Before you begin searching for that awesome new apartment, it’s important to consider what rent you can afford so you can get the best home without breaking the bank. It’s also useful to go through this exercise because your new landlord will be looking closely at your income stream for proof that can reliably make your monthly rental payments.
Rent to Income Ratio Trick
Landlords and rental managers usually require an applicant’s (combined) annual income to be at least 40 times the monthly rent. This gives them assurance that you can cover the cost of rent, and still have a buffer to feed and clothe yourself. Nice of them isn’t it? Let’s look at an example: if you’re applying to an apartment that costs $2000 per month, you should be able to show an annual income of $80,000 ($2,000 x 40). If you’re applying together with a roommate, simply combine your incomes, and divide by 40. Nifty little trick isn’t it?
Additional Cost Considerations
While the rent to income ratio equation is a good rule of thumb, be sure to consider your unique financial situation (and lifestyle preferences) when setting your rental budget. Everyone’s situation is different, but no one should have too much of their salary be consumed by their rental obligation (we’ve seen upwards of 75% going toward rent…yikes!). Here are a few expenses to account for when setting your rental budget:
- Utilities (water, gas, electric, cable)
- Car loan
- Car insurance
- Car maintenance
- Commuting costs
- Student loan
- Cell phone bill
- Food & drink
- Emergency medical
Also, don’t forget to have at least 3 times your target rent to cover first month’s rent, security deposit, and other moving related costs. These are common rental requirements, don’t let them sneak up on you unexpected.
Maximizing Your Budget
Get creative to make your dollar go further and reduce your rental burden. Sure, cutting back on that daily triple venti, half-sweet, non-fat, caramel macchiato habit will help, but there are more practical and meaningful ways too. Consider bunking up with one or more roommates to combine your resources (not just salary, but things like furniture too). Look for ways to avoid broker fees by using free rental match services like LIVV.co, and consider expanding your list of preferred neighborhoods where rental amounts are more reasonable.
LIVV is the world’s first AI powered real estate agent designed to help you find and rent the perfect apartment, condo, or home quickly and effortlessly. Tell LIVV your housing and lifestyle preferences, and it will deliver strong matches, help you stand out, and lease that perfect new home. Let your next apartment find you at LIVV.co