How to Pre-Qualify Yourself Before Apartment Hunting:
Know the "40x rule of thumb"!
Nothing baffles people more about the NYC rental system than the 40x (or more) rent income rent requirement in NYC.
Actually I think the wording confuses some people... 40x means that your (or your household) annual salary has to be 40x the monthly rent.
Landlords tend to think in "lease terms" not monthly rent, so they're looking at your annual salary. In contrast, tenants tend to think in terms of the monthly rent. Boiled down, this means that your monthly household income needs to be about 3.33 times the rent.
*Note: this is not a written in stone law. It is simply a common way that many landlords qualify tenants.
Let's discuss some of the logic behind this. First a disclaimer: this article is a discussion of the 40x+ qualification rule. It is not financial advice.
You may be familiar with the "financial health" rule of thumb that says your rent shouldn't be more than 3x your salary. You may also be familiar with the 50 / 30/ 20 rule. Under this system 50% of your income goes to needs, 30% to wants and 20% to necessities. Keep in mind that a good chunk of that 50% is going to be your rent. From that perspective, 40x does make a bit of sense when measuring financial health. Remember, your landlord wants a good tenant (i.e. who is definitely going to be able to pay the rent on time!)
Of course, not everyone fits the mold. For example, some people may go through phases where they are more reliant on credit cards, savings and even under the table support from others (for example, extended family.)
Back-to-school students are another example. At one point in my life I quit full time work for a year in order to finish a degree I needed to promote myself to the next level of my then profession. I did so by shuffling expenses in a creative way allowing me to complete an entire graduate program in only 12 months, hence increasing my income earning potential by almost three fold in a very short period of time. It made sense for me, but from a number crunching perspective only looking like I had minimal income and was taking on debt like a sinking ship. During this time, qualifying for apartments was an enormous challenge for me.
So, time for a reality check: Inflation, rising cost of living, sudden changing job circumstances can all be factors in your ability to pay or not pay the rent. In fact, that's why I wound up rushing back to school: I needed more income and needed that degree to break a glass ceiling so I could afford to stay in New York. My hope was that a very high credit score and a certain amount of savings would suffice, but things became complicated when it actually came around to convincing landlords that I had money to pay the rent. They just weren't buying it. (Luckily I found a place that took Insurent.)
In the end, my advice is this: Make sure you're apartment hunting with pre-qualification criteria in mind as well as an agent such as myself who is committed to renter education I didn't even know that they had guarantor companies in America when I came back from Japan and started looking for apartments. Had I known the, I would have saved a lot of time viewing apartments I didn't even qualify for. If only I knew!
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