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How Much Rent Can I Afford?

How Much Rent Can I Afford?

7 Minute Read

Okay, so you’ve looked at your financial situation, and you’ve decided that for now, buying a house isn’t the right thing to do. There’s no shame in that! Sometimes renting is the right thing to do. You might be just starting out after leaving your parents’ house. Or you’re working hard to get out of debt. Or you’re saving to buy a house of your own.

But for now, the big question is, How much rent can I afford?

The short answer is: Your rent payment should total no more than 25% of your take-home pay. That’s the magic number.

Why is that the magic number? Simply put, it’s because you don’t want too much of your take-home pay tied up in rent. You’ve got things to do! You need room in your budget for food, gas, car maintenance and paying off your debts. If all your money is going toward rent, it’s that much harder to save for emergencies. Plus, once you’re debt-free and have your emergency fund, you’ll want to save for a down payment to buy a house of your own. If you’re spending more than 25% of your income on rent, you’ll never get there!

When is it a good idea to rent?

To make sure rent doesn’t drain you dry over time, the first step is to realize why you’re renting and what the end game is. The Bible says, “To everything there is a season, and a time to every purpose under the heaven” (Ecclesiastes 3 KJV). If we’re talking about renting an apartment or a house, that means we’re only doing it for a season. It’s not meant to be a long-term solution. But if you’re working on Baby Steps 1–3, it’s totally appropriate to rent. That means you’re:

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  1. Building your emergency savings fund of $1,000

  2. Paying off all of your debt

  3. Saving up an emergency fund of 3–6 months of expenses

You might have other reasons to rent instead of buy. Sometimes you’re in a transitional period of life. Maybe you’ve just graduated from college and you’re not sure where to settle down. Or you could be a newlywed and need time to figure out which neighborhood you and your spouse want to live in. If you’re doing any of those things, you’re probably thinking about renting. And that’s okay. In fact, it’s smart. You’re setting yourself up to win with money!

Even Dave rented for a season as his family recovered from bankruptcy.

As a real estate guy, he hated every minute of it! But for two whole years, he and Sharon rented. It gave them room in their budget to get back on their feet and save up for their first home after the bankruptcy.

Here are some of advantages to renting:

  • There’s less commitment: Not sure if you like the area where you’re renting? Hey, you’re out of there as soon as your lease is up. If you’ve got a job that has you moving around a lot (like serving in the military or in the ministry), it’s easier to get out of a lease than to sell a house.

  • You don’t have to worry about maintenance: If something breaks, you can call your landlord and ask them to fix it. This is probably the coolest thing about renting: You don’t have to pay out-of-pocket for a surprise repair cost.

Sounds great, right? Well, for some people, renting isn’t always an easy choice. House fever can come on strong when you see your friends buying their first homes. And our society basically yells at you that you need to own a home like yesterday. But renting for a short time teaches patience, and it lets you build a solid foundation so you can eventually own a house, and your house won’t own you.

If you’re renting now and thinking about owning a home someday, check out our guide to saving money for a down payment.

So how much rent should I pay?

Now, let’s get back to the dollars and cents. You’ll see a lot of advice on the internet, and most of it isn’t very good. So here’s what we recommend.

The short answer is: Your rent payment should total no more than 25% of your take-home pay. That’s the magic number.

As mentioned above, your monthly rent should be no more than 25% of your take-home pay. What does that look like? If you bring home $1,500 per month, your rent should be no more than $375 per month. Of course, this is just an example. If you’re only bringing home $1,500 per month, it’s time to get some side hustles. (Just sayin’. Those pizzas won’t deliver themselves.) If you make $6,000 per month, your rent should be no more than $1,500 per month.

The cost of rent really depends on your location. If you live in San Francisco (where the average rent for a two-bedroom apartment is $4,542 per month) or New York City (where the average is $3,726), your rent will be outrageously expensive. It’s par for the course (1,2). The average income in those areas should also be higher. But if you’re not making a lot of money (or just don’t want to pay out the nose), it’s time to get a roommate. If you’re living in Indianapolis, IN ($1,060 per month) or Memphis, TN ($981 per month), your rent won’t be as expensive (3,4) .

Also, keep in mind that the cost of rent is only going to go in one direction: up. It’s the talk of the internet and country songs. So you may want to budget on the lower end (20% of your take-home pay) to account for inevitable increases.

Keep in mind that the cost of rent is only going to go in one direction: up. It’s the talk of the internet and country songs. So you may want to budget on the lower end (20% of your take-home pay) to account for inevitable increases.

If you’re renting, you definitely need renter’s insurance to protect you from unexpected events. Don’t count on your landlord’s insurance, which usually only protects them. The good news is that renter’s insurance is fairly cheap, but make sure you’re also including that in the 25% portion of your budget. If you need coverage, reach out to an independent agent for advice.

Now it’s time for a plan, baby!

So, you’ve got yourself a place to live, and you’re not spending more than 25% of your take-home income. What comes next? Well, if you’re working the Baby Steps, keep working them. Hard. Get your $1,000 emergency fund. Pay off all of your debts using the debt snowball—smallest-to-largest. Save up a fully funded emergency fund that will cover 3–6 months of expenses. Then get to work on saving that down payment. You want to be able to pay at least 10–20% of the purchase price on a new home. Saving 20% is better because you won’t have to pay private mortgage insurance, but saving 100% is best since you won’t have any payments at all.

You can do this!

What are the next steps?

Get in touch of one of our real estate Endorsed Local Providers (ELPs). They’re experts in your market, and they can help you find the perfect place to live—whether you’re looking to rent or buy. They’ll take excellent care of you, or we wouldn’t endorse them. Period.

Contact an agent today!

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