4 Solutions to Lowering Your Rental Payments

July 23, 2018


















Odds are the largest portion percentage of your budget being consumed is derived from household expenses.  A typical rule of thumb that money coaches and advisors will state is to budget approximately 30% of your income towards your mortgage or rent.  Some claim before tax while others say to use after-tax or net salary. Using your net salary makes sense as this is physical money being put into your bank account.


For example, if your take home pay per month is $5,000 x 30% = $1,500.  In some parts of the country, this can go a long way while in other parts it can get you the bare minimum.  






In this blog, I am going to outline 4 ways to cut down your rental expenses if you are a renter:


  1. Move to an apartment/house that fits into 30% category or less

  2. Rent a room

  3. Negotiate your lease/rent

  4. Consider buying, not renting


1.  Move to an apartment/house that fits into 30% category or less


When apartment or house shopping, it can be frustrating finding the right location, the perfect school district, and a location with minimal traffic that is convenient to commute to work.


Moving to a lower-cost rental may not include all the amenities and location desired but it can be a course of action that is temporary in nature as you start saving for a down payment on a home or perhaps until you receive that promotion or pay raise.  


As Eric Tyson writes in his Back to Basics Personal Finance guide, “Remember that the less you spend renting, the more you can save.”.



2.  Rent a room


If you are single or have space available, renting a room can have some financial benefits.  The first is the shared living expenses. The more rooms you can rent, the more you can earn while reducing utility expenses.  You will need to inform the rental agency or primary of having roommates.

When you have a rental that is charging $2,000, you have the opportunity to live in a nicer location while having flexibility to rent out two other rooms.  If you charge $700 per room x 2 = $1,400 meaning you owe only $600 for rent. On top of that, you can split the utilities three ways. If after all utilities calculate to be $500 / 3 = $167 per person.  


You living expenses ($600 rent + $167 utilities = $767) are more affordable, compared to the $1,500.  You are saving $733 a month that can be saved towards a mortgage. Do this for two years and you can save $17,592 to put as a down payment towards a home.


There is some risk that you need to be informed of when considering this option.  The primary risk is vacancy. Should you fail to obtain roommates, whether one or two, you will be footing the living expenses.  You MUST calculate in this risk (basically, setting aside some money in the event this happens). The second risk is damage or stolen property.  You will need to vet your roommates to the best of your ability and only allow people to move in after you have “interviewed” them. Find out their likes, dislikes, vices, and habits.



3.  Negotiate your lease


Every time a lease expires, you can bet the rent is going up.  This is where some research can come into play and can work to your advantage.  Shop around and see what current rentals are going for in the area. If you see a trend that the rental market is deteriorating or declining, perhaps due to more people buying homes and getting mortgages, this can work in your favor to discuss lower rental rates.


Another tactic is to look to ask your rental property about specials coming up.  Landlords and rental agencies do not want to lose tenants because they are losing money if they cannot fill those vacancies.   By proving you have been a great tenant and responsible with the property and payments, this can work to your advantage as well.



4.  Consider buying, not renting


This might seem counterintuitive to the article title but it has its merit.  I have experienced several markets from the coast of California to the coast of Maryland where some markets are better to purchase a home than rent.   When purchasing a home, it can be very easy to get caught up in the moment with a list of “wants” just like you see on tv programs.


With so many banks looking to capitalize on your decision, you MUST know what you can afford.  Earlier you read about the 30% Rule when it comes to living expenses. This still holds true. You might be screaming at me now inside your head “I don’t want to live in a dump!”  You will be surprised at the type of home you can purchase on the market. Just about every home will need some improvement. That’s just the way it is. Houses and materials deteriorate so you need to find one where the previous owners kept up with it.


What may surprise you is that a mortgage can be more affordable than renting.  I’ve lived in some areas where renting far exceeded my mortgage payments. Now as your money coach, I must declare that I am not a fan of 30-year mortgages.  I highly recommend a fixed-rate 15-year mortgage.


Mortgage Calculator Link


Now going back to our example early since I have scared you with a 15-year mortgage, not 30-year.  Taking your $17,000 down payment you having been saving is 9% of a $200,000 home value price. With a 15-year fixed at 3.66%  interest rate, your total monthly payment is $1,652.

With this compared to the $2,000 rental, you are saving $348 per month.  Start saving this amount for future home improvements. In two years, this can total over $8,000 and the best part is you haven’t changed your spending habits.  


While a 30-year mortgage will present a lower monthly payment, you will be paying a HIGHER interest rate on it, not to mention the vast amount in interest you have paid after 30 years.  


Dave Ramsey has some great information on “Common Mortgage Questions” that I highly recommend you read before purchasing a home.


Finally, a great option of owning a home is the freedom to rent a room without having to get approval.   Similar to the rental idea of getting a roommate, this same methodology can applied. Another option is to consider using Airbnb of renting out a space in your home for a temporary period.





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