One Major Sign You Are Overpaying for Rent in Your City — and How To Negotiate It Down
Rent prices aren’t falling in most places — but they are rising by less. According to the 2023 National Rent Report from Zumper, the largest privately owned rental platform in North America, the national median rent for a one-bedroom is up 3.9% year-over-year. That’s the smallest increase in more than two years.
Housing Market 2023: These 15 Cities Are Poised for the Most Stable Growth and Are Likely To Keep Their Value
Learn: What To Do If You Owe Back Taxes to the IRS
But that’s cold comfort for the many renters who earn too little to contend with their city’s rent-to-income gap. Here’s what you need to know about the gap, where it can work in your favor and how to strike a deal with your new landlord when you get there.
You Shouldn’t — and Often Can’t — Spend More Than 30%
Experts have long agreed that you should keep your housing costs below one-third of your income, but it was mostly just a guideline.
Today, it’s often a mandate.
“This is a situation where, especially in the current economy, landlords are taking this decision out of renters’ hands,” said Leonard Ang, the CEO of iPropertyManagement Leasing. “It’s a good idea to spend no more than 30% of your total income on housing in any given month. Landlords are increasingly making this a requirement to approve rental applications. Different areas have different income thresholds, but most require that your rent amount to no more than 40% of your income. This is pricing people out of areas where they might have been able to scrape by in years past and making roommates more and more of a necessity.”
Find Out: 7 Frugal Habits That Aren’t Actually Good for Your Finances
The 30% Rule Has Not Kept Up With Housing Costs
No matter your landlord’s policy, keep in mind the 30% standard emerged when income growth tracked closer to cost-of-living increases.
“The notion that about 30% of your monthly income should cover your rent was hatched in a different era, and it’s high time we recalibrate our thinking,” said Adrian Pedraza, licensed real estate agent and owner of The California Homebuyer. “In cities where the skyline seems to be made of gold, like San Francisco or Los Angeles, that old 30% rule might be more fiction than fact.”
It’s not just the big cities where rents are notoriously high, and it’s not just the cost of housing. You get less for more with the other 70%, too.
“Necessities like groceries and transportation have also been increasing in cost, which makes it difficult for both individuals and families to be able to afford their rent,” said Alex Veytsman, real estate market expert and founder of The Offer Sheet, a listing service for short-term rental investment properties. “Therefore, this 30% estimate doesn’t always work for everyone.”
That’s especially true for people whose situations are already precarious.
“Let’s not forget those financial curveballs like student loans or lingering credit card debt,” said Pedraza. “They can easily add layers of complexity to an already delicate balancing act.”
The Widening Income-to-Rent Gap Makes 30% Impossible in Some Cities
A Chamber of Commerce analysis found that you’d need $139,800 a year to afford the $3,495 median rent for a one-bedroom in New York City — yet the median income in the Big Apple is just $65,317.
While New York has the highest rent in America, the city is hardly an outlier.
The Chamber report found that 66 of the 119 cities it analyzed now suffer from rent-to-income gaps. The smallest is in Greensboro, North Carolina, where the gap is just $60 — the median earner would have to get a $60 annual raise to afford the $1,062 median monthly rent for a one-bedroom apartment.
In Miami, where the gap is widest, it’s $78,713 — that’s how much more the median earner would have to make per year to afford Miami’s $3,000 median monthly rent.
The Least-Forgiving Cities Are Concentrated in a Few States
Of the 31 cities with rent-to-income gaps of $10,000 or more, all but three are in Florida, New York, California, New Jersey or Massachusetts.
The most challenging of the bunch are:
Miami: $78,713
New York: $74,483
Hialeah, Florida: $47,531
Oxnard, California: $44,049
Santa Ana, California: $41,945
Twenty-nine other cities have rent-to-income gaps of between $1,018 (Arlington, Texas) and $9,717 (Fayetteville, North Carolina). Five others have negligible gaps of a few hundred dollars per year, followed by No. 66, Greensboro.
Go Where the Gap Works in Your Favor
Although the majority of the 119 cities the Chamber analyzed had detrimental rent-to-income gaps, 53 favored the renter. Twenty-two have median incomes at least $10,000 higher than is needed to afford the median monthly rent.
The best cities for renters are:
Frisco, Texas: -$29,546
Seattle: -$18,754
Minneapolis: -$17,845
Wichita, Kansas: -$17,631
Huntsville, Alabama: -$17,537
Think Like a Landlord When Negotiating Rent
While many landlords don’t allow you to spend more than 30% of your income, some might agree to less — if you understand the priorities and concerns of investment property owners.
“For many landlords, it’s consistency, collecting rent on time every month and never having to chase down delinquent tenants,” said Brian Davis, real estate investor and founder of SparkRental. “For others, it’s renting to tenants who will treat their property with kid gloves and not inflict any damage or wear and tear. Others want long-term tenants who will stay for years, so they don’t have to hassle with a turnover again for a long time.”
Tips on Getting a Lease for Less
A long-term commitment can be a hefty bargaining chip if you’re looking for a break on the rent.
“Some tenants have approached me willing to sign longer lease agreements, such as two or even three years,” said Richard Mews, CEO of Sell With Richard. “This provides me with a stable income stream and, in return, I’ve agreed to a slightly lower monthly rent.”
Other landlords pay their renters back for referrals.
“Some tenants brought in friends or family to fill vacant units, and I offered them a referral bonus or a reduction in their own rent for helping find new tenants,” said Mews.
And remember, there are few things more tempting to landlords than the guarantee of cash in hand.
“Paying several months’ rent in advance or offering a larger security deposit can sometimes lead to a rent reduction,” said Mews, who also suggested being flexible with your move-in dates.
Finally, you might get a break if you have the talent and will to save the landlord money and time on maintenance.
“A few tenants who possessed handyman skills offered to take care of minor repairs and maintenance themselves,” said Mews. “In exchange, I reduced their rent slightly to account for their efforts.”
More From GOBankingRates
This article originally appeared on GOBankingRates.com: One Major Sign You Are Overpaying for Rent in Your City — and How To Negotiate It Down
