How To Calculate Apartment Affordability
I never gave much thought to apartment affordability when looking for a rental until we were living in one.
Today, I’m going to walk you through what we should have considered to calculate whether we could afford where we rented.
Common Mistakes When Calculating Apartment Affordability
Mrs. CBB sold her house as it was too big for her and something she didn’t consider when she purchased it.
I thought it was a mansion compared to my 600sq ft home back in the UK.
Luckily I got to spend some time with her when I came to Canada for a holiday.
I absolutely loved the amount of space and her mortgage was at $180,000 which was great for a 2100sq ft home with a 1000sq ft basement that was unfinished.
Basement Rental Affordability
The basement was the highlight for me as I’d never experienced one before as it’s not common in the UK.
She was considering renting out two unused bedrooms in her home however we got engaged.
Our frugal lifestyles were so connected that it made sense for us to sell the house until I got a job.
Although I had money saved from selling my UK home which was far more lucrative than hers.
I moved in with my sister and mum and dad for a while and got a job as a truck warrior in the UK.
That just means I did all of the dirty work and another drove the truck as I was not licensed to do so.
The job I found didn’t matter to me because all I wanted was fast cash while waiting for my Permanent Resident Card.
I talked to my boss from the start saying that this would be temporary work for me as I was moving to Canada.
Strangely enough, while Mrs. CBB was visiting the UK I received my permanent resident status to move to Canada.
So from there, I started packing, quit my job, and bought a one-way ticket to my new home in Ontario, Canada.
Room Rental vs. Buying A House
This was a simple situation for us as Mrs.CBB was already renting a large room in the basement of a home.
Since I had no job it made sense for us to both stay in the room rental at a $100 increase to $500 a month.
This was back in 2006 and our apartment affordability was great but I needed a job first before moving to a rental or buying a home.
There were pros and cons to renting a basement room but we stuck it out for a good year and saved as much as we could.
Instead of leaving to rent we had many choices for homes to visit open houses.
Waiting For The Right Time To Buy A House
Since the market crashed in 2008-2009 that was the time when house prices dropped.
Our only regret was not spending a bit more on a bigger property as the house is great for us.
We gave our landlord her notice that we were moving out and while I was at work he moved to our new home.
At this point, we were SO happy to have bought a home because we couldn’t take the screaming teenagers upstairs.
Consider that if you ever rent a room or apartment you have to live with the upper-level noise if the basement isn’t soundproofed.
It was the perfect time for us to jump ship so we worked with our realtor to find a house close to my work.
That didn’t take long but we looked at loads of houses and then found the one.
Almost 14 years later we’re still in our house, mortgage and debt-free, and living our best life.
Apartment Affordability CMHC Calculator and Budget
I wish I had known about apartment affordability calculators as I likely would have used one like the photo below.
All we knew was we wanted to buy a home on one income which we ended up doing.
When I showed Mrs. CBB this mortgage or apartment affordability calculator she thought it would have been handy.
Instead, we created a basic budget to calculate our mortgage and apartment affordability.
Testing An Apartment Affordability Calculator
The mortgage and apartment affordability calculator below can be found on the CMHC website.
I used this monthly apartment affordability rent calculator for laughs and it works great.
The only issue I have with these types of calculators is that you need to be fairly accurate.
You can’t just estimate monthly expenses which was why we created a mock budget for buying a house.
You can use the mock budget to come up to target your apartment affordability rentals as well.
This was a big experiment for us and we felt we were prepared to buy a house in the 200,000-$500,000 range.
Just because the bank says you can afford $500,000 doesn’t mean you should buy that high.
Keep your mortgage or rental expenses as low as you can until you save enough to buy a permanent home.
Back then that was lots of money for us so we stayed on the low-end just in case of an emergency.
What Kind Of Apartment Rental?
It’s important that you sit down to write down on paper what you are looking for in a rental.
This way it helps you target certain areas in the town or city you want to move to.
If you feel you are in a situation where apartment affordability is too much you can opt for a room rental if you’re a couple or single.
It’s not a big deal to live with someone else so you can save money to get out and rent an apartment.
That’s what we did but ended up doing as I mentioned above.
The basic target rent formula that landlord’s use is annual before-tax income divided by 40.
When you are on a straight salary estimating the number is easy.
However, if you are getting paid hourly, budgeting your maximum affordable rent is a bit more complicated and you have to factor in both your hours and hourly pay rate. Source: My First Appartment
Apartment Affordability vs. Your Financial Situation
Now that you know what you want in an apartment rental you must consider your financial situation.
Have a look at rental prices in the areas you like to see if your rental affordability meets what you want.
This is the perfect time to start your mock rental affordability budget for a minimum of 2 months.
It will also allow you to write down all of the debt you know for the next step.
Monthly Expenses (do not include rental costs)
This is a must when it comes to calculating your rental affordability as it will impact that number.
On another piece of paper or on your computer create a list of your monthly expenses.
This is where the mock budget before renting is a great way to see where your money is going.
Hopefully, you can slash expenses to increase your apartment affordability.
Just remember you have to stick to your budget goals otherwise if your budget is tight it could affect you.
Also, if you have an irregular income it’s even more important to get a budget together before renting.
As well, consider the expenses you must pay for at various times throughout the year.
We call these projected expenses or the expenses that crop up in a month and the renter is not able to pay it.
Saving money in your budget for these projected expenses is a huge step in the right direction.
Apartment Affordability Considerations Not To Forget
One last thing to consider when apartment affordability is what would happen if one of you were injured, job-loss, or illness?
Consider the costs of renting on one income instead of two just in case something should happen.
Also, seriously consider apartment insurance if you rent as it’s cheap to buy and will protect your assets.
If you use my monthly budget eventually you should see debt reduction and savings increase.
Keep Your Extra Cash To Continue Cleaning Out Debt
Save any extra money to a mortgage fund so you can get out of the apartment and into a home you love.
That’s what we did but waited for the right time and the area we wanted to by for easy commutes to work.
Although rental apartments are expensive don’t give up faith just give up spending money on non-essentials.
We just found out on Facebook that the one-bedroom apartment Mrs. CBB rented when she moved to this city.
From 1999 until 2005 a one-bedroom rental in an area where shopping was within walking distance was $750.
Today that same one-bedroom apartment in the same building is $1750 plus $50 for parking per car.
The Snowball Method of Paying Debt Fast
This snowball method was created by Dave Ramsey which works well for most people.
- List all of your expenses
- Make only minimum payments on your largest credit cards and the most on the smallest
- When the smaller debt is paid use that money to pay off the next smallest debt.
- Continue to do this to get rid of your debt.
By following the snowball method pay your lowest debt first and once paid you take that money and put it on the next lowest debt.
Continue this until you pay your debts off using the snowball method for debt reduction.
Also, consider finding your rent-to-income ratio another way to give you an accurate number.
Final Thoughts
Overall, renting a room for us was a smart decision as we saved for a downpayment.
Lastly, sometimes we have to make drastic changes in our lives due to illness, job loss, and marriage breakdown.
If you are selling a family home remember to spend less than you earn and buy or rent with a budget.
Discussion: How did you arrive at your apartment affordability number?
I love reading your comments so please post them below.
Mr.CBB
Recent Blog Posts You May Have Missed
Below is a recap of the blog posts I’ve published over the past two weeks.
- Loonie A Week Challenge with a Free Accountability Printable
- How to implement A Grocery Budget in 2021
- Fluffy mini silver dollar pancakes
- Easy Keto Copy Cat Mozzarella Folios
- The best of CBB finance posts and recipes
Subscribe to CBB to add your email to my list to get my weekly blog posts and access to my Free Budget Resources Library.
I also publish a bi-weekly newsletter that comes straight to your email, but only for subscribers.
You’ll find exclusive updates about the blog and CBB home life including photos and exclusive contests.
If you have a blog topic you’d like to submit email me at canadianbudgetbinder@yahoo.ca
I’m also looking for anyone who might want help with their budget as I am willing to look over your work and make suggestions.
Seasonal Frugal Recipe Box
Kathleen over at Gonna Want Seconds looks amazing and I can’t wait to try it.
This Cowboy Stew is the perfect winter recipe and it looks filling.
Thoughts Corner By Mr.CBB
This simply means that if you ever want to be free of the burden of debt then do something about it.
Too many people want to budget but don’t put their heart into even setting one up or following the rules.
Consider budgeting and motivate yourself and your family to stop making excuses and just do it.
HOME AND BLOG UPDATE
Home Update:
Not much is going on around the house apart from buying renovation materials when they go on sale so I can start our master bathroom rental.
We’ve been homeschooling the last week with our son until they are clear to go back to school in 2 weeks.
We had a lovely Christmas dinner with my wife’s siblings but there was SO MUCH food for 6 people.
Has anyone had their air ducts cleaned in the Greater Toronto Area?
I’m also working on finding someone to insulate the garage bedroom as it gets too cold in the house.
Other than that our Christmas decor is put away but our outside lights still go on.
Blog Update:
Sara and I are putting the Canadian Budget Binder which will so cool when it’s done.
It has been such a large process working on that, blogging, working, homeschooling, and Christmas.
Everything seems to come up in between the blogging that I have to worry about.
The free resource page will be password protected but we’ll send out a newsletter with the password for you.
Thanks for supporting me all these years as we are currently going to celebrate blogging CBB since Jan 2012.
Mr.CBB
Saturday Search Terms
These are keywords that readers typed into their search engine and landed on this blog.
I get quite a few of these every single day and pick some of the best to feature right here.
- Turtle Pie Oh My – It just makes me smile and I love Turtles
- Rogers Bill hidden discounts – Well if there are any pm me the info. hahaha
- A simple letter of resignation – I quit seems simple, fold it nicely, put it in an envelope with your boss’s name on it.
- If my mortgage payments are weekly and I miss a payment: First find out that info from your bank or mortgage contract. Perhaps selling and moving into something more affordable might help ease the financial stress.
Thanks for your continued support of CBB and for listening to me ramble about our financial journey.
Mr.CBB
