Too much rent?

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Htownengineer17
Posts: 5
Joined: Tue Apr 17, 2018 9:35 am

Too much rent?

Post by Htownengineer17 » Tue Apr 17, 2018 10:13 am

Hello BH!

Emergency fund: about 16 months (56k)
Debt: Car loan- 13k 1.49% (3 years left), Student Loan #1- 10k @ 5.5%, Student Loan #2- 10k @ 4.5%
Tax Filing: MFJ
Tax Rate: 25% Fed, 6% State
Residence: GA
Age: 28, spouse is 27
HHI: 125k

His Roth: 32K
His Rollover: 17k
Her Roth- 6.5k

Recently moved to GA to accept a new job. We are planning to save the full 20% outside of emergency fund (60k) before buying a new home. We are looking at renting a couple of houses close to work, but the rent is scary. Would it be acceptable to rent a home for 2k a month? This would provide a 3 bedroom house with a fenced in yard for our dog. These homes are selling for 500k plus, so it’s a nice area and would be a short commute. We could save $500/month if we looked farther out, but would rather not (my commute in TX almost killed me- 2 hours each ways).

Please let me know if any additional details are needed.

Thanks!

gizzsdad
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Location: midwest

Re: Too much rent?

Post by gizzsdad » Tue Apr 17, 2018 11:37 am

Welcome to the forum!

$2K/mo rent seems like a lot to most folks. But unfortunately, only you and your spouse will be able to quantify this comparison.

Your decision will have to be how much that longer commute, and presumably sooner home purchase, is worth to you.

This decision will literally be different for every single person/couple. Congrats on the new job - and best of luck to you!

rebellovw
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Re: Too much rent?

Post by rebellovw » Tue Apr 17, 2018 11:45 am

2K a month isn't that high for a 500K house.

Last time we rented (and it was house) was 1996ish and the rent was I think 1100 - and that was for a 100 to 200K house.

Here is the zillow price of that house now:

Zestimate®: $740,167

You gotta love the bay area.
Last edited by rebellovw on Tue Apr 17, 2018 11:50 am, edited 2 times in total.

abner kravitz
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Re: Too much rent?

Post by abner kravitz » Tue Apr 17, 2018 11:45 am

I think $2K in rent is reasonable for a house of that value and for your income.

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Smorgasbord
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Re: Too much rent?

Post by Smorgasbord » Tue Apr 17, 2018 11:50 am

$2,000 a month rent on a $500k house seems like a screaming good deal to me. Using this random GA house as a guide, you'd be paying about $6,000 a year in property taxes for that house. Add in 1% ($5k) for maintenance and it seems that the landlords are subsidizing the renters in hopes of continued appreciation.

WhiteMaxima
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Re: Too much rent?

Post by WhiteMaxima » Tue Apr 17, 2018 11:53 am

$2000 for 500K housing . At 4% mortgage rate, sounds resaonable. At 8% of rate, it will get doubled.

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Pajamas
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Re: Too much rent?

Post by Pajamas » Tue Apr 17, 2018 11:58 am

It's a good deal for a $500k house but do you really need a $500k house? If $2k seems like a scary high amount, look around for something that is less. In Georgia you should be able to find something less expensive without going too far out.

Jags4186
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Re: Too much rent?

Post by Jags4186 » Tue Apr 17, 2018 12:11 pm

Is this a planned temporary move or a planned permanent move? If permanent and the goal is to buy a house I would whip out the excel spreadsheet and figure out how long it will take you to save up for the home you want to buy and then determine how long you will need to save based on variable rentals.

Example 1: You need to save $50,000 to buy a house. You can save $1000/mo with $2000 rent or $1500/mo with $1500 rent. It will take 50 months to save the money with the $2000/mo apartment or 33 months with a $1500/mo apartment. Is buying a home 1.5 years sooner worth being a little uncomfortable for 33 months?

Example 2: You need to save $50,000 to buy a house. You can save $4000/mo with $2000 rent or $4500/mo with $1500 rent. It will take 13 months to save for the house saving $4k/mo or 11 months to save at $4.5k/mo. Renting the cheaper place doesn't make much of a difference.

Example 3: You don't plan on buying a house and choose to be a renter. $2000/mo apartment is comfortable and $1500/mo apartment is cramped. Rent the $2000/mo apartment.

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Htownengineer17
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Re: Too much rent?

Post by Htownengineer17 » Tue Apr 17, 2018 12:16 pm

These houses are right OTP (Sandy Springs). A house down the road from one of the rentals just sold for 495k and is 1640 SF built in the 1960s. It’s the location that’s driving the cost, but this is the area that we work.

I appreciate all the replies!

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Htownengineer17
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Re: Too much rent?

Post by Htownengineer17 » Tue Apr 17, 2018 12:23 pm

We plan on being here permanently, but also thought that before our previous move. We could save 4k+ a month if we really stuck to our budget. That would allow us to save up for 1 year and grab the rest from our emergency fund which would bring that down to 12 months reserves
Jags4186 wrote:
Tue Apr 17, 2018 12:11 pm
Is this a planned temporary move or a planned permanent move? If permanent and the goal is to buy a house I would whip out the excel spreadsheet and figure out how long it will take you to save up for the home you want to buy and then determine how long you will need to save based on variable rentals.

Example 1: You need to save $50,000 to buy a house. You can save $1000/mo with $2000 rent or $1500/mo with $1500 rent. It will take 50 months to save the money with the $2000/mo apartment or 33 months with a $1500/mo apartment. Is buying a home 1.5 years sooner worth being a little uncomfortable for 33 months?

Example 2: You need to save $50,000 to buy a house. You can save $4000/mo with $2000 rent or $4500/mo with $1500 rent. It will take 13 months to save for the house saving $4k/mo or 11 months to save at $4.5k/mo. Renting the cheaper place doesn't make much of a difference.

Example 3: You don't plan on buying a house and choose to be a renter. $2000/mo apartment is comfortable and $1500/mo apartment is cramped. Rent the $2000/mo apartment.

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Pajamas
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Re: Too much rent?

Post by Pajamas » Tue Apr 17, 2018 12:32 pm

Htownengineer17 wrote:
Tue Apr 17, 2018 12:16 pm
These houses are right OTP (Sandy Springs). A house down the road from one of the rentals just sold for 495k and is 1640 SF built in the 1960s. It’s the location that’s driving the cost, but this is the area that we work.

I appreciate all the replies!
There are a couple of hundred houses and apartments available for rent for under $2,000 in Sandy Springs according to Trulia. Don't forget about basic utilities. If you rent a house you will probably also be responsible for maintaining the yard, garbage, water and sewage, etc.

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Htownengineer17
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Re: Too much rent?

Post by Htownengineer17 » Tue Apr 17, 2018 12:51 pm

This is true, but we are targeting a home with a fenced in yard for our dog.
Pajamas wrote:
Tue Apr 17, 2018 12:32 pm
Htownengineer17 wrote:
Tue Apr 17, 2018 12:16 pm
These houses are right OTP (Sandy Springs). A house down the road from one of the rentals just sold for 495k and is 1640 SF built in the 1960s. It’s the location that’s driving the cost, but this is the area that we work.

I appreciate all the replies!
There are a couple of hundred houses and apartments available for rent for under $2,000 in Sandy Springs according to Trulia. Don't forget about basic utilities. If you rent a house you will probably also be responsible for maintaining the yard, garbage, water and sewage, etc.

bloom2708
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Re: Too much rent?

Post by bloom2708 » Tue Apr 17, 2018 1:05 pm

Wanting and needing a fenced yard for your dog are two different things. :wink:

What if your apartment was within close distance of a park/dog park?

You will have to decide if dog > owning a house. We can't answer that. I like the post about you picking how urgent your house buying is. Paying an extra $500/$750 in rent every month (to get a fenced yard) will start to add up.

We give you ideas, you pick. Spend less other places. Save at a higher rate. Get raises at work. Many variables at play.
"People want confirmation, not advice" Unknown | "We are here to provoke thoughtfulness, not agree with you" Unknown | Four words: Whole food, plant based

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jadd806
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Re: Too much rent?

Post by jadd806 » Tue Apr 17, 2018 1:12 pm

Any reason you're looking for a house rather than a 1 or 2 bedroom apartment?

Looking at the numbers, you'd be spending roughly 20% of your gross income on housing. I think that is a bit high, although not unreasonable if you feel that would allow you to meet your other financial goals.

When we were first starting out, we spent 25% of our gross income on rent. It felt oppressive. Our incomes have risen over the past few years and we're now around 10%.

For us, ~15% of gross income to rent was the point where it felt "fair"; we finally felt like we could afford to comfortably live in this town and weren't worried about getting priced out.

3504PIR
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Re: Too much rent?

Post by 3504PIR » Tue Apr 17, 2018 4:12 pm

Htownengineer17 wrote:
Tue Apr 17, 2018 12:23 pm
We plan on being here permanently, but also thought that before our previous move. We could save 4k+ a month if we really stuck to our budget. That would allow us to save up for 1 year and grab the rest from our emergency fund which would bring that down to 12 months reserves
Jags4186 wrote:
Tue Apr 17, 2018 12:11 pm
Is this a planned temporary move or a planned permanent move? If permanent and the goal is to buy a house I would whip out the excel spreadsheet and figure out how long it will take you to save up for the home you want to buy and then determine how long you will need to save based on variable rentals.

Example 1: You need to save $50,000 to buy a house. You can save $1000/mo with $2000 rent or $1500/mo with $1500 rent. It will take 50 months to save the money with the $2000/mo apartment or 33 months with a $1500/mo apartment. Is buying a home 1.5 years sooner worth being a little uncomfortable for 33 months?

Example 2: You need to save $50,000 to buy a house. You can save $4000/mo with $2000 rent or $4500/mo with $1500 rent. It will take 13 months to save for the house saving $4k/mo or 11 months to save at $4.5k/mo. Renting the cheaper place doesn't make much of a difference.

Example 3: You don't plan on buying a house and choose to be a renter. $2000/mo apartment is comfortable and $1500/mo apartment is cramped. Rent the $2000/mo apartment.
You could save even more per month if you paid off your debt with some of your E Fund. No reason to have 16 months in an emergency fund while carrying any debt like you have. Pay off your 33k in debt and you'll have 23k left over which is about 7 months of expenses. Perfectly reasonable. Then start saving for your house. There is no need to keep a personal slush fund if you budget correctly.

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gunn_show
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Re: Too much rent?

Post by gunn_show » Tue Apr 17, 2018 4:31 pm

bloom2708 wrote:
Tue Apr 17, 2018 1:05 pm
Wanting and needing a fenced yard for your dog are two different things. :wink:

What if your apartment was within close distance of a park/dog park?

You will have to decide if dog > owning a house. We can't answer that.
jadd806 wrote:
Tue Apr 17, 2018 1:12 pm
Any reason you're looking for a house rather than a 1 or 2 bedroom apartment?
While on paper the numbers work, like gizzsdad said right off the first comment, YMMV for every individual case. $2k in SoCal is peanuts, I have no clue about GA, but based on the numbers of course you can afford it. The question is why, and both bloom and jadd made the case points for you.

You mentioned a dog, but no other individuals or kids. Thus why do you need a 3 BR house? Two spare rooms for the friends that come once a year? Home offices? Room for your drum set? Craft room for the wife? I agree that getting an apt in the city with parks near by would be a better route, or simply a smaller home w/ yard. Sure, more of a PITA to walk the dog every day vs letting him run in the backyard, but if your ultimate goal is to save for a house, then I agree with bloom "You will have to decide if dog > owning a house" in terms of spending that much money just for a yard of your own. It's like my friend who wants to open his own gym, set up a gofundme, yet shows up with new tattoos and rims for his car. Priorities.
"The best life hack of all is to just put the work in and never give up." Bas Rutten

Dominic
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Re: Too much rent?

Post by Dominic » Tue Apr 17, 2018 5:01 pm

3504PIR wrote:
Tue Apr 17, 2018 4:12 pm
Htownengineer17 wrote:
Tue Apr 17, 2018 12:23 pm
We plan on being here permanently, but also thought that before our previous move. We could save 4k+ a month if we really stuck to our budget. That would allow us to save up for 1 year and grab the rest from our emergency fund which would bring that down to 12 months reserves
Jags4186 wrote:
Tue Apr 17, 2018 12:11 pm
Is this a planned temporary move or a planned permanent move? If permanent and the goal is to buy a house I would whip out the excel spreadsheet and figure out how long it will take you to save up for the home you want to buy and then determine how long you will need to save based on variable rentals.

Example 1: You need to save $50,000 to buy a house. You can save $1000/mo with $2000 rent or $1500/mo with $1500 rent. It will take 50 months to save the money with the $2000/mo apartment or 33 months with a $1500/mo apartment. Is buying a home 1.5 years sooner worth being a little uncomfortable for 33 months?

Example 2: You need to save $50,000 to buy a house. You can save $4000/mo with $2000 rent or $4500/mo with $1500 rent. It will take 13 months to save for the house saving $4k/mo or 11 months to save at $4.5k/mo. Renting the cheaper place doesn't make much of a difference.

Example 3: You don't plan on buying a house and choose to be a renter. $2000/mo apartment is comfortable and $1500/mo apartment is cramped. Rent the $2000/mo apartment.
You could save even more per month if you paid off your debt with some of your E Fund. No reason to have 16 months in an emergency fund while carrying any debt like you have. Pay off your 33k in debt and you'll have 23k left over which is about 7 months of expenses. Perfectly reasonable. Then start saving for your house. There is no need to keep a personal slush fund if you budget correctly.
I'd say pay down the student loans and continue paying the car loan as scheduled. 4.5-5.5% is a fairly high interest rate (even with the tax deduction), but 1.5% is barely more than the yield on a savings account (and is lower than money market yield). At that point, having the money in the emergency fund is more valuable than getting rid of the low interest debt.

JHU ALmuni
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Re: Too much rent?

Post by JHU ALmuni » Tue Apr 17, 2018 6:28 pm

Yes you can afford it but you can only decide if this is how you want to spend your money. Maybe you can find an apartment that is ~$500 cheaper and use the extra $500 on other stuff like funding retirement accounts, doing more travel, kids college, etc. instead of spending it on extra rent.

Katietsu
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Re: Too much rent?

Post by Katietsu » Tue Apr 17, 2018 7:03 pm

The typical American spends much more than 20% of gross income on rent. So, the rent itself is reasonable. It sounds like you are getting a good value.

So, you and your spouse will just need to decide on the relative value of the rental compared to other uses for that income. If you can meet your savings goals and debt repayment goals while paying the rent, then it is not too much rent.

I would be more concerned with your expectations moving forward. Will this lead to the desire to buy a $600,000 house? Will you then need new furniture for the new house? .........

Topic Author
Htownengineer17
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Re: Too much rent?

Post by Htownengineer17 » Tue Apr 17, 2018 7:28 pm

I travel a lot for work, so a fenced yard would definitely help with the added burden on my wife. Plus, in the area we are looking, we’d only be 5 miles from each of our jobs. It sounds like we really need to analyze whether that $500+ a month premium is really worth it. I appreciate all the advice.

Cheers!

Grt2bOutdoors
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Re: Too much rent?

Post by Grt2bOutdoors » Tue Apr 17, 2018 7:36 pm

Htownengineer17 wrote:
Tue Apr 17, 2018 7:28 pm
I travel a lot for work, so a fenced yard would definitely help with the added burden on my wife. Plus, in the area we are looking, we’d only be 5 miles from each of our jobs. It sounds like we really need to analyze whether that $500+ a month premium is really worth it. I appreciate all the advice.

Cheers!
How much is your time worth? In other words, how much more time would your commute be if you moved further away? An extra $500 a month is worth an extra $6.25 for 40 round trips (5 business days a week, usually 20 business days in any given month) each, that's $25 a day.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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randomizer
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Re: Too much rent?

Post by randomizer » Tue Apr 17, 2018 7:36 pm

Where I live, $2k/month is not a lot at all. Everything is relative.
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