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An experienced New Yorker will tell you that finding an apartment to rent here is not cheap. Being one of the world’s most popular and iconic cities, New York City exerts an almost irresistible pull on new arrivals and those born here, resulting in an often bitter race for good apartments at reasonable prices. For those in this race, your rent-to-income ratio will significantly decide whether you qualify for an apartment.
Below, we explain all you need to know about calculating your rent-to-income ratio, why it matters, and how you can improve your chances of finding an affordable rental apartment in NYC.
What is a Rent-to-Income Ratio for Renting in NYC?What is a Rent-to-Income Ratio for Renting in NYC?
In the simplest terms, your rent-to-income ratio measures how much your monthly income must go towards paying your rent. You’ll often hear about the “30% rule,” which says that no more than 30% of your monthly income should go towards rent. Many landlords require a prospective tenant’s gross annual income to be 40-times the monthly rent. This means that an apartment priced at $1,500 a month would require the tenant to make $60,000 a year before taxes, giving them a rent-to-income ratio of 30%.
Even when a landlord doesn’t specifically require a maximum rent-to-income ratio of 30%, the 30% rule can still help assess whether you can afford a particular property. The cost of living in NYC can be very high, so having only 30% or less of your income go towards rent can significantly impact your ability to afford living here.
How to Calculate Your Rent-to-Income RatioHow to Calculate Your Rent-to-Income Ratio
You can easily calculate your rent-to-income ratio by dividing the monthly rent by your monthly salary.
Monthly Rent ÷ [Gross Annual Income ÷ 12] = Rent-to-Income Ratio.
You can also determine your maximum monthly rent with the following equation:
[Gross Annual Income ÷ 12] x .3 = Maximum Monthly Rent. Using the early example, this would be: [60,000 ÷ 12] x .3 = 1,500.
You now know you should restrict yourself to only looking at rentals priced at $1,500 a month or less.
While paying only 30% of your income towards rent is a good start, it’s always better to aim for an even lower number when possible. Remember, your rent-to-income ratio is based on your gross annual income before taxes and deductions. Your net income is what you will have in your bank account each month, which can be significantly less than your gross income. In addition, sudden medical expenses, becoming unemployed, or undergoing a rent hike can all impact your ability to meet your rental payment obligations. Therefore, you should give yourself as much breathing room as possible.
The 50/30/20 Rule.The 50/30/20 Rule.
Another practical budgeting guide is the 50/30/30 rule. This says that the ideal monthly expenses breakdown should be:
- 50% for rent, bills, and groceries
- 30% for hobbies, entertainment, and vacations
- 20% savings
The 50/30/20 rule is usually considered an ideal ratio for covering all your needs and wants. Remember that when planning your budget along this ratio, you need to consider your net income, not your gross income. Using your gross income could dramatically overestimate how much you have to spend on a vacation or a night out.
To apply the 50/30/30 rule to your situation, take your net monthly income and multiply it as follows:
- Rent, Bills, and Groceries – [Net Monthly Income] x 0.5
- Hobbies and Entertainment – [Net Monthly Income] x 0.3
- Savings – [Net Monthly Income] x 0.2
How to Find an Affordable Rental Apartment in NYCHow to Find an Affordable Rental Apartment in NYC
Finding an affordable rental apartment in NYC can be challenging, but by following these tips, you can make the search a little easier:
1. Find a Rent-Stabilized Apartment1. Find a Rent-Stabilized Apartment
While everyone dreams of finding a rent-controlled apartment, they are scarce these days, and those who have them tend to keep a close hold on them. By contrast, rent-stabilized apartments (which allow for only fixed rent increase amounts each year) account for about half of all NYC rentals. The best place to look for rent-stabilized apartments is older buildings with more than six units.
2. Look for Roommates2. Look for Roommates
NYC’s high rental costs mean that many new arrivals and young professionals can’t afford a place of their own. Instead, they look for roommates that can help them share the monthly rental bill. It is estimated that about 40% of adult renters in NYC have roommates, a higher percentage than the national average of 30%. The easiest way to find a roommate is to start with people you know, friends, family, or co-workers. The other option is to look on social media, where you can find many people who are also looking for roommates. Craigslist is another good start, as is Roomi.
3. Choose the Right Time for Apartment Hunting3. Choose the Right Time for Apartment Hunting
The peak rental season is May to September when many university students are looking for accommodation. The high demand can reduce your ability to negotiate on the lease terms and create a mad scramble for anything affordable. If you can, try to move in winter when there will be a lot less activity and more landlords willing to be flexible on the lease terms.
Final ThoughtsFinal Thoughts
New York City has never been a cheap place to live, but that doesn’t mean you can’t find a place for the right price. Be patient and stick to places that you can afford. You might even consider seeking assistance from a real estate agent who can help guide you toward the best rental properties that match your budget and lifestyle needs.