory is available in your price range. In many more expensive markets, such as New York or San Francisco, high rents mean that residents may routinely pay more than 30% of their gross incomes for rental housing. In dense urban areas higher rents are a fact of life—unless you want to move outside the urban core. But even in these pricey urban areas, landlords like to see that tenants are keeping housing expenses in the 30% ballpark. In New York, for instance, many landlords like to see tenants earning 40 to 50 times the monthly rent—meaning you (along with any roommates) would need to earn a total of $60,000 to $75,000 annually for an apartment with a $1,500 monthly rent, according to Tungsten Property.

What do landlords expect renters to pay?

When you begin looking at apartments, it never hurts to ask a broker (if one is helping you look), a landlord, or a management company what rent-to-income ratio is necessary for a lease and when, and if, a particular landlord or building is willing to occasionally break the rules. If you're just starting out in your career and have a relatively low income, or are self-employed with sporadic income, you may need to persuade a landlord that you can afford their property. If low-paid, you may need to get a roommate so that, together, your incomes satisfy landlords' requirements. (One plus: If a roommate moves out and your rent rises, you can often modify your lease to keep the place for yourself—provided you've demonstrated a history of on-time rental payments and talk to the landlord.) If self-employed, a healthy savings account and showing gross income on taxes should cool any fears about your credentials.

Many landlords will also accept your signing a lease with a co-signor or guarantor who won't be living with you but is willing to take up the slack if you are unable to afford the rent. But keep in mind that some landlords require local guarantors, meaning that if you move to New York from, say, the Midwest, Mom and Dad may not be able to serve as guarantors even if they are willing. In some urban areas, commercial guarantor services such as Insurent will, for a one-time fee, serve as your locally-based guarantor.

Comments

By Fran Rokicki,  Sat Oct 23 2010, 15:00
In my sales area of Connecticut, near Hartford, the rentals don't usually include utilities. Renters insurance should also, be considered. Thus, insuring your belongings withing the apartment. The owner insures the structure. The security deposit is up to two months, of the rental amount.
By David Dorfman,  Thu Jul 7 2011, 10:44
What you can afford should include as many "truths" about yourself and your lifestyle - especially if this is your first rental or an upgrade.

Things like - decorating, buying your own food (if you;re out on your own for the first time), utility bills, laundry bills (if your mom did it all), commuting costs.

Do you have a pet or plan on getting one? Vet bills, pet food, pet sitting services.

Are you now a parent? Babysitting and all those extra costs of having a child(ren).

General living expenses.

And lastly - save your life (and that of others as well) - quit smoking.

More advice from the publisher of RentLaw.com The National Landlord Tenant Guide.
http://www.rentlaw.com
By W. Scott Mason,  Thu Jul 28 2011, 16:03
I manage rentals in my area of Florida and as a general rule I require that my tenants show 3 times the rent in gross income or 6 months of rent reserves in savings and an income to qualify.I have found that this helps swing the odds in my favor that the tenants will be able to pay rent on time. I have made exceptions if they have a good credit score or if there are other mitigating factors.
By Donkey,  Mon Jun 25 2012, 17:07
Hey W. Scott Mason....your gay
By Vic23,  Sun Mar 10 2013, 22:23
"you're"
By handokim,  Wed Mar 13 2013, 12:35
scott is correct... but it should be rent PLUS utilities not just rent that is 3x
By margaretaames,  Fri Jun 14 2013, 09:51
Also, don't have children to care for, regular medical issues to deal with (for your family or yourself), never use your air conditioner in the summer, don't expect to go out to eat at all those lovely restaurants - even going for drinks (1, maybe 2) is too much. Don't expect to be able to pay for dry cleaning - buy clothing you can wash at the laundromat or by hand. Don't have pets/vet bills. Forget Sex in the City shoes, shopping at Bloomie's, buying furnishings anywhere but Salvation Army, IKEA or on Craigslist - hope you like Target.. Also, areas like Washington Heights, Inwood, Hamilton Heights are now much more expensive than they were a year or more ago. Have been priced out of those areas, as well as Astoria and much of Queens. Now in Staten Island and am still sharing an apartment (at least it's a 2BR). Hope your credit score is 650 or more and you are prepared to pay a broker 10-15% (10% Bronx, 15% Manhattan or Brooklyn) of your first year's rent. Cheers!
By john,  Wed Jul 17 2013, 06:46
"Rules" must take in location. Else you could make 80K a year and can't afford a studio in the South Bronx.
By Voices Member,  Thu Sep 26 2013, 09:39
Thanks so much for sharing. I'm looking for apartments for rent. I'm getting married and we need a simple but nice place. We will be on a very tight budget for a very long time. http://www.hrpm.ca
By ponderjoe,  Wed Mar 12 2014, 08:01
Obviously, the higher income a tenant has, the greater percentage can be spent on housing since other life's other costs don't necessarily increase (food, utilities, transportation, insurance, clothing, etc.)
By rod visto,  Sun Sep 21 2014, 21:11
i need a place to squat

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