It’s become almost stylish lately to be a renter. While high profile renters are outing themselves all over the world (heck, even OG on our podcast is renting right now), views are changing about renting. That doesn’t mean everything’s rosy in renterland. A recent Yahoo! Finance story shows that renters are largely struggling to make ends meet, too. According to housing website Trulia, rents rose 5.5% in 2013, much higher than inflation in general. Many people who are renting because it’s less expensive are finding that even the “cheaper” option might be a struggle.
“Renting” isn’t a euphemism for “Safety”
Just because you decide to rent a home doesn’t mean you’re saving money. If your goal is to control costs, renters should look for a property that meets some basic criteria: 1) Rent shouldn’t be more than 30% of your take home pay, unless you’re rolling in dough. While I’ve gone on record that many of the “rules of thumb” are absolutely ridiculous, the 30% rule should apply to most people. 2) If you know you’re going to rent for a long time, look for a longer term lease. Long term leases assure the landlord that they aren’t going to have to worry about the next tenant. On your end, you can ask for a rent price freeze or at least a cap on the amount your rent will rise from year-to-year. That can allow you to budget more easily without worrying that your rent payment is going to skyrocket next year. 3) Cash reserves still matter. Just because your landlord may cover some of the utility bills, the real estate taxes and the homeowners insurance doesn’t mean you won’t have emergencies of your own. Protect yourself by having a cash cushion against the inevitable money crunch. 4) On the topic of insurance….renter’s insurance is cheap and cost effective. Your stuff won’t be covered if your landlord’s house burns to the ground. 5) Keep your goal in mind: you’re renting to save money, not to just dish off the responsibilities of home ownership. Use this opportunity to sock money away more quickly, not to spend more. Remember that your landlord has an asset (albeit, not a wonderful one) that you don’t: a piece of real estate that appreciates over time. Renting can be a boon if you look at it correctly. If you’re struggling, it might be time to re-evaluate your strategy, to get a roommate, or to look for a cheaper rental home.