When searching for a home to rent, you are likely to begin your search by focusing on a particular area or on certain features you want. But what should be your price range for a rental home?
The rule of thumb is that your monthly rent (other than utilities) should not be more than 30% of your gross monthly salary. Once you find a place you like with a rent that meets this criterion, it is time to sign the agreement.
What is Rent?
Rent is the payment to your landlord for using their rental property. Other definitions of rent also exist, such as economic rent, but they are used in different contexts and for other purposes.
The terms “rent” and “lease” are often used interchangeably. However, their actual definitions are different. If you want to rent a residential property, you will be required to sign a lease agreement. This formally states the amount of rent you need to pay, the duration of the rent, and all the rules that you and the landlord agree upon.
How Do I Determine My Price Range for a Rental Home?
Here are some of the crucial factors to consider while deciding your price range for a rental home:
According to financial experts, you should spend about 30% of your gross income on rent. Simply multiply your gross income by 0.3 to figure out the amount.
However, if the number appears unrealistic to you, this rule is an old one. It does not consider particularly low or high income levels. Therefore, you may want to consider the technique as a guide to avoid overspending on rent.
Savings is just as important as your income. Make sure that you have an adequate amount in your bank account to take care of your security deposit and other costs linked to rent. This will prevent you from taking money out of your emergency fund or compromising your financial aims.
If you have debt that you need to repay, it is crucial to consider it when calculating your price range for a rental home. Even if you have a high salary, it may be wise to spend less on rent when you need to save money for credit card debt or student loan payments.
You can decide on a rent budget based on your financial means, but the housing market may be an important determinant. For instance, if you are planning to shift to an expensive housing market, check out the average rent costs in the area to arrive at a realistic rent budget.
Make sure you make your rent budget while considering personal factors, such as the period of time you will spend inside your home every day. For example, if you are working from home and have a large home-office setup, you can justify paying a higher rent.
Although your financial circumstances decide the hard limit for rent, your lifestyle will help determine how close you can move towards spending the suggested 30% on rent.
Considerations When Renting
Another vital factor to consider is the rent amount and whether or not you can afford it. The word “affordable” is a relative term and carries a different meaning for everyone. Here are some of the factors to consider when renting a home:
Aside from the regular rent payments, there are other costs linked to rentals as well. Upfront costs include application fee, security deposit, pet deposit, and insurance. As a tenant, you will also have to pay for the utility costs, such as water, gas, electricity and internet. Moreover, you will need to keep a separate budget for furnishing your rental property.
People usually prefer living close to their family and friends or near their workplace. You can also take into account the location of the rental as compared to the places in the city that you frequently visit.
For instance, it is a good idea to choose a property close to a hiking trail if you like to hike. There may be other locations preferences as well, such as a location with a low crime rate, closeness to public transport, or living in a certain school district.
The quality of the rental home will affect your final decision. Make sure to research the year the property was constructed or renovated to gauge its quality.
Most of the time, renters are able to view the property beforehand to assess its quality. Some rentals are equipped with amenities, such as gym, pool or laundry facility. Before renting, ensure all appliances are present and functional. Online reviews from previous tenants are useful resources to tap.
As a renter, you are likely to have a preference when it comes to the size of your home. For instance, you may be looking for a house with a specific number of rooms, bathrooms, or square footage. Some renters want more cabinet or closet spaces for their possessions while others look for a living space large enough for their pets.
The temperament of the landlord is an important consideration as well. As the property remains under the landlord’s ownership, they may place certain restrictions on tenants, such as requiring them to maintain a certain grass length or noise level, enforcing rules about pets, and prohibiting them from putting nails in the walls.
When calculating the price range for a rental, it is important to consider factors like monthly income, savings, debt, housing market and lifestyle. Moreover, before signing the agreement, make sure you take into account all move-in costs such as utilities, security deposit, furniture, and any additional fees.
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