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In this article, you'll learn:
The answer to the question of rent affordability is one part math and one part consideration for your military family’s lifestyle. Families prioritize different aspects of quality of life when searching for rentals, such as access to top-notch public education or a below BAH rent payment.
Tough decisions have to be made when determining how much rent is affordable, but using online tools, including a budget and percentage calculator, draws your finances into sharper focus. From there, you’ll have a strong predictor of how much money is available toward housing costs for military rentals.
Because no one-size-fits-all strategy exists, we’re sharing multiple ways to formulate your best plan, considering military life specifics, credit scores, and the pros and cons of renting or buying a home.
Analyze Your Finances and Create a Budget
Many online budget calculators help you visualize daily, monthly, and yearly expenses. Some are very detailed and include daily coffee shop stops, but different calculators categorize “nice-to-haves” in an overall Entertainment category.
Sites such as Rocket Money, Simplifi, or Lunch Money offer a free trial of a budget calculator that clearly shows the big picture of your finances. You’ll need to gather information such as sources of monthly income, expenses, and savings methods. Even if you don’t have a monthly rent payment to plug in, the result shows how much money is available to consider for rent payments.
Now that you’ve calculated your budget, let’s examine a few ways to calculate your rent affordability.
The Golden Rule: Spend 30% on Rent
The tried and true rule is to spend up to 30% of your gross salary (the total amount of your salary before taxes are deducted) on rent each month. This figure, in theory, allows the renter to find a comfortable home with modest amenities. High-end finishes aren’t likely, but the apartment complex probably has an on-site gym and a shared laundry room. Or if it’s a rental house, it likely has a modest interior and two to three bedrooms and bathrooms.
Here’s a numerical example of the 30% rule. A $2,800 before-tax monthly income allows for an $840 rent payment (30% of $2,800). A percentage calculator is a quick tool to plug in any amount of monthly total income while deducting the percentage you choose to pay for rent: normally 20%, 30%, or 40%.
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Another Measure: Gross Salary Equals 40x Your Monthly Rent
Another common formula landlords look at when considering your ability to pay is that your gross salary equals 40 times your monthly rent. Or, a different way to do the math is to divide the $100,000 salary by 40, which equals $2,500. This is the target amount you can afford to pay for monthly rent.
These formulas are a good place to start, but military members and their families face unique spending challenges when it comes to affordability and rent. The monthly rent amount near military bases is driven by the local real estate market and the publicly reported BAH payments service members receive. Keep in mind that it's common for military families to pay much more than their BAH to rent homes with key features such as short commute times and access to shopping and dining.
You can count on your personal BAH figure to be a monthly baseline for rent because that is what local property owners think you can afford, which may or may not be true. Remember, BAH is intended to help afford housing payments, not necessarily pay the entire amount. It’s up to the individual to determine if BAH will cover their preferred lifestyle.
Location Drives Rent Payments
Location is also an essential factor in determining how much rent you can afford. A duty station in Hawaii or San Diego will probably cost more than 30% of your income, which is normal for those areas. It's easy to see the 30% guideline is a challenge in a high cost-of-living zip code. To remain near that goal, you’ll need strict budgeting in other areas, such as entertainment and other non-essential spending.
The 50/30/20 Rule for Rent
The 50/30/20 rule offers more flexibility for a military family to rank priorities. Your after-tax pay is divided into three categories:
- 50% of the total is for need-based spending (rent, utilities, food)
- 30% is for wants (entertainment, travel)
- 20% is for savings and debts (school loans, TSP)
You get to distribute which payment fits each category. For example, transportation is a payment that could flex between “need” and “want,” depending on your location and proximity to work.
How Your Credit Score Affects Your Rent Payment
A credit score is one of several factors landlords and property management companies look at when considering your rental application. Although a credit check may not provide a detailed look at your ability to pay rent each month, it remains one of the foremost investigative tools.
Before a property manager denies your rental application, knowing exactly what appears in your credit report is important. If there are mistakes that inhibit your chances of obtaining housing, there are opportunities to correct the inaccurate information that will improve your rating. Everyone is allowed one free credit report from the three major reporting agencies, TransUnion, Experian, and Equifax, through AnnualCreditReport.com.
Are you curious as to what good and bad credit scores are? A FICO Score is a widely used credit score and is the number computed by the Fair Isaac Corporation. The typical score range is about 300 to 850. A 670 or above is considered a good score.
Tenant Screening Services
Landlords are interested in your ability to pay rent on time regularly and without interruption. That’s why many landlords use tenant screening services, which not only include a credit report but could include background checks, county/city records, and bank statements. Don’t forget social media is fair game. The behavior you showcase online is searchable by savvy landlords who aim to protect their investment.
Although you should expect that property managers and landlords will, at minimum, request a copy of your credit report, some may not and are completely fine with a glowing recommendation from a mutual friend or neighbor. This is a scenario that regularly occurs within the connections between military families. Some homeowners find enough comfort in knowing the U.S. military pays you each month, and if necessary, they could discuss payment delinquencies with your chain of command.
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Options if You Have Bad or Zero Credit
If your credit score is lacking, the goal is to definitively show a property owner you are accountable and have the income to pay all of the rent every month. There are a few ways to achieve this goal.
1. Pay more.
Paying more is often easier said than done, but an offer to put down a larger deposit or several months’ rent in advance could convince the property owner to give you a chance.
2. Ask a co-signer.
If a family member or friend has complete faith that you will pay your rent in full each month and is willing to make the payments if you cannot, ask permission to submit their name as a co-signer. In a landlord’s view, this is a strong backup plan for guaranteeing money each month.
3. Consider a lower priced rental home or apartment.
A zero or bad credit rating could support a smaller rent payment. Think of this move as a temporary one until your credit improves. The smaller rent payment may also lead to a healthier overall budget and a beefed-up savings account to apply to future rentals or to buy a home in the future.
Can you negotiate rent? Learn more about it here.
Is It Cheaper to Rent on Base or Off Base?
If only there were one clear-cut answer to this question for everyone! The answer is truly personalized to your family's size and priorities for a comfortable lifestyle.
As it is the industry standard, the private company that operates the on-base housing takes the service member’s BAH, whatever that amount is, and whether or not an improved house (bigger, better) is available to you at promotion time.
There are exceptions to this rule according to the needs of the housing company across military bases. Less-than-desirable homes are not always, but sometimes, offered to families for a reduced rate. This tends to be true around bases with plans for housing renovations or with a student population only assigned to the base for months instead of years. For reduced rent, you should expect smaller housing options with fewer amenities.
The location of your duty station plays a big part in calculating affordability. A high cost of living is not unusual in several of the military’s most densely populated areas. You can probably guess that NAB Coronado, Alexandria, VA, in the National Capital Region, and Hawaii military bases will strain a budget far more than bases in areas without a major metropolitan or expensive real estate, regardless of a military presence. In these situations, living on base tends to be less costly but can have its own set of issues, including waitlist times.
Certainly, there are many more affordable areas where military members are stationed. The Carolinas and Texas are known for their reasonable living costs and often appear on “Best of” lists geared toward military members. The likelihood of getting more house for your rent money off base increases in lower cost-of-living areas.
You’ll have to review your total budget and reach out to military families already living on or near the base you’re considering who can inform you of costs to be aware of that you don’t have on your radar. These are a few examples of how a location impacts a rental budget.
- Utilities: California has notoriously high gasoline and water bill payments.
- Transportation: Washington, DC, parking and Metro access are expensive.
- Education: Some schools are on base, some are off, and there are mixed opinions on DODEA vs. local school systems. This may lead to the need for the extra expense of private education.
- Food: There are high prices in Hawaii, Guam, and Alaska because of shipping limitations.
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Is Buying a Home a Better Option than Renting?
If homeownership interests you, consider all of the previously mentioned costs and location affordability, as well as closing costs, homeowners insurance premiums, taxes, and a reserve of money to tackle necessary and cosmetic improvements. A reputable real estate agent or mortgage broker can help you break down the costs of renting vs. buying on a short timeline.
Military homeowners must also consider their feelings about becoming a landlord and property manager. Unexpected orders throw off the best-laid plans, leaving the ownership of the home in question while, at the same time, firmly placing the possibility of landlord life, even from afar, in your lap. A rental home business also requires another round of money to operate correctly. Think about this full circle—it will now be your turn to decide the credit score you want your tenants to have!
What’s the best course for determining your rental budget? From detailing your monthly expenses to thoughtfully considering renting on or off base, use this information to guide your decision on a rental, but ultimately, you’ll have to do the individualized financial work to come up with the best plan for your family.
By Dawn M. Smith
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