Millennials Opt to Rent, Not Buy, but Face Big Expenses
When Ken Goodhue graduated with a master's degree from Texas A&M last year, he and his wife Kirsti set out on a new life, leaving their home state of Texas and moving to an alien culture in Boston. He took a job at a large consulting firm while she went back to complete college after taking some time off to work while Ken pursued his degree.
"The difference is pretty drastic," according to Ken. "For the amount I pay in rent in Boston for a studio, I could get a two-bedroom in Houston, and in College Station (the home of Texas A&M), it would be ridiculous." The Goodhue's are paying $2,000 a month for that studio apartment in South Boston, but still feel as though they're getting a pretty good deal. "We haven't felt that we stretched too much," said Ken. "We budgeted pretty well. Actually, we may have been too conservative."
They are part of the huge millennial generation, which is now starting to have a significant impact on the nation's housing market. However, millennials have been slow to buy their own homes, instead preferring to rent. As a result, demand for rentals has been rising steadily, and so have the costs.
Moving out of your parents home or a college dorm and into your first real apartment has lots of unanticipated expenses that can blow up a young person's attempt to budget responsibly. There are lots of other payments you will need to make that go beyond just the basic monthly rent, so you need to anticipate the cost of everything from utilities to parking, and from furniture to renters insurance.
There are all sorts of miscellaneous costs that go along with moving into a new place, especially if it's your first apartment. Remember, you don't have to go overboard and buy everything all at once, and you don't have buy the top of the line of everything.
But let's start with the basic cost of the apartment itself. The rule of thumb is that you don't want to spend more than 30 percent of your paycheck, after taxes are taken out. Let's say you are taking home $500 a week, or about $2,000 a month. Using the 30 percent rule, you should plan to spend about $600 a month on rent. That's not a lot, even for a studio apartment, especially if you live and work in a major city. The first thing to consider is finding a roommate or two. If all three of you can spend $600 a month, as a team you can now look for a place that costs $1,800 a month.
Next, really examine what you're getting for your $600 each month. Some rentals include some or all utilities, while others don't. Paying for your own heat, air conditioning, water, sewer, Internet, trash collection and more can amount to a huge chunk of change (and make you appreciate why your parents kept yelling at you to close the door and turn out the lights).
Rebecca Rego and her long-time boyfriend graduated college in the Chicago area last year and moved to Washington, D.C. They pay $2,430 a month to live in a newly rebuilt apartment building in what's considered an up-and-coming downtown neighborhood. She works in a congressional office and doesn't get paid a whole lot, so "most of my budget every month goes toward the apartment," said Rego, "but it's hard to find anything reasonable in a good neighborhood." She says a lot of her friends choose to live across the river in Virginia because the rents are cheaper, "but we think we made a smart choice." They make up for some of the added rental expense by saving on transportation, and they live in a much more exciting and vibrant area.
Other costs that many people don't anticipate are security deposits and realtor or agent fees. In Boston, the Goodhues had to pay a realtor one month's rent and then put up another month's rent for a security deposit. Rego, in Washington, paid just $500 as a security deposit, and felt lucky. "I have friends, especially in New York, that had to put up three months of down payments. That's thousands of dollars," she said, "and what 23-year-old has that kind of money."
Editor's note: An earlier edition of this story misstated the amount the Goodhue's spend on monthly rent for their Boston apartment.