How to know if you’re paying too much rent

TLDR:  

Budgeting experts recommend your rent should be between 25 and 30 percent of your monthly income. Many landlords use this when screening potential tenants.

Full Question and Answer

Renter's Question

I love my apartment, but I have to scrape to get rent together every month and the struggle’s really starting to weigh on me. I’d like to be able to save, maybe buy a house in a few years, but that’s not going to happen at this rate. I have a decent job and they like me at work, but I don’t see myself being up for a raise any time soon. Sometimes I wonder if I shouldn’t just start looking for a cheaper place to move when my lease is up. I’m afraid I’m in over my head here.


RadPad's Answer

If you’re digging for change in your couch to get by each month, you’re probably paying too much for rent. A financial expert would tell you that your rent shouldn’t be more than 30 percent of your monthly income, after taxes—although it’s better if that 30 percent includes utilities as well, not just rent. If you budget 25 percent of your monthly income for rent, and your utilities take up that 5 percent, you’re hitting the mark.

Most landlords use this rule of thumb when they’re assessing rental applications—that’s why they ask how much money you make. They don’t just want to know you can pay rent every month, they want to know you won’t have any problem paying it. The 30 percent rule means if something unexpected happens—say you get the West Nile virus or someone T-bones and totals your car—you’ll probably still be able to pay rent.

Obviously, that’s a pretty tough mark to hit, especially for Millennials. According to the U.S. Department of Labor, the median weekly earnings for people between 20 and 24 years old was $476 in the first quarter of 2014. That’s about $1,900 a month. So if your income looks anything like that and you go by what the experts tell you, you have to find a place where your rent’s going to be around $500 a month. We know, laughable.

The average rent in the United States is $1,231 a month. If you just snorted at that, you had the correct reaction. And if you live in a super-pricey city like New York or San Francisco, you’re probably looking at three times that number. Even there, though, you can reduce your rent cost and save yourself a recurring headache every month. Finding a roommate (or three) is one way to cut down on individual expenses.

A lot of people are uncomfortable haggling over prices, so they don’t do it. But just like that sticker price on your car, that dollar amount on your lease is may be negotiable—if you’re willing to step up to the plate. That is, if it’s not in extremely high demand. If a landlord has a lot of empty apartments he’s trying to fill up, you’re in a strong position to bargain him down.

Now that you know how much of your income should be spent on rent, here’s how to tell if an apartment is overpriced.

Or perhaps you’re interested learning how to find a rent controlled apartment?

Sources

http://www.moneycrashers.com/monthly-rent-afford-calculator/

http://www.bls.gov/news.release/wkyeng.t03.htm

http://www.cbsnews.com/media/top-10-priciest-us-cities-to-rent-an-apartment/1/

http://www.cbsnews.com/news/how-much-should-you-spend-on-rent/

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