How much rent is reasonable?
July 7, 2005 1:47 PM   Subscribe

Is there a formula somewhere that will help me determine how much I should be paying for rent based on my income? I’m moving to Boston, and I think I am looking at places in the correct price range, but how can I be sure? Let’s say my partner and I make a combined income of $65K. Is there an online tool that can help me plug in my estimated monthlies and come up with the declaration: Since you are living in TownX, you should pay between Y and Z in rent. Any more, and you’re going to be setting yourself up for disaster!
posted by abbyladybug to Work & Money (13 answers total) 3 users marked this as a favorite has a Cost-of-Living Wizard here that might help
posted by stevil at 1:59 PM on July 7, 2005

The classic rule-of-thumb is to not spend more than 25% of your gross income on rent.
posted by smackfu at 2:20 PM on July 7, 2005

From what I've seen in San Francisco (similar cost of living to Boston), landlords and real estate agents assume you can afford 1/3 of your monthly pre-tax paycheck for rent.

So, in your example, that'd be $65K / 12 months / 3 = $1805.

Which doesn't mean you'll always qualify for places where that's the criteria, since for two people, they often ask that each partner individually can cover that.

In any event, I feel that 1/3 my income on rent is about my limit (and when I was at 1/4 because I had roommates, I was much happier). Some people go up to 1/2, but I'm personally uncomfortable at that level.
posted by occhiblu at 2:22 PM on July 7, 2005

There's a general rule of thumb that your housing expenses shouldn't be more than a third or so of your (gross) income , though with a house (as opposed to renting) there is the opportunity to deduct the interest part of your mortgage payments (aka the vast majority), if you itemize.

I think that this rule-of-thumb number once this was 28% (in the pre-bubble days), and in any case it's is only a rough estimate (a third of $200K is a really nice place; a third of $20K means only $550 per month).

The cost-of-living wizard, cited above, gives you a sense of how much more (or less) expensive a new place will be. You might use this as follows:

Right now, say you make $60K, of which $20K goes to taxes (including social security), $15K to housing, $20K to all other expenses, and $5K to savings.

Let's say that Boston is 30% more expensive. So the $20K of all-other-expenses is going to be $26K. Then you can take your projected (new) income(s), subtract taxes, subtrack what you'd like to save, subtrack $26K, and - viola - you have a housing target figure.
posted by WestCoaster at 2:26 PM on July 7, 2005

28%-33% of gross income is the percent that mortgage companies in the Boston recommend and use as a guideline for housing expenses--it varies through out the country with 25-30% being average--rent should probably be on on the low end and purchase on the high end--Boston is a fairly expensive market with salaries not keeping up with housing/rental costs for persons moving into the area--good luck and enjoy the community
posted by rmhsinc at 2:34 PM on July 7, 2005

Response by poster: We've been looking at places in the $1,000-$1,400 range, so that seems doable. These are excellent suggestions. Thank you so much! The hard thing is to work out the effects of the COL in a city where I don't yet live. I know the cost of living is higher, but I'm not sure I can imagine all the sources of that increased cost. This is a great start. Please say more if you've got any good advice. :D
posted by abbyladybug at 3:11 PM on July 7, 2005

You're looking in the right range. Many landlords will require that you make 40x the range. There's also, as many others have mentioned above, the 30% rule which definitely applies to Boston and NYC. If I were you I'd be looking in the 1200-1500 range. If you find some place special you may want to consider going as high as 1700 or 1800 but that's a significant commitment so weigh your options carefully.
posted by nixerman at 3:22 PM on July 7, 2005

I concur on the third front - a third on rent/mortgage, a third on living, a third in savings...
posted by benzo8 at 4:55 PM on July 7, 2005

The 30% rule is the one I hear most here in the UK, but our rental costs are significantly higher than those of the US and our salaries lower, so I'm surprised the US one isn't lower. (Then consider that we pay at least $150-$200 a month extra in 'council tax' - a bit like your property taxes - even if you rent in the UK.. *groan*)

So.. 30% seems good, possibly some more if you're the thrifty type and would sacrifice other outgoings to get a nicer place.
posted by wackybrit at 5:47 PM on July 7, 2005

Response by poster: So 30% it is. I wonder what the application process will include. Honestly, I was in the same place for 7 years, and that was a college town. I really don't know what they ask for application-wise. I can verify my income, but my partner's income is harder to document. He works on a contract basis. $30K is a worst-case-scenario of what he makes in a year. He usually makes much more, but I figured estimate low, and then the extra is just a bonus. Will landlords ask for tax forms or employers to call or what?

I'm such a beginner with this stuff! I'm also going to go do some reseach online to educate myself.
posted by abbyladybug at 6:02 PM on July 7, 2005

25% is a pretty archaic rule - as someone said above, it's pre-bubble. You won't be able to match that in a pleasant area of any major American city unless you get hooked up with a deal. 30% is a much more common ballpark.
posted by Miko at 6:54 PM on July 7, 2005

Response by poster: So if we're making $65K, we just divide by 12 months and multiply by 30%, and that's it? That takes into account the fact that we, like most people, have a little debt, plus variable monthlies?
posted by abbyladybug at 10:18 PM on July 7, 2005

addyladybug, housing costs are pretty fixed. So you basically just have to commit to having a large portion of your paycheck going to it, and plan around it accordingly. I think if you try to finesse percentages based on your credit card APRs, you're gonna drive yourself nuts.

That said, yes, I lived in Boston at 1/4-1/3 my gross salary, with plenty of student loans and credit cards to pay off, and still went out to dinner and had a good time and paid my bills (mostly!).

With unprovable income -- to some extent, the landlords may not even check. If he's got a tax form, though, it might be worth having a copy of it in case they do ask.
posted by occhiblu at 8:27 AM on July 8, 2005

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