Finding a place to rent (let alone buy!) in Australia can be competitive and stressful, and sometimes downright exhausting. This week, Harry shares his take on how to budget for your rent. Maybe you can afford to rent out that two-storey townhouse after all!
How much rent is too much rent?
Renting. For many young Australians it’s a rite of passage. A few short years spent between moving out of home and buying your own place. With property prices having exploded in recent years more Australians are renting for longer, with some opting out of home ownership altogether, choosing instead to be life-long renters.
The recent Census indicates that over the past 25 years the proportion of people renting has increased, from 26.9% in 1991 to 30.9% in 2016.
If you are renting, or are contemplating it, what should you spend on rent? Any way you cut it, rent is going to be one of your biggest expenditure items, particularly if you live in Sydney or Melbourne.
Average weekly income in Sydney is now $1,750 (or $91,000 per year) while the average dwelling rental, according to property research firm CoreLogic, is $550 per week. Thus rent consumes 31% of the average Sydney renter’s gross income.
In Melbourne, with average weekly incomes of $1,542 ($80,184 per year) and average rental of $400 per week, rent takes up 26% of the average renter’s gross income.
Averages don’t really tell us much about the types of properties individuals choose to rent, or anything about rental arrangements. How much to spend on rent depends on whether you share a rental property, the type of property and its location. Renting a one bedroom apartment by yourself in South Yarra or Pyrmont is going to be more expensive than sharing a three bedroom house with two others in Bulleen or Chatswood.
Other considerations should also factor into your rental budget. Does the location have decent transport options that allow you to commute to work other than by car? If so, the savings in fuel, servicing costs and parking (or the need for a car at all) could more than justify a higher rent.
Rent money, unlike a mortgage repayment, is a pure cost without any “savings” component. So if renting is only a temporary step before you buy your first property, then keeping your rental cost as low as possible should be a key priority, and ideally no more than 30% of your gross income in Sydney and 25% in Melbourne on rent.
Who is Harry?
Harry has over 20 years of experience in wealth management. In that time he has advised both individual and institutional investors. Previously a Certified Financial Planner, he now is a Certified Investment Management Analyst. So.. he knows his stuff.
When not making personal finance easier and less intimidating for Aussies, Harry loves his weekend bike rides and spending time with his wife and son. He’s pretty much the finance-savvy uncle you never had.
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