Why you should live in your parents’ basement

Did you know?

Why you should live in your parents’ basement…

$59,600 is the average salary of a student straight out of college.
$5,000 is the average cost of rent in NYC
$5,000 x 12 months = $60,000 per year!

Now, let’s deduct $60,000 in addition to your monthly student loan payment, plus some extra add-ons like food, clothing, ubers, and other costs to live… and YOU ARE BROKE!

Numbers speak louder than words and as an agent, I am begging this generation of clients to live at home. Yes, I know It is counter intuitive to provide this information especially since my whole career is based on commission checks. However, I am speaking to you as a fellow student, friend, and young professional.

Why is it so expensive to live NYC?

First, let’s understand why New York City rental prices are so excessive. In 2021, New York City surpassed San Francisco as the most expensive city in the U.S. to rent a 1 bedroom apartment. There are many contributing factors to consider.

Obviously, there is a strong supply and demand in New York as the city is notorious for its opportunity creating a high demand. This creates a low asking supply which is a formula for an extremely expensive city.

Another reason is a common misconception. Landlords are not getting greedy, but rather making up for the losses they incurred during the pandemic. They are depending on these renters to offset their mortgages.

In addition, rental regulators in NYC set a new standard after the pandemic for rent-stabilized apartments. Rent stabilized means that landlords can only increase rent at a fixed rate each year.

For example, now a 1-year lease can increase rent by 3.25% and/or a 2-year lease could increase by 5%. This hike in rent has forced many out of their apartments because they are unable to afford the new asking price.

How far are you willing to go to live in NYC?

Although prices are continuing to go up, a new wave of renters are coming out of desperation. As you can see in these photographs, a line for an open house is wrapped around the block for a 2 bedroom apartment in Chelsea. People are still willing to pay these steep prices and bidding wars are continuing to happen for rentals. This used to be unheard of!

The market has become so competitive that the qualifications have reached an all-time high. As a current agent, I am loving it. It’s more business and money in my pocket. However, as a soon to be college grad myself, it is disheartening.

Advice for the Recent Graduate . . .

I would like to now share some insight into getting your foot in a “new overpriced studio door.”

If you are going to an open house you must always, always come with all your documents prepared and ready.

This includes:

Employment verification
Pay stubs
Bank statements
Federal tax return
Your ID’s.

REMEMBER

You need to be ready to fill out the application as soon as possible because most rentals don’t stay on the market for more than a week.

The Kicker

Here is the kicker! In addition to all of your prepared documents, you must be able to prove an ACTIVE income of 40x the rent. Yes, that’s correct – 40x the rent! This means if you want to live in a $2000/month apartment you need to be able to prove you earn an income of $80,000.

According to CNBC data analysis, the average income of first-year college grads was not even $60,000.

Therefore, many young professionals will need to use a guarantor (usually a parent). This person is now liable to the landlord and the bank if your rent is not paid.

If you want to live in NYC…

So, if you still want to rent that $2000 apartment you have to hope your guarantor can prove a combined income of $160,000. This does not mean having $160,000 in assets, it has to be an annual active income. If you can’t find someone you can sign up for a third-party guarantor which will be an additional cost to you.

It is a heartbreaking reality for these eager college graduates who worked so hard to land a great job in their dream city to have to throw money down trash shoot just to live by their work.

I know it seems counterproductive of me to shy away from potential clients. However, my passion for wanting to help people find a home they are going to love and a city they can afford to live in without hurting their pockets is my passion.

Last summer, I had a client who had recently graduated from college eager to find an apartment in New York City. Although he had an unbelievable offer letter, he just couldn’t hit the 40x the rent requirement and find a guarantor who made 80x the rent in active income. We tried to become creative and suggested he find a roommate or use a third-party guarantor.

But ultimately my co-agent and I told him, if we were in his shoes we would wait a year. Let the market cool off, save up by living at home and reassess next summer.

It is important to know . . . What you do with this savings will impact the rest of your life.

I explained that if he saves $40,000 (for example), he can go to the bank and ask them for a conventional mortgage (20/80 loan to value ratio). This particular mortgage is because if the market shifts a little this is how the banks will hedge themselves.

But you need to remember to make your loan term 10 years, not 15, 20, or 30 years. A lot of people will choose a 30 year mortgage because they are attracted to the lower monthly payment. However, a $160,000 loan will have an interest of $43,647 and for that same scenario interest on a 30-year loan is $100,000 more than that.

By living at home and saving money for a downpayment to buy an apartment, a monthly payment will be $1697 going towards equity and not to the trash can. By owning an apartment you will reap the benefits.

Reach out! Click Contact

Why you SHOULD live in your parents’ basement . . .