Twentysomethings, Read This Before Moving Out of Mom and Dad's Place


The economy hasn't been easy on twentysomethings. Job growth is abysmal, and a college degree no longer guarantees a job right out of school.

For many college graduates, moving back in with mom and dad was the easy answer. Some 21% of college graduates aged 18-34 live at home with their parents. But moving out may not be as easy as packing your bags to find a new place to live.

Here's a few things you should know:

Apartments are as full as ever
One thing few realize is that competition for rental property is as tough as the job market. Reuters reported that the third-quarter vacancy rate for apartments fell to 4.2%, to the lowest level in more than a decade.

For every 25 apartments, there's only one opening. And for each opening, there are several families, singles, and roommates looking for a new dig.

Source: Calculated Risk Blog

With vacancy rates so low, landlords have piles of applicants to shuffle through. Sam Dogen, a real estate investor and blogger at Financial Samurai, told me that he looks carefully through each application and their credit report:

The credit report is like a window to someone's financial soul. I look through every line item carefully to see if there are any delinquencies and ask the prospective tenants to explain their side of the story if I see potential. Given the average credit score for rejected mortgage applicants is roughly 729, I have a tendency to look for tenants with credit scores in the 730 or higher.

Historically, apartments have been a solution for many who couldn't buy a home on their own. But with the rental market so tight, you may find that units are only open to people with credit fit for a prime mortgage.

Just enough income isn't enough
When apartments can afford to be choosy, they can increase their income requirements. Many apartment building operators are looking for tenants that have a gross annual income (income before taxes) equal to three times annual rent. Thus, to rent an apartment at $1,000 per month, future renters would need $36,000 in annual gross income.

This is particularly difficult for twentysomethings to achieve in areas with a high cost of living. While student loans may have funded a dorm room in college, you'll need to show that you have the income to more than afford an apartment. Some select communities require as much as six months to one year at the same job, which can come back to bite twentyomethings who have recently accepted a new position.

Student loan debt can crimp rental affordability
Don't bank on a landlord to skip over your credit report. A landlord can see how much debt you have, who you owe it to, and extrapolate from the numbers how much you're paying to service the debt. If you have $26,000 in student loan debt like the average 2013 graduate, your monthly payments will come to about $292 per month.

Landlords know that payments on credit cards and student loans are money that you won't have to pay rent. Paying down credit cards and refinancing student loans -- if possible -- will help you boost your creditworthiness while reducing the amount of cash that you send to lenders, making you a better future tenant.

References help
Offering advice to landlords, Dogen told me "a prospective tenant might look cordial and pretty on the outside, but do not skip out on verifying employment ... and interviewing their previous roommates and landlord."

Many fresh graduates may not have a reference worthy of an application. If you paid your rent late in college, you might not want to put your previous landlord down as a reference. But without references, some may be unwilling to offer their place to a twentysomething. Face it: When landlords have a choice between a mature husband and wife and a fresh graduate, the older folks have an edge.

Moving out takes time
The simple reality is that moving out isn't as easy as picking a new place to live; a new place to live has to pick you. With so many people chasing too few apartments in communities all around the United States, waiting to firm up your career and personal finances can give you a leg up on getting the place you'd love to live in.

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