Are You Paying Too Much for Rent? Here’s How To Know and Avoid Overspending

Fact checked by Vikki VelasquezFact checked by Vikki Velasquez

Half of renters in the United States spend more than 30% of their income on housing, according to data from the Joint Center of Housing Studies of Harvard University. Buying a home instead may not be a workable solution, especially in an environment with high interest rates and home prices. But even if you’re committed to renting, it can be hard to know if you’re overspending on a lease. 

As of September 2024, Zillow reported that the median U.S. rent for a two-bedroom apartment was $1,900. Factors influencing rent include location, demand, property type and size, amenities, seasonality, tenant rights regulations, and rent control. For example, a two-bedroom apartment is generally more expensive than a studio, and you may pay more for a lease signed during the summer than during the winter. Here’s how you can determine if you’re overspending on your rental. 

Key Takeaways

• Understand the conventional wisdom of spending 30% or less of income on rent but consider personal circumstances and financial goals. 
• Calculate how much you can afford to pay as rent.
• Budget for the total cost of moving, security deposit, rental insurance, utilities, parking, and other living expenses beyond rent.
• Consider roommates, rent subsidies and assistance programs, and house hacking to save.

Understanding Your Budget

Knowing how much you can afford to pay in rent is the first step in looking for a place to live, says Brady Bridges, a real estate broker and the owner of Reside Real Estate in Fort Worth, Texas. 

How Much Should You Spend on Rent?

“[Out of] a monthly gross income…30% or less should go toward rent,” says Bridges. This rule of thumb has roots in the 1969 Housing and Urban Development Act, which required public housing residents to contribute 25% or less of their earnings toward rent. 

However, the housing and employment markets are vastly different from what they were a century ago. Bridges points to Census data showing that over 19 million renters pay more than 30% of their gross income on rent. There are many valid reasons why the 30% rule might not be realistic. 

How Do You Budget Based on Your Needs and Goals?

Determining how much to allocate for rent starts with understanding your financial goals and recognizing how competitive the rental home market is in your area. Take a close look at your expenses. Calculate your essential costs aside from housing. If you have more than 30% of your income unaccounted for, chances are you’ll find a rental that works within your financial means.

Some finance experts recommend the 50/30/20 rule when budgeting for rent and other expenses. This rule suggests you allocate 50% of your income to needs (rent, monthly bills, groceries, minimum debt payments), 30% for wants (eating out, vacation), and 20% for savings and additional debt payments. 

Homeowners and property management companies usually set a desired rent-to-income ratio. This figure is used alongside other screening tools, like a credit score and background check, to determine if a rental application should be considered seriously. In many places, the expectation is that household income is three to five times more than the rent costs. 

Note

Even with wiggle room in your budget, you may need to have a co-signer, usually a friend or family member who makes more money and is willing to be on the hook if you fail to make rent payments.

How To Determine if Your Landlord Is Charging Too Much

To ensure you are not paying too much for rent, you’ll need to do your homework. Here’s how to start:

Compare Market Values

Research similar properties in your area or where you want to rent to determine the average price. Check websites and platforms like Zillow and Trulia that let you search by ZIP code. Using these real estate listings, you can see recent rental advertisements, complete with current rates and information about how long the rental was on the market before a lease was locked in. If your lease is within $200 of comparable places, you may not be getting overcharged. There may be amenities and utilities covered in your lease terms that aren’t covered in these listings. If the difference is larger than $200, your landlord may be charging too much.

Review Your Lease Terms and Conditions

Examine your lease agreement thoroughly to understand all charges and responsibilities. Pay close attention to rent escalation, utility costs, additional charges for amenities, pet and parking fees, and potential penalties for late payments or breach of lease terms. If you identify ambiguities or discrepancies, seek clarification from the landlord or a legal professional.

Understand Rent Control Laws

Rent control laws protect tenants from unreasonable rent increases and unjust eviction. However, rent control laws are relatively rare in the U.S. and are mostly restricted to major metro areas like New York and Washington, D.C. As of 2024, Oregon is the only state with rent control at the state government level.

Rent control laws vary from location to location, but they generally limit how much landlords can raise rent each year and when they can terminate a lease. By understanding these laws, you can ensure that your landlord is complying with legal rent limits.

Factors To Consider When Budgeting for Rent

Rent is just one aspect of living expenses. For some apartments, you may be required to pay parking fees, renter’s insurance, utilities (electricity, gas, trash collection, water, internet, laundry, etc.), and a pet rent fee, if applicable. Some of these costs are refundable, but others are not. 

Similarly, the upfront moving costs can break the budget. You have to make sure you can afford to transition. Moving costs may include truck rental or hiring a moving company. You may also have double utility costs or storage expenses between apartments. Many rentals require a large lump-sum payment due at lease signing. This includes the security deposit and the first and last month’s rent.

Tips and Strategies To Save on Rent

Bridges says that to make sure the rent remains within the budget, renters may have to search for apartments in lower-cost areas. This may mean compromising on the neighborhood and commuting from a lower-priced area to the city center. If going with a smaller space or farther town isn’t possible, you could try to house hack by getting roommates to help split the bills. Sharing expenses with roommates can significantly reduce your overall housing costs.

Warning

Some leases forbid subleasing or adding a resident to the home without letting the landlord know. You may need to restructure the lease or get permission from the owner of the property before taking on any roommates.

Negotiate Your Lease 

Don’t hesitate to negotiate with your landlord for a lower rent or other concessions. Often landlords welcome a longer lease upfront and are willing to lower rent to secure that kind of commitment. Also, if the apartment has been on the market for a long time, you may be able to convince the owner to let you move in for a rock-bottom price.

Research similar apartments in your area so you have a dollar figure in mind when negotiating. If you’re moving into a commercially run apartment building, you might be able to get a month or two for free, move-in discounts, and more. It never hurts to ask.

Pay Rent Upfront

Similar to negotiating the lease length, you could leverage the timing of your payment to ask for discounts. This is especially helpful for people who work in tipping industries like bartending, consulting, or freelance work. Because income can fluctuate so widely, entrepreneurs, self-employed people, and others working in a cash business may want to pay in bulk upfront. Many landlords would appreciate the offer enough to discount the overall cost.

Look for Older Units in Good Locations

Landlords often spruce up units with sleek upgrades like granite countertops, hardwood floors, and modern appliances to attract high-paying tenants. Still, these amenities come with a price tag. Consider opting for units that haven’t undergone recent upgrades but are still in the heart of your ideal area. Older units may feature dated appliances and less trendy finishes, but they often have more usable square footage. Choosing a less renovated unit can help you save money while meeting your housing needs.

Seek Rent Subsidies or Assistance Programs

Explore government or non-profit programs that provide financial assistance for renters. Depending on your income level, you may qualify for various types of assistance to make housing more affordable. These may include housing vouchers, public housing, and subsidized private housing.

During COVID-19 many renters benefited from government subsidized rental relief programs. While most have sunset, income, age, and disability-related programs are still widely available in many cities across the country.

Find a Smaller Unit

Smaller apartments often come with a smaller price tag. If you can downsize, rather than pay for long-term storage, it will save you money in the long run. While you may have an ideal number of rooms in mind, be forgiving of generous layouts with fewer rooms. Consider where you could be comfortable, even if it’s a bit smaller than ideal. 

Look for Off-Season Deals

Renting during off-peak seasons can often lead to lower rental rates. In the northeast, many landlords struggle to find tenants during winter, when fewer people are inclined to brave the cold and snow with large boxes. To avoid leaving their properties vacant during the holiday season, landlords may offer steep discounts.

Conversely, summer is the least favorable time to search for a new apartment. Families are more likely to relocate around the school year calendar. Additionally, people tend to have more free time during summer vacations, leading to increased competition for rental showings and applications. The influx of college students moving cities for summer break or after graduation further adds to the demand and elevated prices.

Explore Alternative Housing Options

Consider alternative housing options as a way to find more affordable living arrangements. Co-operative housing, renting a room in a house, or exploring shared housing arrangements can provide cost-effective alternatives to high-priced rental living.

Frequently Asked Questions (FAQs)

How Much of My Income Should I Be Paying Toward Rent?

While the 30% rule is a standard guideline, your financial situation and goals should dictate your rent budget. Ideally, how much you pay for rent should leave you with more than enough to cover other living expenses, including utilities, insurance, and an emergency fund.

Should I Rent Furnished or Unfurnished?

Deciding between furnished or unfurnished rentals depends on personal preference and budget. Furnished rentals may have higher initial costs but could save money on furniture expenses. However, you can opt for an unfurnished apartment and invest in pre-loved furniture.

What Reasons Could Cause My Landlord To Keep My Deposit?

Landlords can typically withhold all or part of your security deposit to address damages beyond normal wear and tear. This could apply to major repairs, unpaid rent or utilities, or cleaning fees.

Is Subletting a Good Idea?

Subletting can be a viable option to offset rental costs. However, review your lease agreement and seek landlord approval before subletting. Having a roommate without securing prior homeowner permission in advance could violate your lease completely.

The Bottom Line 

As with anything having to do with personal finance, whether you’re paying too much or too little on rent depends on what you value. Try compromises like negotiating with the landlord, asking for move-in discounts, and adjusting your desired location and home size. All these factors can save you hundreds of dollars per month, which quickly add up to thousands over the course of a multi-year lease.

Read the original article on Investopedia.