Saturday May 27, 2017

How Much Rent Can I Afford?

Paying rent is a lot less complicated than paying a mortgage—which makes it easy to figure out how much rent you can afford.  You don’t have to worry about paying mortgage insurance, for example and you don’t have to worry about fluctuating interest rates.

Unfortunately rents can be raised on you for fairly arbitrary reasons, and there usually isn’t much you can do about it.  So you do want to take that into account when select an apartment or a space to rent.

Remember that you can even rent an actual house (instead of take out a mortgage on a house), which opens up more options. Rent Calculator

To figure out how much rent you can afford, you’ll need to put together a budget of all your monthly expenses.

These expenses include not only rent, but also your grocery bill, your gasoline and/or other travel expenses, your health insurance, car insurance, or other insurance payments, any storage units you might be renting to save space, and any miscellaneous expenses which you might have to make.

If you are paying off on a vehicle, you will need to subtract that loan as well as any other loans you might be paying off.

You will also need to pay your utilities—when you look for an apartment, be sure to ask whether utilities are included in the cost of rent, and if so, which utilities.

Utilities you’ll need to budget will include water, electric, and the cost of cable or telephony services.  Depending on where you live, you might have other utility costs as well (trash, mail room, etc.). 

So how much rent can you afford?

It’s a pretty simple equation, though it has a lot of components which you will need to factor in to get an accurate answer.

Figure out your average monthly real income and subtract all of the expenses above.  That means you need to subtract the taxes you pay (if your employer doesn’t take care of that for you).  Now figure out how much money you will have left over after subtracting everything.

That’s how much rent you can theoretically afford on a house, apartment, condo or other space.  You probably want to have a little buffer if at all possible though, since it is always possible that your rent will be raised.

You furthermore should consider leaving some buffer for unexpected expenses.  Any money which you don’t spend you can save—that’s something you can also calculate for in advance.  Not everyone is in a position to save money these days, but if you choose your next rented space wisely, you might be able to start setting a little aside.

Why rent a house or another space instead of buy a home?  It’s a universal question, and at some point in your life you’ll probably have to figure out whether renting or buying is right for you.

There are advantages and disadvantages to each; the main benefit of renting is that you won’t get roped into massive debt, and if you choose a short term lease, you also won’t have to worry about any sort of real commitment to stay where you are.

If you know you won’t be more than a few years in your area, you can keep your life simple by renting.  You won’t have additional expenses like property taxes and homeowners insurance.  You won’t be paying interest on a loan—and you can pay interest on a home loan for years before you actually start paying off on the home itself.

The disadvantage is of course that you won’t eventually own the building you’re staying in, but if it isn’t realistic for you to think of buying a home, then renting is the smarter choice.

Renting gives you flexibility and simplicity, both of which are worth their weight in gold—especially in today's economic environment.

There are no completely right or wrong answers here—only what is right or wrong for you, and only you can figure that out. 

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