- Millennials are more likely than other generations to break their budgets on housing, according to listing site StreetEasy.
- Knowing how to set a realistic budget, understanding the market, researching and preparing for additional costs and figuring out what trade-offs you're willing to make can help you save on rent.
Housing costs can make or break your budget — and millennials tend to get hit the hardest.
A recent survey from real estate site StreetEasy found that in New York City, millennials are more likely than other generations to go overspend, with 45 percent saying they exceeded their initial budget on their current (rented or purchased) home. That compares with 30 percent of Gen X and 19 percent of baby boomers.
StreetEasy polled 1,000 NYC residents in late 2017.
It's not just a New York problem: 1 in 5 millennial parents report spending 50 percent to 59 percent of income on housing, according to a 2016 report from the National Endowment for Financial Education and Parents magazine. For another 8 percent, housing eats up 60 percent to 74 percent of income.
To put that figure in perspective, experts suggest you aim to spend no more than 30 percent of income on housing. In an expensive area, a cap of 40 percent may be more realistic, said Ted Beck, chief executive of NEFE.
Part of the problem: Swiftly rising rents, and fewer available apartments. A new Zillow analysis found that the median rent nationwide is now $1,445, up 2.8 percent from last year. Over the same period, rental inventory declined 10.3 percent. (See chart below for some of the cities where rents are booming.)
Here's how to combat rental costs and keep your housing bills in check.
Setting a budget can be harder than expected. Figure out what that 30 percent threshold is, based on your paycheck. Then factor in other recurring expenses you have, from student loan payments to cellphone bills.
Experts say that helps illustrate how much wiggle room you have (or don't) on housing, and what effect a pricier place might have on your ability to save or make discretionary purchases.
Don't set your budget based on the anticipation of future higher wages. Rental costs are increasing at a faster rate than salaries, Beck said.
Once you have a budget, check online real estate listings or speak with a real estate agent to get an idea of what those numbers mean for your local housing market.
"Having an idea of the prices and types of homes that you'll encounter will help you make more informed decisions, or help you redirect your search to new areas or new types of buildings if that becomes necessary to stay within your budget," said Grant Long, senior economist for StreetEasy.
Many new renters aren't fully aware of the costs involved. Charges due at lease signing — such as a broker's fee, security deposit and advance payment of the first and last month's rent — vary, and they can easily become a four-figure surprise if you don't ask the right questions during your hunt.
Don't forget to factor in utilities, which may or may not be included in the rent, as well as renter's insurance and extras like storage or parking. Asking previous tenants about their experiences is a good idea to help you determine what your costs could look like, said Long.
Decide what's most important to you when it comes to housing, and where you can make sacrifices. Living further from public transportation hubs, in outlying neighborhoods or with roommates are all trade-offs that can save a lot of money.
One-bedroom apartments have a tendency to be the most expensive, says Sam Radbil, an analyst with apartment listing site Abodo.com. Splitting the cost of a larger apartment or creatively sharing a smaller space (say, by converting the living room into another bedroom) can significantly cut with housing costs, he said.
When it comes to housing, have a five-year plan, said Beck. That gives you time to save if your goals include things like buying a home or moving to a new city.
Concrete goals will help you keep financial decisions in check and figure out what sacrifices you're willing to make in the short term to be more comfortable in the long term, said Beck.
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