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How Much Rent Can I Afford?

Alcove Team | 11/4/21

How Much Rent Can I Afford?

If you’re thinking of renting an apartment or room in a shared home, it is a good idea to understand how much rent you can afford. Given the different circumstances we all live, the cost of living in different cities, and other factors, "affordable rent" is a relative term that changes for everyone.

When looking for places to rent, however, there are certain considerations to make that everyone can follow. Example of this are that you should consider how much you earn (in addition to your home's total income, i.e. roommates) and to understand the types of amenities you'll want vs. need. We’ve put together this helpful article to assist you when finding rooms for rent! 

Write down your monthly income

First, calculate your monthly income. If this is the same each month, it’s easy – just write down that figure. However, if you earn a different amount of money each month, take your annual income from the last year and divide it by 12 to find your average. 

The important part of this is finding your gross monthly income, which is the total income you make before taxes. Most landlords and property managers check your gross income divided by 12 to qualify you for renting their place.

Work out your rent rate

As a general rule of thumb, we advise not spending any more than 25-30% on your rent alone. So, for example, if you earn $2,500 per month, you might not want to spend more than $730 per month on rent. 

Of course, if you live with a partner or want to rent out a room in a two or three bedroom home with roommates, this will change things. Because your room will be a portion of the rent split with other people, your group of roommmates is given more freedom to the size of apartment or home you can rent out.

Three or four people sharing a large home, say for $3000, is much easier to manage when you're only responsible for your individual room's lease. This is another reason why coliving is becoming more common.

Consider other expenses

This isn’t a one size fits all rule – there are lots of other things that can factor into the affordability of apartments. 

For example, if your main hobbies are low-cost (going out for walks, cooking with cheap ingredients for friends, or wild swimming) and you don’t have any other commitments, you might be able to afford more rent. 

However, if you have kids or other dependents, are a member of expensive communities, like going out to restaurants and for drinks, or do expensive activities like skydiving and scuba diving regularly, you might need to pay less in rent! Additionally, as your income rises throughout your career "lifestyle creep" will take affect.

"Lifestyle creep" happens when increased income leads to increased discretionary spending. Lifestyle creep can take the form of an ever-escalating taste for the finer things, among other things. Make sure you're aware of this when deciding the types of apartments or homes to rent.

Rent and affordability FAQs

Do I need to make three times as much as my rent? 

It depends on the landlords. If you don’t make three times your rent, this means that your rent is more than 30% of your paycheck.

Your landlord may worry that you won’t be able to pay rent and leave them short of money, so they may turn you down. On the other hand, if you can guarantee that you have money, for example, if you have a guarantor or a savings account, you might persuade a landlord when looking for rooms to rent.

Alcove requires 3x the room rental rate like most landlords and property managers. However, the advantage with Alcove is that you'll only need to afford 3x what the room costs, not the entire home added up. This can save you thousands of dollars a year, compared to taking a risk and renting out a larger family home by yourself, then finding roommates on your own. If you never find roommates, or if they leave with paying rent, you'll never recover those lost funds.

How should I split rent with my roommate? 

Often, rent is split 50/50 to ensure its affordability for everyone involved. However, if one roommate has a larger bedroom or en-suite bathroom, they may pay more than the other. It is a good idea to reach an agreement on this before moving in with anyone. 

What is the 50-20-30 budget rule? 

The 50-20-30 budget rule is a good guideline to use when budgeting your monthly income. It advises that you spend 50% of your money on necessary things, such as rent, bills, and food. 20% of your money can go into savings, and 30% is for luxuries, such as restaurants, nights out, shopping, and going on holiday. It is an excellent way to ensure that you save money when necessary and budget efficiently.

If you're interested in learning more about coliving, life as a renter or where to find the best roommates, read more of our articles: