Affordability calculator: work out how much can you rent on a home
Category General News
Renting your first home? It can be easy to get caught up in a wish list of features and functions of your future living space. However, the most important question you should ask first is "how much rent can I afford?". By understanding your financial boundaries, you can shortlist rental options that you have a chance to secure and confidently pay for monthly. Here are tips to help:
1. Know your numbers: The first step is to have a good overview of your monthly income. This will help you create a budget and set realistic rent expectations. Your income can include all earnings from your salary or wages, side projects, and interest from your savings.
2. Set out your expenses: Knowing how much you'll need at the start and every month is an important part of budgeting for a rental. Upfront costs can include:
- The first month's rental cost
- A damage deposit
- Admin fee
- TPN credit check fee
- Entry inspection fee
- Moving costs
According to The Zebra, your monthly expenses can include:
- Rent
- Groceries
- Utilities (electricity, water, gas, etc.)
- Phone, computer, and internet
- Transportation (car payments, petrol, public transportation, and parking)
- Insurance (health, auto, and home contents)
- Debt payments (credit cards, loans, etc.)
- Personal care (toiletries, haircuts, laundry, etc.)
- Entertainment (dining out, streaming services, concert tickets, etc.)
- Miscellaneous (gifts, clothing, leisure travel, etc.)
Tip: To help you figure out your expenditure, get a copy of your six-month bank statement and scrutinise common expenses reflected each month. You can then use Discovery's online monthly budget sheet calculator to break down your income versus costs.
3. Go beyond the 30% rule: The rule of thumb is to spend no more than 30% of your gross income on rent. For example, if you earn R18,000 per month before taxes, you would aim to keep your rent around R5,400. Rental affordability calculators like Old Mutual's Budget Benchmark Tool can calculate your rent based on this percentage together with other proposed expenses when you input your salary.
However, some experts feel this can be outdated, oversimplified, and not universally applicable to a potential renter's unique situation. Instead, once you've worked out your income and expenses, you can pinpoint precisely what you can realistically afford after subtracting these amounts.
4. Search for affordable properties: Now that you have a figure in mind, search properties within your preferred area/s and see if these match your needs and lifestyle. While it can be tempting to book viewings for a luxury apartment or a home in a trendy neighbourhood, you could wind up stretching your budget too thin. Find a balance between affordability and your must-have features.
5. Rethink your budget: Not happy with the options within your means? Your next option would be to adjust your spending habits. First group these into non-negotiable expenses and discretionary payments. Cutting back on your non-essential costs like downgrading your Netflix subscription or reducing trips to restaurants can increase the amount you can put towards your dream rental.
If you need further savings, you can relook at some of those non-negotiable expenses too. For example, you can still keep your insurance but negotiate a lower rate. You can consider carpooling or taking public transport if maintaining your vehicle is becoming too costly.
6. Don't forget an emergency fund: In the event you lose employment, suffer a medical emergency, or have unexpected home repairs required, having at least three month's rental payments can help you cover your obligation until you get back on your feet. Don't sacrifice on saving each month just so you can splurge on the most expensive rental property you can afford.
What to do if you can't afford a rental
If after reducing your expenses you are still short, there's still hope. Here are some options you can explore:
- Negotiate a higher salary at work
- Create additional revenue streams
- Find a roommate to save money on rent
- Get professional help with budgeting
Partner with a local rental property professional
Another way to find a rental within your budget is to seek the services of a local area expert. They can find property options close to work and amenities, helping you save on transport costs. By providing property options with cash-flow managing features like prepaid electricity and water, they can also ensure you reduce monthly expenses. Kellaprince Properties stands out as a respected and experienced real estate agency within Mbombela (Nelspruit) and surrounding areas. View our rental properties for rent and get in touch at your convenience.
Author: Kellaprince Properties