Last month in Part 1 of this series I outlined the considerable costs associated with getting in the door of a NYC rental.
Moving costs aside, you’re typically on the hook for first-month’s rent, at least one month of security and broker fees ranging anywhere from one month’s rent up to 15 percent of the first year’s rent at lease signing.
I also explained how different listing types—incentivized, open, exclusive and co-brokered—incur different broker fees (often from the same broker), and detailed the best way to work with your agent to minimize fees.
As detailed in last month’s column, an apartment that rents for $3200/month (the median rent in NYC) can cost you upwards of $12,160 (first-month’s rent + one month security + broker fees at 15% of the first-year’s rent), at the lease signing: a lot of scratch by any measure.
I want to pass along a few thoughts on a few remedial things you may want to consider before you embark on your next search for a NYC rental. Let’s start with a brief discussion of guarantors:
NYC landlords these days typically require FICO scores at or above 700 and proof of income at a level 40 times the monthly rent. Thus, to secure a $2000 rental you’ll need good credit and the ability to document an annual income of $80,000.
Bad credit and a failure to document sufficient income are grounds for dismissal – unless you bring a qualified guarantor—a third party who will co-sign the lease and agree to pay the rent in the event you can’t—to the table.
Guarantors are extremely common in NYC rentals, especially at entry-level price points and shares among young professionals and students. Most landlords understand that getting started in NYC is an expensive uphill task for most young people in today’s market, so most will accommodate guarantors.
That said, most landlords also require guarantors to show a minimum annual income of 80 times the monthly rent. Again, a lot of scratch.
Not surprisingly, more and more NYC renters are turning to a third-party called Insurent (insurent.com) to step in as guarantor.
Insurent is currently accepted as guarantor at more than 150,000 NYC apartments, and will guarantee your lease at an average cost of about 80 percent of a month’s rent if you already have U.S. credit and 110 percent if you are foreign with no U.S. credit history.
Payment is required up front and the application/approval process usually takes about 24 hours, soup to nuts. Your agent will be able to identify NYC buildings that accept Insurent. If you need but can’t secure a personal guarantor, ask your agent about Insurent.
The above talk about guarantors is all well and good, but where do you turn if you have good credit and sufficient income, but can’t or don’t want to pony up all that cash up front at the lease signing? There’s a new service in town that might punch your ticket: renterkey (renterkey.com).
As a division of SunTrust Bank, renterkey will loan you the requisite cash—anywhere from $5,000 to $100,000—for your upfront lease and/or moving costs, and you’ll pay them back with interest via monthly payments. Pretty straightforward and a good way to protect your cash flow and amortize your upfront costs over time.
Rent or Buy?
Finally, no discussion of NYC rentals would be complete without mention of the alternative: instead of renting your next NYC apartment, it might make more sense, financially and otherwise, to buy your next home.
Many of the same young professionals who cycle through four or five NYC rentals over 10-12 years are perfectly qualified to buy from the outset (with more than sufficient cash to cover down payment and reserve requirements), but rent nevertheless for myriad reasons.
Some don’t want the responsibilities of ownership, some want to maintain more mobility in their lives, some don’t feel qualified (in spite of the facts) and some have just never had the question put to them by an agent who can explain the advantages of buying versus renting.
The entire buy-versus-rent discussion is a perfectly valid and important one to have with your agent—especially in light of the exorbitant rates that characterize the NYC rental market right now.
More often than not, the cost to rent in the current NYC market will exceed the after-tax cost to buy a comparable property in the same neighborhood. Maybe it’s time to consider paying yourself rather than your landlord.
Jeff Einstein sells and leases NYC residential real estate as a top producer for The Modern Group on Madison Avenue.