As you may know from reading my articles on home-buying, I’m not a huge fan of buying real estate. Instead, I prefer (and counsel others) to rent a reasonable home and use excess cash to max out my retirement accounts and other investments. For most people, housing costs are usually the most expensive item on the monthly set of bills. It really pays to scrutinize big bills because even small percentage savings equal high dollar values.
Find out what people in your neighborhood are paying for rent
When looking at rental rates when shopping for a new place to live or contemplating your current lease, use Rent-o-Meter to find out what a reasonable rent is in your area. I just used this tool for the condo I’m renting and got a lot of nearby comparisons. (My rent’s reasonable, but not dirt cheap 🙁 )
Slash your rental costs
Smart Money published a very good article with 5 ways to cut your rental expenses (read it!) The most important thing you can do is be very picky when shopping for a new rental. Look closely at many units and pay attention to prices at each one. The best way to get a good deal is knowing how much your alternatives cost. Set yourself a rough budget to stay inside of.
I recommend trying to keep your rental costs to a maximum of 10 – 20% of your gross salary. Keep to the low side of the percentage if you’re on the high end of the income spectrum; use the higher side if your income is low. So, if you make $30,000 a year, you might have to spend up to 20%, or $500/month. If you make a heftier salary like $80,000, you should shoot for a max around 10%, which would about $1,300. Obviously these amounts will differ depending on how expensive the city is that you live in. Rural renters and those in the Midwest should spend much less than those in Manhattan or other major coastal cities.
Don’t forget to add or subtract amounts for utilities like water/sewer/gas that might be included in some rentals (typically apartments or condos) and not others (like houses.) Also factor in any other savings like splitting cable costs with other tenants.
Get a roommate
If you’re living by yourself and having trouble staying within the guidelines I set above (or just want to have more money to spend/save), get a roommate. Having a roommate is one of the easiest ways to live in a far nicer place than you could if you were by yourself. I find that singles and studios are way more expensive than splitting the cost of a two-bedroom. You’ll save a lot on utilities too by splitting internet, cable and heating costs. Plus, it can be less lonely and more fun to have a friend just across the living room. (Although ladies and metrosexual males might want to spring for a place with two bathrooms if possible.)
The savings from adding a roommate seem to decrease after you have 2 people, but adding a third might save a bit more per person as well. (Even if you know your roommate well, asking your landlord to put you each on separate leases will make you less responsible if your roommate has to move out unexpectedly or gets behind on the rent.)
Ask your landlord for a discount
After doing your homework to see what rentals cost in your area, ask your landlord to reduce your rent. Stress that ‘times are tough’ and the economy is down. Emphasize how you’ve been a great tenant (assuming you have been) and how the rent’s been on time, the place is in fine shape, and the neighbors have never complained. The worst your landlord can say is ‘no’, so it’s definitely worth a shot! Even reducing your rent 5 – 10% can save you hundreds of dollars over the course of a year.
Summary
Rent is a big expense. All big expenses (especially on-going ones) need careful evaluation. Research rents in your area and search for a good deal. Use a rough guide of 10 – 20% of your income as an absolute maximum for spending on rent. Get a roommate to live larger on a smaller budget. Negotiate an existing lease with your landlord to reduce your monthly rent payments.
Math?