Are You Paying More for Rent Than You Everyone Else? Find Out Now!

• Author: William Asher
• Posted: 2024-07-14

If you're one of the millions of Americans who pays to rent an apartment, townhouse, or house, you could be vastly overpaying for rent. Unlike those who own homes or are paying them off, you have the distinct advantage of being able to change where you live and your cost of living almost overnight!

Due to COVID-19, many rent rates have changed drastically. For example, the San Francisco housing market right now is very close to what it was in 2011, when it had just begun to recover from the nationwide recession. Other metro areas are seeing rapid declines in rent prices, as well. Keep in mind that this is partially due to a shift in amenities available. In some cases, this is just temporary until COVID-19 restrictions are lifted.

Should you be paying what you do for where you live? Let's look at the numbers.

Your Values

Your values should help dictate where you live. For example, if you value peace and quiet, chances are that you don't want the hustle and bustle of a city. On the other hand, if you prefer "being where the action is", downtown is likely the place for you. Unfortunately, for most people, it is their job that determines where they live.

With more and more jobs going remote, you should assess whether you still wish to live where you are now. For example, if you live in New York City and used to work there, is paying the current average of approximately $2,200 a month for a one-bedroom apartment worth it to you?

Your Taxes

Many people severely underestimate just how much their taxes can vary by state, particularly is they are most familiar with either a very tax-friendly state or a very tax-unfriendly state.

Income tax should not be the only thing to consider. For example, Maryland's effective income tax rate of about 4% probably sounds low. However, when you combine its 6 percent sales tax rate, its local income tax rate that can be over 3 percent in addition to the state rate, its property taxes that can go above two percent when all "special service district assessments" are added up, and its high vehicle ownership fees, this would not be considered a "tax-friendly" state.

While US law prevents you from being assessed by multiple states for income tax, you can be required to pay the higher income tax out of the state where your company is based and where you live.

A Hypothetical Tax Example

Let's say that your job went remote, and your company is headquartered in South Dakota, a very common tax haven for large companies. South Dakota itself does not assess a personal income tax. However, if you were to live in, say, Virginia, you would need to pay an effective income tax rate of about 5 percent.

If you had the same arrangement but simply lived in neighboring Tennessee, you would pay no personal income tax, and your property tax for vehicles would be non-existent. However, your sales tax rate would be much higher.

Wrapping It Up

Finally, it's important to consider far more than just your rent rate when assessing your cost of living. For example, utility costs can vary greatly across the country, and even just across a state line by a huge amount.

If you're a high earner but save most money, a state without a personal income tax might be the right fit for you. On the other hand, if you're a big spender, perhaps a state like Delaware that has income tax but no sales tax is a better fit for you. If you're considering owning a home one day, looking at lists of current, average state property taxes on real estate wouldn't be a bad idea. Finally, one item often overlooked is the cost of car ownership.

About half of states have "property tax" or "car tax" assessments for vehicles owned by their residents. This in itself can eat up a good chunk of change. Next, some states have an extensive network of toll roads while others flat-out ban toll roads. Gas prices should also be a major consideration for big drivers, as this has historically varied across the country by greater than $2.00 per gallon!

There is no automatically correct answer for whether you pay too much in rent; in the end, it's all about who you are and what you value.