How much rent is too much?

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dcoates
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How much rent is too much?

Postby dcoates » Sat Jun 16, 2007 1:10 pm

I'm in a bit of a quandary here and I imagine this may help someone else. I graduated college about a month ago and have been waiting tables while looking for a "real" job. I'm currently subleasing until the end of July and looking for apartments was (relatively) simple: find the cheapest and go with it.

Well, I got a phone call from HR at one of the places I applied and she said they were ready to make me an offer, contingent on a background check. Which means more money which means I can look at better apartments in better locations.

But I don't know how much I should budget for an apartment. I know they won't rent to you if the rent is higher than 1/3 your income, but I'm suspecting it's best not to push up against that wall. I live pretty simply and have about $600 a month in loan payments for the next year and then $350 a month after that.

So what percentage (roughly) of one's income should they budget for rent? I need to know what price range to look at, but I have no idea where to even start.

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Postby consultantjournal » Sat Jun 16, 2007 1:22 pm

It's impossible to answer this question without knowing rents in your area.

My advice is to find a basement suite or shared apartment in a nice walkable neighbourhood. Put savings aside and aim to buy a condo or home in the next few years, depending on market conditions where you live.
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Re: How much rent is too much?

Postby tinyhands » Sat Jun 16, 2007 1:39 pm

dcoates wrote:So what percentage (roughly) of one's income should they budget for rent? I need to know what price range to look at, but I have no idea where to even start.

You should start by creating a monthly budget and for the moment, leave the rent expense line blank. Use the top line for your expected monthly income (after taxes, social security, 401k, insurance). The lines below that will be your monthly expenses that subtract from your income. Remember to convert everything to monthly equivalents, as some things (car & renters insurance- please tell me you'll get renters insurance?) may be paid annually or semi-annually. Include a line for saving, as a rough estimate, 10% of your income. You'll have to estimate your utility usage and some other expenses, but do your best and be conservative (i.e. over-estimate). After you've put in a line for every expense, go back to the blank line you left for rent and you should be able to find the ballpark that keeps your bottom-line number from becoming negative at the end of the month.

I'm sure there are budget spreadsheets to be found on the web, but I'd encourage you to try it yourself first.
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Postby Baker » Sat Jun 16, 2007 3:40 pm

cheaper is better.....but as my realtor friend always says its better to have the worst house in a good neighborhood than the nicest house in the ghetto.

I'd say try and find a cheap place in a good area. Having a nice apartment is great for a little while, you have a nice wow factor when friends come by and everything but eventually you'll look back and realize the you could have had $7000 towards a down payment in two years had you just went with that apartment that was a little smaller and only had 1 bathroom.

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Postby morydd » Sat Jun 16, 2007 4:20 pm

I'm going to go against the grain a little bit here, and say cheapest isn't always best. My perspective is someone who has rented for the last 8 years, and is eagerly looking towards purchasing a home. (My wife and I have said this will be the last place we rent.) However, what you're renting is not just an apartment, but your home. Figure out what your limit is, in line with your goals and your budget, and then look in that price range. Look at as many places as you can fit into your schedule. Pretend you're looking for a place you're going to stay in for years. If you're uncomfortable in your home, you won't want to spend time there, so you're more likely to go out and spend money.

Renting is not "throwing money away" as some people seem to think (I haven't seen that attitude on this board, thankfully.) You have to live somewhere, so rent is no more a waste of money than buying food or clothing. And just like with food or clothing, you want to get what you'll be happy with. It may be cheaper to eat nothing but rice and beans, but if you love steak, just rice and beans is probably not the best plan for your life.

The goal of being financially responsible, at least as I see it, is to have the freedom to buy the things you want when you want them, knowing that you're not going to be hurting yourself in the long run. It's teaching yourself to recognize what things you spend your money on that benefit you and what things don't both short and long term.

Figure out how much you're willing and able to spend, and then use that as a guideline to find yourself a _home_.
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Re: How much rent is too much?

Postby pf101 » Sat Jun 16, 2007 4:39 pm

dcoates wrote:I'm in a bit of a quandary here and I imagine this may help someone else. I graduated college about a month ago and have been waiting tables while looking for a "real" job. I'm currently subleasing until the end of July and looking for apartments was (relatively) simple: find the cheapest and go with it.

Well, I got a phone call from HR at one of the places I applied and she said they were ready to make me an offer, contingent on a background check. Which means more money which means I can look at better apartments in better locations.

But I don't know how much I should budget for an apartment. I know they won't rent to you if the rent is higher than 1/3 your income, but I'm suspecting it's best not to push up against that wall. I live pretty simply and have about $600 a month in loan payments for the next year and then $350 a month after that.

So what percentage (roughly) of one's income should they budget for rent? I need to know what price range to look at, but I have no idea where to even start.


Try no to get into the habit of expanding your spending to match your salary. If you could be happy in a cheap place is it really necessary to get something better? At least in the beginning...

This is where people get in trouble. "Oh...I would be happy with X but I can afford Y so why not just get that?" You get into a habit of spending increases instead of saving them.

Personally I would probably still do the cheap apartment for a year until your loan switches over and, if you're happy with where you're living, longer so you can pay off your debt and save up for future goals.

I've done this. I was living on ALL of my salary and managed to pile up about $10k in debt (really bad, I know...not a drop of savings but lots of stops at Ann Taylor Loft on the way home) so when my lease on my $980/month studio was up I moved into a $700/month shared house. I could have gone cheaper but I would have been miserable so this was as much as I was willing to do. Over the next year I managed to put 15% into my 401k as well as pay off all $10k of that debt. Obviously it took more than the $280/month I was saving on rent, but that was just the first step in a reduction plan. I cut back on lots of things - including dropping hundreds each weekend at the bars and expensive dinners out.

Eventually I was able to move out on my own again but this time it was with a nice cash cushion behind me and a newly developed frugal lifestyle.

But, if you really want a %, my rule of thumb is no more than 25% of income, but depending on where you live, that might not be possible.

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Postby dcoates » Sat Jun 16, 2007 9:06 pm

Thanks for the advice, guys.

I'm still trying to keep my rent down as much as possible. I haven't looked at anything except efficiencies--I'm just trying to avoid the places where the paint's chipping, etc. and I'm trying to move to a neighborhood that's safer than the one I currently live in.

And good point about the renter's insurance. It's something I know I need, but would have probably forgotten about.

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Postby JerichoHill » Sun Jun 17, 2007 5:52 am

When looking at the cost of rent, look at

1) Rent
2) Cost of Commuting
3) Locational Activities

In DC, everything is expensive, but I chose a place that I could walk to the metro (and I could walk from the metro to work), and alot of nightlife was withing walking distance, so I immediately ditched my car.
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