Reasonable Rent
While this topic has been discussed at length as it relates to analysts renting, had a bit of different question around finding a place in NYC...
Generally, I have adopted the "spend your base, save your bonus" approach. With that in mind, I normally look to rent along the rule-of-40 guideline, i.e. your base salary should be 40x your monthly rent. However, I recently got a meaningful raise (base now well north of $200k) and am curious if folks think that continuing to use the rule-of-40 is a bit excessive given it would imply I can spend ~$6k a month on a place. Any thoughts on rent expense once you are making a bit more dough than you were during your 2+2?
As with most things in life, rules on spend relative to income break down as you make more money (I.e. car payments, home payments, entertainment budget). You can actually afford more than ever to do that (as if you stick to all your % rules you will also have more savings and “fun” budget), but the numbers start getting ridiculous and not needed.
I personally wouldn’t feel comfortable with a $6k a month place at $240k base. I would probably upgrade a bit and find a place that has most of what you want but wouldn’t go crazy yet, there will be room for that as you make more. Now, if you spend a lot of time in your apt and there is an area you must be in or amenities that you think will be “worth” the cost, go ahead, I never found that to be the case around those prices.
At around that income I was still around 3.5-4K a month (I think $4-4.5 is probably most I would be comfortable with). I upgraded to $6.5k when I moved in with my gf but our combined base was significantly more than that. I think I would use more of a 60-80x rule as you start getting to higher base levels (and keep upping that as your comp continues to grow).
Congrats on the raise ! Really don’t mean to be nosey but how many years of experience do you have? Also, being a native New Yorker, I think you should put a cap on what you ultimately pay for rent. If it was me, I would not rent an apartment that costs over $4K monthly no matter what my income is. If I’m giving up over $4K, I might as well buy a home. Even if I just plan on staying there for 4-5 years, home values typically appreciate and your primary residence is an investment vehicle. That’s just me though.
2+2
at that income level, you should look to buy..not rent.
Save up 30% of your ideal place (assume it will cost 1mm...so save 300k).
i wouldn't spend above 4k/month to rent an apt...anything more and you are just pissing money away.
Is that right? Not sure when the math makes sense given return profile of Manhattan RE...
That said, I am pretty young and a down payment on a decent place would be all of my net worth, which seems aggressive...
I don’t think that’s quite right in nyc. Maintenance fees are going to be $600-1200 a month for most apartments, taxes will be close to $1k a month, and so you are left with $2k or so for mortgage (not counting deductions from mortgage interest).
You also have all the up front costs (mortgage recording tax of condo, closing costs, etc). So that + realtor fees when you sell means you need to hold for a bit.
Additionally, unless you want to be a landlord you probably want a bigger place later on in life so that complicates things (and price increases aren’t guaranteed...).
Yeah I probably agree...especially given I can't afford the down payment on a place I could see myself in for 5+ years, the friction costs of buying then reselling make the math pretty tough.
Out of curiosity // off topic - how did you think about asset allocation at my age? Were you fully invested in the fund, or did you trade your PA on the side, etc.?
Hate to be a downer but 40x serves as an upper threshold/ guidance for your landlord to deem you safe from defaulting on your rent.
I spent from 1/60-1/80x my base on rent for a looooong time and my apartments suited me just fine. They weren’t luxurious in any sense but anyone making less than $500k really doesn’t need to be living like a baller, which is what those $6k unit buildings are like, because you aren’t a baller yet. Put that money into some ETFs and decide later on when you’re making much more than “north of $200k” if you want to drop that much on rent, ideally when it becomes an afterthought and not a question of if you could afford it without scrimping elsewhere.
I have friends who are making quadruple++ your likely take home who live in $4500 apartments with virtual doormen and no gyms in their buildings. Save your money where you can, you’ll have plenty of opportunities to spend it later (and with less weighing on your mind)
Not a downer - that's helpful, and makes sense.
Sorry, just want to clarify - "north of $200k" is just base salary (all in comp much higher)...would never do 40x all-in comp, thats ridiculous.
4500/month and no gym?
NYC rent keep down this year , now even below break even price meaning landlord is losing money if they are on mortgage.
I wonder if it is one time or low rent will stay.
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