Of all the misconceptions I had about post-graduate life, the one that was most jarring to me was my false belief that my Bachelor’s degree and offer for my first postgraduate job would mark an era of true financial independence. For many, graduation from college life is the first time students are forced to think critically about their finances; I considered myself reasonably aware and prepared. I had concerns in the back of my mind about living within my means, and making sure to pay my bills on time. I had a healthy fear of credit debt and student loans. But entering the New York housing market has been a truly eye opening in how clearly a young person’s familyfinancial status affects their housing decisions and opportunities.
It’s common for fresh graduates to have little credit history, no pay stubs to reflect dependable income, and little in savings, all things landlords like to see when offering you a lease. Avoiding typical routes for leasing is possible through online sources, but quickly becomes convoluted if you’re a novice to the apartment game. Scams are commonplace, and conditions for properties that skirt rules are often questionable. So who does a young person turn to? Mom and Dad.
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Here are three key ways your family’s finances might impact your options when it comes to picking your first apartment:
First, difficulty making a down payment. You may be asked for two to 3 times the rent at the lease signing, plus additional fees for your broker. If you don’t come from a family sitting on a cool $10,000 readily available, you’ll likely have to take out a loan, meaning that interest is going to be on your back. The unfailingly optimistic among us might call it a credit building opportunity.
Second, trouble finding a guarantor. New York City has one of the strictest rent screening policies in the U.S. They typically require your yearly, pre-tax income to be 40x the monthly rent of your apartment, along with a host of other financial requirements. If you have never had a job before, one of those requirements may be a guarantor, someone that brings in an yearly income of 80x the monthly rent.
To do some quick math:
Imagine you and a roommate find a nice little bachelor pad for $2400 a month. You’ll split it 50/50, so your expected contribution is $1200/month. Your landlord is going to want both of you young scrappy urban professionals to make at least 40 x $1200 = $48000. If they decide you're too much of a risk, because you don't have any meaningful credit history, they’ll expect the parent or other kindly relative you have each selected to vouching for your respective financial integrities, to make twice that in a year: $96,000. Those guarantors will also need to have good credit scores.
Unless your parents have a job on this list, you might have a tough time finding an apartment that fits your needs.
Keep in mind, a good rule of thumb is that an apartment is reasonably affordable if it’s 25% of your pretax income. (Take your projected yearly income, divide by 12, and multiply that number by .25). By these calculations, despite what you need to get the hands on keys to your apartment, you need a pre-tax salary of about $58,000 to be living comfortably in that two bedroom for $2400/month. Apartments that require guarantors, like apartments that require two year lease commitments, are reserved for the best locations, and the best amenities. Are you looking for a gym downstairs? Are you looking for a doorman so you can have packages delivered to your address? Are you looking for no bugs? Expect to shell out more dough.
Third, difficulty absorbing unexpected, one time costs.
Asking for money is always uncomfortable, but if asking your family for a couple of hundred dollars in a pinch is out of the question, you’ll need to build up a savings to absorb unexpected costs. The worst part? You will end up needing that money, for the most inane and uninspired types of emergencies. Which means even with discipline and commitment to a budget, it’s going to be more difficult for you to save up than someone with a pre-existing stash for emergencies.
