Author Topic: How much to spend on rent  (Read 8057 times)

cosmie

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How much to spend on rent
« on: March 16, 2013, 07:10:24 PM »
What would you mustachians consider an acceptable percentage of income to spend towards rent? I see a lot of rules of thumb in regards to mortgages, but not rent. However, when renting, you don't have to worry about maintenance, repairs, property taxes, and rental insurance is much less than homeowner's insurance. So I'm not sure what to use as a ballpark for rent.

Obviously you want it to be as low as possible, and it's very regionally specific what "acceptable" is. But acceptable to the general public and acceptable to mustachians is usually two different yard sticks. As a 21 year old starting my career, I expect my rent-to-income ratio will be fairly high, but I'm  trying to gauge a ceiling to narrow my searches.
« Last Edit: March 16, 2013, 07:12:14 PM by cosmie »

Kazimieras

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Re: How much to spend on rent
« Reply #1 on: March 16, 2013, 11:58:24 PM »
In Canada, the warning bells start to go off if you are spending 30% of your gross income on rent.

I wish it was clear-cut like that, but there are a lot of factors to take into account. Paying more for a shorter commute can pay you back by allowing you to work harder (leading to promotions, etc), spending less time in a maddening commute, and may allow you to be healthier by walking/biking rather than driving.

My wife and I went for a very cheap apartment when we first started. It was lacking a few things, but it did enable us to save up enough money to wipe out her student debts in about 1.5 years. Don't go for unsafe, but if look hard there are usually some landlords that are charging well under market value for rent, and you should take advantage of that. Also never underestimate the power of roomies. You split a lot of your fixed costs 2 or 3 ways, which can help save you buckets of money.

mm31

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Re: How much to spend on rent
« Reply #2 on: March 17, 2013, 01:09:27 AM »
I'm paying 10% of may take-home income in rent. I do have a partner, though and we split it equally.

keith

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Re: How much to spend on rent
« Reply #3 on: March 17, 2013, 03:53:35 AM »
Location matters a lot for obvious reasons.

As for my own situation - I'm renting a room in a large house with some other folks (so I'm sharing space).

My rent + all utilities is ~13% of my take home pay. If I wasn't sharing a space, I wouldn't feel bad going up to around 20%. Keeping it low has afforded me a great overall savings rate.


Kriegsspiel

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Re: How much to spend on rent
« Reply #4 on: March 17, 2013, 08:05:02 AM »
I like using absolute numbers for comparing rents in the same area, since $100k and $47k earners can live in the same neighborhood.

I pay $460 a month for a 1br apartment (going up to $475 next lease), excluding electricity.  That's pretty good for around here, since it's in a great complex with a pool, tennis court, racquetball court, and a couple miles from the gym, work, and grocery stores.  The only apartments that are cheaper don't have kitchens.  Shoot, other apartment complexes without the amenities charge about the same.

arebelspy

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Re: How much to spend on rent
« Reply #5 on: March 17, 2013, 09:41:12 AM »
There was a thread awhile back where people were commenting on what percent of income they spent on rent.  In general, we Mustachians don't value large spaces, and there was lots of answers in the 10% range, with some lower.  Of course there were some saying they spent 20-30%, and couldn't spend less given where they lived (NYC, SF, whatever), then others replied move slightly out of the city, etc. etc.

Bottom line:  There is no rule of thumb.  You have to make the optimal decision for you based on a large number of persoanl factors (distance to work, closeness of amenities, size needed, neighborhood, school district, etc. etc.).  Decide what's important, look for those features, then compare and try to get it as cheaply as possible. 

One final note: rent/mortgage expenses are often the bulk of one's budget.  Keep this low, and you'll be ahead in the spend less/small budget game to begin with.

EDIT: Typo.
« Last Edit: March 17, 2013, 07:07:27 PM by arebelspy »
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cosmie

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Re: How much to spend on rent
« Reply #6 on: March 17, 2013, 02:23:37 PM »
Wow, you mustachians definitely keep it lower than the general population!

Location matters a lot for obvious reasons.

As for my own situation - I'm renting a room in a large house with some other folks (so I'm sharing space).

My rent + all utilities is ~13% of my take home pay. If I wasn't sharing a space, I wouldn't feel bad going up to around 20%. Keeping it low has afforded me a great overall savings rate.

Renting rooms is an awesome way to go. I'm temporarily living in the NYC area (across the bridge in NJ, actually) for a 6 month internship, and have been renting a room. All inclusive and furnished I'm paying about 18%, $650 on a take home of $3,600. That's significantly less than what most of the other interns are paying (a lot are splitting 3 bedroom apts. and paying $750/ea for base rent alone).

I like using absolute numbers for comparing rents in the same area, since $100k and $47k earners can live in the same neighborhood.

I pay $460 a month for a 1br apartment (going up to $475 next lease), excluding electricity.  That's pretty good for around here, since it's in a great complex with a pool, tennis court, racquetball court, and a couple miles from the gym, work, and grocery stores.  The only apartments that are cheaper don't have kitchens.  Shoot, other apartment complexes without the amenities charge about the same.
There are apartments without kitchens? Are you referring to studios with little kitchenettes, or straight long-term hotel style no kitchens? o_O


There was a thread awhile back where people were commenting on what percent of income they spent on rent.  In general, we Mustachians don't value large spaces, and there was lots of answers in the 10% range, with some lower.  Of course there were some saying they spent 20-30%, and couldn't spend less given where they lived (NYC, SF, whatever), then others replied move slightly out of the city, etc. etc.

Was there? I tried searching for one, but was coming up empty.

Quote
Bottom line:  There is of rule of thumb.  You have to make the optimal decision for you based on a large number of persoanl factors (distance to work, closeness of amenities, size needed, neighborhood, school district, etc. etc.).  Decide what's important, look for those features, then compare and try to get it as cheaply as possible. 

One final note: rent/mortgage expenses are often the bulk of one's budget.  Keep this low, and you'll be ahead in the spend less/small budget game to begin with.
This is definitely true. I was really just trying to get some data points for where others sat and considered acceptable; keeping in mind that circumstances dictate differences. So mainly just to sense check acceptable ranges.

For one of the areas I'm looking at working at after graduation, combined with an approximate expected starting salary of $45,000 (this ballpark being based off of my internship wages), I'm looking at ~30% rent+commuting. Living within walking/biking proximity would bring rent to about 29% of income, but reduce commuting completely. Living 20 miles/30 minutes away from work would reduce rent costs to about 21% of income but increase commuting to 12% of my income, based on the IRS rate of $0.55/mile.

That seemed pretty high to me, but when I crunched the figures for an offer I have to work in the NYC area, which would have a higher starting salary (approx. $55,000), it came out to about 45% of income, which seemed even more outrageous.

And this is all  based on starting salaries, so I'm basing these figures off of ceilings. Pay increases over career progression don't usually necessitate living changes, so the relative percentages should decrease with time.

Kriegsspiel

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Re: How much to spend on rent
« Reply #7 on: March 17, 2013, 04:08:30 PM »
There are apartments without kitchens? Are you referring to studios with little kitchenettes, or straight long-term hotel style no kitchens? o_O

Yea, you got it.  Basically someone bought an old hotel, and started renting the rooms long term, instead of daily.  I think the difference between my swanky apartment and that place was only $150 a month or something like that.  You actually inspired me to check craigslist again.  I could live in a trailer by the highway for the same rent that I pay now, or I could live in what looks like an abandoned house that someone bought, did no repairs/renovations to, and advertised on craigslist; that would be $175 less than mine.  However, I'd have to buy a fridge.

Fortunately for me, my apartment is the third cheapest I've found here, and is the cheapest with things that I consider necessary, like a kitchen (although really, I lived for a year and a half with only a hotplate in Germany), and a fridge.  If I were looking in NYC, and looking at the same level of amenities (I could do without all of the, frankly, amazing perks of my complex, so I'm talking about a stove and a fridge), are you saying that I couldnt' find a place for less than $2,000?

KingCoin

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Re: How much to spend on rent
« Reply #8 on: March 17, 2013, 04:26:07 PM »
If I were looking in NYC, and looking at the same level of amenities (I could do without all of the, frankly, amazing perks of my complex, so I'm talking about a stove and a fridge), are you saying that I couldnt' find a place for less than $2,000?

If you define NYC as Manhattan south of 100th street, a typical 350sqft, no-frills studio will run you $1600-$2200. If you're talking outer boroughs, you can pay as little as you want, subject to safety and commute constraints.

This is the cheapest listing I can find. 250sqft, shared bathroom, essentially no kitchen. $1300. How ya doin'.
http://jalcaassociates.com/listings/5676/

A 200sqft 4th floor walkup? You missed it at $1400.
http://www.bellmarc.com/search/profile.asp?list_num=RS124286V

Kriegsspiel

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Re: How much to spend on rent
« Reply #9 on: March 17, 2013, 07:30:28 PM »
If I were looking in NYC, and looking at the same level of amenities (I could do without all of the, frankly, amazing perks of my complex, so I'm talking about a stove and a fridge), are you saying that I couldnt' find a place for less than $2,000?

If you define NYC as Manhattan south of 100th street, a typical 350sqft, no-frills studio will run you $1600-$2200. If you're talking outer boroughs, you can pay as little as you want, subject to safety and commute constraints.

This is the cheapest listing I can find. 250sqft, shared bathroom, essentially no kitchen. $1300. How ya doin'.
http://jalcaassociates.com/listings/5676/

A 200sqft 4th floor walkup? You missed it at $1400.
http://www.bellmarc.com/search/profile.asp?list_num=RS124286V

I guess it would depend on definitions then, I was considering all of NYC, not just Manhattan.

Hotstreak

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Re: How much to spend on rent
« Reply #10 on: March 17, 2013, 08:11:39 PM »
I like using absolute numbers for comparing rents in the same area, since $100k and $47k earners can live in the same neighborhood.

This +1,000,000.  To the OP, if you are calculating rent as a portion of your income, you deserve a giant punch in the face!  Look at how much space you NEED (mostly a function of family size and storage of material belongings), then compare several properties that meet the bare necessity, adjust for things like cost of transportation, and make a judgement call based on things like noise and criminal activity.

Rent is a FIXED cost, like food, or a car.  You should no more upgrade an apartment when you go from 50k income to 100k income than you would buy a shiny 2013 sports car or start to eat out 3 times a week.  I repeat, your rent is not based on your income, NOT AT ALL, it is based on your housing needs, and determined by the price of the housing market.

KingCoin

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Re: How much to spend on rent
« Reply #11 on: March 17, 2013, 08:30:22 PM »
To the OP, if you are calculating rent as a portion of your income, you deserve a giant punch in the face!  Look at how much space you NEED (mostly a function of family size and storage of material belongings), then compare several properties that meet the bare necessity, adjust for things like cost of transportation, and make a judgement call based on things like noise and criminal activity.

Agreed.

For a single 21 yo, 500-650sqft should be ample for your needs (unless you're an artist or something who needs additional space for professional use). Any space over that is likely to become a repository for expensive and rarely used stuff.

cosmie

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Re: How much to spend on rent
« Reply #12 on: March 17, 2013, 08:54:02 PM »
Fortunately for me, my apartment is the third cheapest I've found here, and is the cheapest with things that I consider necessary, like a kitchen (although really, I lived for a year and a half with only a hotplate in Germany), and a fridge.  If I were looking in NYC, and looking at the same level of amenities (I could do without all of the, frankly, amazing perks of my complex, so I'm talking about a stove and a fridge), are you saying that I couldnt' find a place for less than $2,000?
Yes, you could (see below). But one thing to note is the 45% I mentioned included rent+commuting costs. Since the two can be highly correlated, I evaluate them dependently. Lowering housing expenses by $200 but increasing commuting costs by $300 is an ill advised decision, but one commonly made.

I guess it would depend on definitions then, I was considering all of NYC, not just Manhattan.

Within NYC, outside of Manhattan, you can definitely find better prices. However public transportation was designed for borough <-> Manhattan travel, not borough <-> borough travel. So it realistically restricts your search to the borough you live in or Manhattan (unless you work in Manhattan, in which case you can live pretty much anywhere within a 50+ mile radius).

However, when I said "NYC area" I was actually referring to Bergen county in NJ, across the GWB from Manhattan. As well those costs were based on my particular housing requirements, not the ones you listed. I work less than a half mile away from the GWB. It has all of the high costs associated with Manhattan, without the unilateral ability to live car free. Many of the coworkers I've chatted with either live in the City and ride a company shuttle to work ($300/month), or drive at least a 45-60 minute one-way commute from New York state or Connecticut.


I like using absolute numbers for comparing rents in the same area, since $100k and $47k earners can live in the same neighborhood.

This +1,000,000.  To the OP, if you are calculating rent as a portion of your income, you deserve a giant punch in the face!  Look at how much space you NEED (mostly a function of family size and storage of material belongings), then compare several properties that meet the bare necessity, adjust for things like cost of transportation, and make a judgement call based on things like noise and criminal activity.

I agree that calculating how much to spend on rent as a proportion of income is a terrible idea. I am calculating rent as a portion of income, but to sanity check a region more so than my choice within one. My employment opportunities and wage potential after graduation varies a good bit by region (due to different fields I can go into), but so too does living expenses. I'm trying to normalize that figure by coming up with a relative percentage my living expense in relation to wage potential within that particular region. I'm then collecting data points to see what others currently pay, just to get an idea of what's "normal".

Quote
Rent is a FIXED cost, like food, or a car.  You should no more upgrade an apartment when you go from 50k income to 100k income than you would buy a shiny 2013 sports car or start to eat out 3 times a week.  I repeat, your rent is not based on your income, NOT AT ALL, it is based on your housing needs, and determined by the price of the housing market.
Again, I agree completely. However, as your income increases over time, so too do your housing needs. As time goes by and your wage increases, so too may the size of your family, material belongings, schools/crime become more of a factor, etc. As such, your housing costs rise with your wage increases (although not at the same rate), and the percentage stabilizes within a range.*

For a single 21 yo, 500-650sqft should be ample for your needs (unless you're an artist or something who needs additional space for professional use). Any space over that is likely to become a repository for expensive and rarely used stuff.
I'm not single.


*This is a theory of mine. Collecting insights here is a way for me to test this theory.
« Last Edit: March 17, 2013, 09:17:29 PM by cosmie »

mustachecat

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Re: How much to spend on rent
« Reply #13 on: March 18, 2013, 06:26:42 AM »
In NYC, brokers and landlords like to see that you have a gross salary that's a minimum of 40x the monthly rent. Which is... really, really un-Mustachian.

I think we pay about 25% of our take-home (that ignores pretax contributions, though, so it's in fact lower, but I don't know by how much), and rent is 40-50% of our monthly expenses. Yeah, it's cray, and we're cray for living here. :)

cosmie, if you want some data on what other New Yorkers are spending in various neighborhoods, check out NYU's Furman Center for Real Estate and Urban Policy's yearly report on State of New York's Housing & Neighborhoods. I think the most recent one is 2011: http://furmancenter.org/research/sonychan/

fimoc

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Re: How much to spend on rent
« Reply #14 on: March 21, 2013, 07:19:00 PM »

I like using absolute numbers for comparing rents in the same area, since $100k and $47k earners can live in the same neighborhood.

I pay $460 a month for a 1br apartment (going up to $475 next lease), excluding electricity.  That's pretty good for around here, since it's in a great complex with a pool, tennis court, racquetball court, and a couple miles from the gym, work, and grocery stores.  The only apartments that are cheaper don't have kitchens.  Shoot, other apartment complexes without the amenities charge about the same.

There are apartments without kitchens? Are you referring to studios with little kitchenettes, or straight long-term hotel style no kitchens? o_O

In Seattle we have "apodments" popping up, which are characterized with an equally catchy name: "micro-housing".  They exploit the legal definition of some sort of residence as having a kitchen, so instead they have a few shared kitchens for many tiny units ... and get to skip some sort of regulations (I think design reviews).  Needless to say, they're "controversial" even if legal.

I looked into them, but found a bad building manager and ran in the other direction.
« Last Edit: March 21, 2013, 07:21:04 PM by fimoc »

skinnyninja

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Re: How much to spend on rent
« Reply #15 on: March 21, 2013, 07:28:57 PM »
I spend $425/month to live in a 1 bedroom in MI.

That includes heat (no AC).

I gross $2,250/month. 

If you count my investment income too then i am at about 15% or so.....

capital

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Re: How much to spend on rent
« Reply #16 on: March 25, 2013, 10:26:38 PM »
In NYC, brokers and landlords like to see that you have a gross salary that's a minimum of 40x the monthly rent. Which is... really, really un-Mustachian.

I think we pay about 25% of our take-home (that ignores pretax contributions, though, so it's in fact lower, but I don't know by how much), and rent is 40-50% of our monthly expenses. Yeah, it's cray, and we're cray for living here. :)

cosmie, if you want some data on what other New Yorkers are spending in various neighborhoods, check out NYU's Furman Center for Real Estate and Urban Policy's yearly report on State of New York's Housing & Neighborhoods. I think the most recent one is 2011: http://furmancenter.org/research/sonychan/
40-50% of expenses, but that cost also enables you to keep transportation costs to the price of a Metrocard (or less, with bike commuting) and access to the Manhattan job market with its $128k average salary. In many cities, it's the norm to spend 20-30% of income on transportation.

I think I also have rent as 40-50% of expenses, but just got a job offer that'll put that rent number at around 10% of pretax income, so NYC isn't so crazy from that perspective.