When budgeting what you can afford to spend on rent, you first need to determine your income after tax (your net income).
» MORE: Renting vs. buying in Australia
How much should you spend on rent?
While there’s no hard and fast rule on how much you should spend on rent. You’ll just want to make sure you do not put yourself in rental stress.
Rental stress is a term used by the Australian Bureau of Statistics to describe households at risk of having difficulty paying the rent. Using this as a guide, it is best practice to budget to spend 25% of your income on rent.
» MORE: What is mortgage stress?
How to work out the percent of income you can spend on rent
If you decide to use the target of 25% of your income, there is a simple formula to calculate what you can afford.
Weekly income x 0.25 = rental budget.
For example, if you earn $1,000 each week after tax, then your weekly rental budget would be $250.
If you have a salary, this budget is easier to calculate as you will likely be getting paid the same amount each pay period.
However, if you are a casual or part-time employee, it can be a little trickier to determine your income. So, to be on the safe side, you can estimate your rental budget based on a week with a smaller income. That way, you can be sure you can afford rent even on weeks you may not work as many hours.
Average rent in Australia
Sydney is currently Australia’s most expensive city to rent in, while Adelaide and Hobart are the most affordable for units, according to data from Core Logic.
Capital City Median Rent
|Median Rent - Houses
|Median Rent - Units
If you do happen to live in one of Australia’s more expensive rental and real estate markets, there are, however, strategies to reduce your expenses such as:
- Live with housemates
- Walk/bike to work/studies
- Search for rentals in more affordable suburbs further from the city centre
- Rent out a parking space.
Other rental costs to include in your budget
When living in a rental property, you also need to budget for bills and a number of other expenses.
Most rental agreements do not cover electricity and internet costs. A report by the Australian Energy Market Commission estimates average monthly electricity costs can range from $102 – $170 per household.
You also need to consider the cost of your internet connection when calculating your monthly expenses. Internet services average between $800 and $900 annually.
» MORE: What is a utility bill?
First-time renters should note that for most rental properties you need to pay a bond, also called a deposit, when you move in. This can range from one to four weeks’ rent. It acts as a type of protection should there be any damage to the property, missed payments or cleaning required when you leave. You get this money back when you move out, pending the condition of the property.
Other expenses that are important to consider when renting are things such as the proximity to your work or where you study. Driving long distances or paying for public transport daily can quickly add up. Depending on the suburb, you may pay more for day-to-day items such as petrol, groceries, parking or even take-away coffee.
The 50/30/30 rule
A helpful budgeting tool can be the 50/30/20 method, where 50% of your net income goes on necessities such as rent, bills, groceries and transportation. Another 30% can then be directed to non-essential spending such as streaming subscriptions, travel, shopping or eating out. While you should aim to save the final 20% or use it to repay debts.
Tips on how to rent a property
For first-time renters, browsing properties online is a good starting point. Websites such as Domain.com.au and Realestate.com.au allow you to filter properties by price, location and property type.
For example, some prospective renters might look for a house near their university or work. Others might already have a dream suburb in mind close to bars, cafes and restaurants. If you have a pet, you may need to filter your results to find properties with a yard. Whatever the case, this can be a helpful first step to see what your options are within your budget.
It’s also important to visit rental properties during in-person inspections. Photos online can be misleading and seeing properties for yourself will help you compare options within a similar price range.
Finally, have your documentation prepared. When you apply to rent a property, you will need to provide proof of income, bank statements and rental history (if you have it). These items show the property manager you are capable of meeting your repayments. There is no typical time frame for how long it takes to secure a rental. The market is largely driven by supply and demand, meaning it may take longer to secure a rental in a high-demand market.