Calculating how much you can afford to spend on a rental property per month is a crucial first step in the house-hunting process. Living beyond your means is obviously not recommended, but you also want to use your money effectively to be able to afford a comfortable space for yourself. This is where the calculations come in.
But how do you do that? What all do you need to consider when searching for an ideal price range that won’t break the bank? Stretching your income as far as it will go is a necessary skill, and having every dollar allocated to a certain category will make the process go much smoother. We’ll go a little deeper on this topic down below.
You’ll first need to create a budget that reflects your monthly spending habits. If you haven’t already done this, or the idea of a budget gives you a surge of panic, then don’t worry. This is something you can do any time, and it’s as simple as making a list of your monthly expenses. What do you currently spend on necessities such as groceries, utilities, transportation, and housing? How much do you spend on luxuries, such as streaming services or dinner out with friends? Sorting your budget by order of importance will make it easier to determine what you can and cannot afford down the line.
Compare your spending to your monthly income. All things considered, your total spending should total less than your income, with some left over for savings. Whether you already pay a monthly rent or you’re making room in your budget to pay for a place of your own, some things may have to go as you reorganize and reprioritize. Consider the well-known 50/30/20 rule. In this model, 50% of your income goes to necessities, while the remaining 30% and 20% go to luxuries and savings, respectively.
Let’s say that your monthly income is $5,000. That gives you $2,500 per month to spend on all your needs, including housing. Although not an exact science, it’s generally recommended that you spend roughly 30% of your income on rent. That’s $1,500 per month, leaving you with $1,000 for groceries, gas, clothing, and other necessities. Of course, you might be willing to forego a portion of your luxury budget for a larger home or more convenient location. Budgets are entirely adjustable. Take the 50/30/20 model, apply it to your income, and tweak as necessary to fit your needs and your lifestyle!
Looking for rental properties? Talley Properties has an ever-changing selection of listings available for potential tenants. Visit our website today to see what we have to offer!