Figuring Your Affordability
Establishing your threshold for rent and expenses when considering moving in or to NYC.
Understanding the Terms
While the individuals and organizations that create leases are most often trained in real estate or law, the common renter isn’t well-versed in the terminology. More importantly, they may not fully understand the ramifications and legality involved.
These terms will often include income requirements, eligibility criteria, and historical data.
Understanding your gross yearly income or your income before taxes will frequently be the basis of income eligibility. On average, you are expected to earn 40 times your monthly rent annually to qualify. You can figure your rent affordability two ways:
Take your yearly income and divide it by 40.
Take your desired rent amount and multiply it by 40.
Both methods will bring you to the highest rent you can pay.
Taxes in New York City
While landlords and property management companies take your gross annual earnings into consideration; you would figure your budget using your income after taxes. 35% of income is deducted for taxation or 65% is utilized. Why make this distinction? This is the money you take home, and this is the amount you should use when computing other monthly obligations.
Take your yearly income and multiply it by .65, it equals your income after taxes.
For easy math, let’s take $70,000 per year. After taking taxes, you’re left with $45,500. It is from this figure you’ll be subtracting expenses of daily life. Utilities are a given. What fun is an apartment with no lights?
You may enjoy watching Netflix so internet is a must. Living in New York, your metro card is in your top 5 most important necessities, so that’s to be accounted for. Throw in laundry services, groceries and a splash of fun and you’ll have a budget.
There are other aspects of a renter’s profile taken into consideration other than just income:
- Credit History
- Rental History
- Criminal Background
Each landlord is different and understanding the expectations can help save you time and sometimes money. Be sure to verify rules and requirements regarding the points above before committing or even applying.
Along with these aspects, there can be penalties and charges involved when a renter skips payment, is late on payments, or is evicted. Not only can that make an impact on your credit but also affect your ability to find housing in the future. Sometimes leases include early termination processes and fees or penalties for late payments. Reviewing these nuances can help you decide between one rental and the next.
Finding an apartment with imperfect history isn’t impossible, landlords can use:
Guarantors are obligated to pay your rent if you happen to default. The requirements are high for guarantors up to 100 times the rent amount yearly. They can help you still attain your ideal apartment even with iffy credit or no prior rental experience.
Secondary Tenants also known as roommates, can help bump your income from 25x to 40x by adding their annual income to yours so that both of you are able to afford the desired apartment. It may not stop at rent; they can also help with splitting all the extras we mentioned above like internet and utilities.
What to Expect
Let’s say you understand all the information above and decide to go shopping for your new abode using your newfound rent budget and -whoa- you’re astounded at both the quality and quantity your money affords you. It may be a stark contrast from the luxurious, trendy apartments you’ve seen on TV and print but you may just not be looking in the right places. What you seek is out there, you may just have to adjust your vision to include a roommate or sacrifice a few amenities.
At the end of the day, make sure you leave money aside to enjoy the city you live in and comfortably afford your monthly expenses.
If you want to go see a Broadway show, visit your neighborhood Delicatessen, and roller blade at Central Park you should.
After all, “If You Can Make It Here, You Can Make It Anywhere”!