3 Ways to Figure Out How Much Rent You Can Really Afford

·5 min read

Rent prices are soaring across the country—according to Apartment List's September National Rent Report, average rent growth doubled in each of the country's 100 largest cities in August. The report found that only eight large cities (San Francisco, Oakland, San Jose, Fremont, Minneapolis, Washington DC, Seattle, Jersey City) have rents that are still below their pre-pandemic levels—meaning it's safe to say pandemic pricing for rent has ended in much of the U.S. As people slowly return to "normal," apartment vacancies are at an all-time low, and 2021 has had the fastest rent growth Apartment List has recorded in its data.

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If you're looking to move and renting a place, the process can be daunting—especially in an ultra-competitive and expensive market like right now. And if it's your first time renting, there are many costs to consider. Setting a budget before you start looking for a home—and having a full picture of expected costs—can make the move a lot less stressful, and ensure that you end up somewhere that is financially sustainable. Here are expert tips for calculating how much rent you can truly afford.

Determine your debt- and rent-to-income ratios.

A general rule that many landlords advise (and look for in a potential tenant) is to have your rent be between 25% to 30% of your income—and no more than that. "Thirty percent should help you find housing that is comfortable and affordable while giving you enough left over for paying your debts, contributing to savings, and having disposable income for fun," says Monick Halm, real estate investor, developer, and founder of training program Real Estate Investor Goddesses.

While that is still a good place to start, it might not apply to everyone's financial situation, especially if they have additional monthly expenses such as debt or child care costs. Halm, who is a landlord in Los Angeles (one of the most expensive cities to rent), says that she prefers tenants who are spending 30% (or less) of their income on rent—however, she does also consider those spending up to 40%.

An easy way to figure out how much rent you can afford is to calculate the amount of debt you have and your rent-to-income ratio. Divide your total monthly debt payments by your income for your debt-to-income ratio, suggests Khari Washington, broker and founder of 1st United Realty. To calculate your rent-to-income ratio, divide the potential rent cost by your income—both numbers should ideally amount to 50% of your income or less. "That will leave the other half of your income for all other living expenses," explains Washington.

You can also use an online calculator, such as Mint's rent budget calculator to figure out your rent-to-income ratio and what you can afford. The calculator follows the 30% rule, and can show you "how increasing or decreasing your monthly rent would impact other areas of your budget such as your cushion for other expenditures and savings," says Brittney Castro, CFP at Mint.

Figure out what your bottom line is going to be with utilities.

When you calculate future rent costs, make sure you're including utilities in your total. "Utilities can make the difference between affording rent and struggling to get by," says Cliff Auerswald, president of reverse mortgage lender, All Reverse Mortgage. If the cost of rent and utilities exceeds 50% of your income, it's probably best to look at another option, he says.

"I always discuss other potential bills (electric, water, pest control, cable/wifi, laundry, etc.) and whether any of that is included—potentially leaving space for a slightly higher rental rate," says Samantha Dydo Della Mura, real estate agent at Better Homes and Gardens Real Estate Florida 1st. Della Mura says that amenities and location also factor into the affordability of a place. If the building has a gym, you might be able to cancel the gym membership you're currently paying for. On the other hand, if there are additional fees, such as a monthly parking fee, it could add up and make the place less affordable for you. Halm also recommends including renters insurance in your budget. Make sure you look through all of the amenities and utilities carefully so you know exactly what you're getting into and can weigh your options to get the best deal possible.

Calculate the total upfront cost of your move—including application fees and security deposits.

Moving is an expense in itself. Try to calculate what the actual move will cost to the best of your ability. In addition to expenses such as moving your furniture and any items you need to buy to set up your new place, make sure you leave room in your budget for upfront costs such as rental application fees, and security deposits. You will likely need to pay first and last month's rent as well—"Depending on the market, this could mean paying upfront costs of about three times the monthly rent," says Halm.

If you're renting for the first time, it is especially important for you to be aware of all the costs of moving. "Generally most of my clients are quite aware of how much rent they can pay," says Elizabeth Weech, real estate agent with Better Homes and Gardens Real Estate MCR Bahamas. Weech says she focuses instead on "the hidden and unexpected costs of moving." She says that while costs such as security deposits and utility down payments are one-time expenses, they are still significant costs that you should be prepared for. Weech suggests being clear on the terms of your lease so you aren't blindsided by any fluctuating costs—and so you don't lose money on your security deposit.

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