Apartment, or a House, How Much Can You Afford For Rent?
An Apartment Or a House? How much Can I afford For Rent?
how much can you afford for an apartment or a house?
how much can you afford an apartment or a house Either you renting an apartment or renting a house; Committing to a lease that is too expensive is one of the fastest ways to fall into debt. Follow these tips to help you stick to a reasonable budget.
Do the math
Most landlords require your gross annual income (before taxes) be 40-45 times your monthly rent. So, for example, if you want to rent a house for $1,000 a month, you must prove that you make at least $40,000 a year.
An easy way to determine how much rent you can afford is to divide your income by 40. Let’s say you make $45,000 dollars a year:
45,000/40 = 1,125
Using this equation, you can afford to pay $1,125 in rent every month. You can also use this simple, little math trick to calculate 30 percent of your income. Most financial advisers and real estate professionals cite 25-30 percent of your annual income as an appropriate amount to spend on rent.
But! Do you really want to spend 30 percent of your income on rent? Before you commit to a lease for an apartment or a house, consider a few things:
Account for the taxes
As mentioned above, landlords generally will want to see that you make 40-45 times the monthly rent – before taxes. This is regardless if you renting an apartment or a house. In some states federal taxes deduct 25-35 percent of your annual income. So, let’s say you make $60,000 a year:
35% of 60,000 = 21,000
60,000 – 21,000 = 39,000
That’s right. When taxes are deducted, you’re actually taking home only$39,000 dollars a year. (Can’t wait for that rebate right about now, huh?) It’s important to be aware of exactly how much money you’re going to have in your pocket every month so you can budget accordingly.
Don’t forget utilities and other expenses
Consider all the other expenses that come with life: perhaps you want to put aside money every month for retirement, or you have a health insurance plan that requires monthly payments. Factor those in. There are also other apartment costs that come into play, besides rent: utilities and cable bills are usually not included in standard leases. Then there are miscellaneous costs as well, an evening out on the town, eating out every now and then, coffee in the morning, etc. Don’t forget to budget for a little fun!
Landlords often ask that renters pay first and last month’s rent up front, and they may ask for a security deposit on top of that – which is generally the equivalent of one-one/half month’s rent. You’ll get the security deposit back in the end, and it’ll be a relief not to have to pay your last month’s rent when you do indeed decide to move out, but renters must be prepared to fork over a lot of money up front when they first sign a lease. See if you qualify for buying a home instead
It can be hard to come to terms with the fact that you may not be able to afford the dream apartment you pictured, but you don’t want to spend all your time in your apartment! Make sure to get the best bang for your buck, with enough disposable income to enjoy everything this crazy city has to offer.