Renting a Property — How Much Rental Can You Afford?
Don’t aim for Park Place if your budget is more Atlantic Avenue.
Renting a property may be a shorter-term commitment than taking out a mortgage and purchasing a home, but you should still make sure how much rent you can afford before shopping for a place to live.
Most landlords are going to analyze your income and debts as part of their screening process, so to avoid throwing away application fees you should do some homework ahead of time.
Month-to-Month
Start by taking your normal monthly take-home pay and then subtract 20%. That’s what might happen if, for example, you were very sick and couldn’t work for several days. From that income subtract all of your other regular monthly bills, including gas, food, water, and clothing. Whatever remains is your conservative Budget for Housing.
Now, you need to know what to compare that to. Obviously, you’ve got your monthly rent to think about. You also need to take into account what utilities will cost in your new home. If the move will affect your other bills — for example, if you’re moving farther from work and the amount you’ll spend on auto-gas is going to increase — you should take that into account also.
Once you’ve got a firm grip on what the new bills will look like, you can subtract them from your Budget for Housing to determine your Maximum Rent you can afford.
Example:
Your take home after taxes and 401(k) deduction is $2800 per month. To be sure take-home-pay (THP) amount you use is accurate we suggest dividing your year-to-date (YTD) THP on your latest paycheck by the number of months it covers.
YTD take-home-pay = $21,085.14
Paid through date: 08/16
$21,085.14 / 7.5 months = $2,811.35 monthly THP
$2811 – Monthly Income
From that you subtract…
- $400 – Car payment
- $100 – Student loan payment
- $50 – Minimum credit card payment
- $150 – Car gas
- $75 – Car insurance
- $150 – Food
- $100 – Clothing/toiletries, haircuts, etc.
- $250 – Entertainment
- $75 – Cable TV/Internet
- $75 – Cell phone
- $100 – Miscellaneous
Giving you a…
- $1286 – Budget for Housing
From that you subtract…
- $225 – Estimated utilities
Leaving you with…
- $1061 – Maximum Rent
But That’s Not All
Of course, knowing that you can make the monthly rate isn’t the only consideration when deciding to move – you also have to take into account the funds you’ll need:
- The Application Fee(s)
- The Deposit to Hold Fee
- This reserves the property for you until your rental application is approved and you move in when you’re ready.
- First Month’s Rent & Security Deposit
- Actual Moving Expenses
- Renting a moving van, utility turn on fees, etc.
Be sure to look at your checking & savings account balances to be sure you’ll have enough funds to move and not go broke.
All this shouldn’t take more than an hour or two to review. Once you’ve done so, you’ll be better prepared to find your next place to live!
Note: if you’d really like to make sure you’ll get approved for your next home, go to the Available Properties page of our website and sign up for our Tenant Retainer & Pre-Approval Package. We’ll do all the work for you to determine what you can afford, so you can shop with confidence.