Knowing How Much Rent You Can Afford

By
Real Estate Broker/Owner with Kolsky Realty & Management 01311273
https://activerain.com/droplet/56YB

 

Knowing How Much Rent You Can Afford

 

 

 

It doesn’t get more exciting than the expectation of renting your own place and making it your home. As exciting as having a place of your own – before you start renting you have to make it a financial reality. The very first thing you have to do before the search for your new home begins is understanding exactly just how much of a home you can afford. But how do you know how much home you can afford? For those that don’t know the answer – here’s a good starting point. After all – the only way to shop correctly is separating dreams from reality and knowing just how much you can afford!

 

Helpful Tips to Determine How Much Rent You Can Afford.

 

Understand your budget. Getting a handle on budgeting is a bit tricky – but it has to be known before you start shopping for your new place. A simple and common method to evaluate your financial situation is known as the 50/30/20 rule: Fifty percent of your total income gets allocated towards your fixed cost – rent, car payments, utilities, etc. Thirty percent of your total income gets allocated towards the things you like to do such as entertainment, shopping habits, dining out, etc. And twenty percent of your total income gets allocated towards paying down current debt and future savings.

 

An even simpler way to answer how much rent payment you can afford is doing a breakdown of your monthly income and use the 30 to 40 percent rule. Depending on the areas high-demand market and cost of living you should use 30 to 40 percent of your monthly income to determine how much you can afford to pay. As a landlord in So Cal, I happen to use 30 percent as the rule when qualifying potential renter: If a tenant income is $80k a year their rent should not exceed $24K a year or $2,000 per month.

 

Don’t Dip into your reserves – keep reserves out of the calculation.

 

One of the biggest mistakes is taking money from your savings and or emergency accounts to serve as your golden ticket or in this case, rent the home of your dreams. Big mistake – don’t take the bait. It is tempting to take money from your retirement fund and or emergency account for rent – but resist it! Taking your money that’s allocated for your safety net and using it for rent is a sure way to eventually drain those funds leaving you without a much-needed safety net for your protection.

 

Another big mistake is using credit cards or taking out personal loans to cover your expenses. For those needing to use credit cards for everyday expenses such as groceries etc. to pay your rent on time, that’s a dicey situation that usually doesn’t work out well in the end and is a sign you’ll need to rethink your living situation.

 

You need to be realistic about your expenses.

 

Most living spaces will most likely need to be furnished. And I’m not talking about a blow-up air mattress in the bedroom and a coffee table made out of crates with some folding chairs in the den. Think about it – you want to be able to enjoy your new place. And what good is an ideal home where you can’t kick off your shoes and eat and relax properly? If you can’t afford to properly furnish your home without dipping into funds that shouldn’t be touched – you can’t afford to be living there.

 

It might seem like a good idea to take care of your furnishing predicament by using your credit card and charging the costs because otherwise, you can’t pay the rent. But overextending yourself can get you into a lot of hot water if paying off those expenses ends up making it difficult to cover the rent. One way you can save money on buying furniture is to check your local message boards and other apps that you can buy stuff. Other people might be giving away or selling items at pennies on the dollar for you to repurpose and use.

 

Know your rights as a tenant.

 

It is so important to know what your landlord expects. I’ve been a landlord since 1990, and I am still amazed at the few questions asked by would-be tenants. Before signing your lease – you can’t be afraid to ask questions. Are you allowed to have a roommate to cover the rental cost? Can you have a cosigner? Can you go month to month versus a yearly lease? If the landlords’ expectations are not in line with your expectations – you’ll save time "as well as" you’ll save a lot of heartaches, too! Especially if the place you want to rent isn’t a good fit financially.

 

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Rainmaker
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Michael Jacobs
Pasadena, CA
Los Angeles Pasadena 818.516.4393

Hi JK Jon -- this is a good, basic how-to-guide for a person new to the world of renting on their own.  Just like first time buyers, it's best to have realistic expectations before signing on that dotted line.   

Sep 08, 2017 03:54 PM #1
Rainmaker
1,284,671
Jon Kolsky
Kolsky Realty & Management - Long Beach, CA
Licensed California Real Estate Broker

Michael Jacobs ~ MJ, I agree with you! Whether you're buying a home or just about to rent one, being realistic and knowing just how much you can shop for is super important and a must

Sep 11, 2017 08:01 AM #2
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Rainmaker
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Jon Kolsky

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