Just how much should you spend on rent? This will depend on several factors and your preferred lifestyle choices but some general rules are available for you to follow. Given the high mortgage interest rates and cost of construction in Zambia, it is no surprise that over 60 per cent of urban dwellers are renting1. With this high percentage of people expected to be renting, rental property in certain market segments is often in high demand with several prospects looking monthly. A key question you need to ask yourself when looking for rental property is how much rent can you afford?
Depending on your lifestyle choice, you may decide to spend anywhere from around 20 per cent or more of your gross monthly income on rent. This of course does not include incomes such as that of Jeff Bezos ?! It’s a general rule and only serves as a guide. The thriftier you’re, the less you’ll want to spend on rent and this of course will limit you to certain areas or neighbours when looking for rental property. If you’re more of a splurge, however, you could be looking at spending around 40 per cent or more of your monthly income on rent. Needless to say, your property manager or landlord may not be too keen on accepting your tenancy as the risk of non-payment is higher should you run into any trouble. The more prudent and common middle ground is the generally accepted 30 per cent of gross monthly income as your rent. This is called the sweet spot and should be what you ought to aim for as you look for rental property.
Other factors you should consider and keep an eye on before deciding your preferred budget range to spend on rent will include;
1. Monthly Cost on Utilities
Remember that in addition to paying rent, you may need to pay for utilities such as water, waste management and electricity. While some rental properties include the cost of some or all utilities in the rent, not all will do so. Hence, you have to factor these into your estimated monthly expenses for rental accommodation. For example, apartments in a small housing complex will typically share a common water supply from a water borehole so the rent here may include the cost of water supply. Whereas, stand-alone homes on the other hand will require separate budgeting for water supply as this is not commonly included in the rent. Expenses on utilities will also vary from one neighbourhood to another and may be affected by your utilisation levels. Be sure to have a good idea of what you will be spending on your utilities and see how this affects your budget to spend on rent.
2. Know Your Other Expenses
Other than your monthly cost on utilities, you will have other monthly expenses to factor in when estimating your budget for a rental property. For instance, you may have monthly costs associated with tax on a rental property, transport, general upkeep, loan repayments, internet expenses, entertainment expenses and so on. These all add up to some significant amounts that should be watched and considered when coming up with your budget for your rental home. In addition to known costs and expenses, it is always a good financial practice to plan for savings and investments. This too should be factored into your calculations as you work out how much rent is ideal for you.
To conclude, you must know how much you can and should spend on rent before you start looking for rental property. If you don’t know your limits, you could easily find yourself in trouble as you overshoot your spending capacity or run into any unexpected situation. So next time your estate agent asks, what is your budget? – have an idea of your true “comfort zone” and be open about what you’re looking for. Your budget for rent need not be hard to calculate at all. What are some ways you’d suggest to save money on monthly expenses so you have more to spend on rent?
1 Source: Centre for Affordable Housing Finance Africa (CAHF)