This piece was originally published at GenFKD.
Many young people struggle to meet the income requirements needed to rent an apartment without a guarantor. Thankfully, there is a solution for those folks who can’t get someone to join them on the dotted line.
One of the most exciting and frightening moments in a young person’s life is when they get their own (yeah, probably shared) apartment. A real apartment isn’t like a college dorm where you just show up with all your stuff on moving day. If you’re searching for an apartment, you’ll be shocked to discover how hard it is to qualify for even a meager place in a large city.
Landlords often demand that your income significantly exceed your rental payments, and they’ll want to see proof of your ability to cut them checks. Shockingly, an annual income of around 40 times your month’s rent is the norm. And if you’re unable to prove that you can make it rain on demand, you will likely need a guarantor –someone that is contractually obligated to pay your rent in the event that you default.
If you’re building what I’ve heard a banker call “first-generation wealth” (in other words, your family isn’t wealthy), finding a guarantor can be really tricky. Even worse, if your family lives abroad and no one is willing to be your guarantor, you’re kind of screwed. Fortunately, there are a few companies trying to solve this problem by offering themselves as a guarantors-for-hire.
If you have the great fortune of finding a well-paying job, it’s likely going to be in a city with an overheated rental market; cities with great job markets naturally have insane rents, so you’re going to need a guarantor. Guarantors-for-hire, like The Guarantors, can solve this problem, for a fee.
How it works is fairly simple: For around five-to-10 percent of the annual rent cost (depending on many factors like credit score, U.S. residency, and other financial considerations), companies like the The Guarantors will solve your problem. The company says the cost is per lease, not per tenant, so if you’re going in with a few roommates, the costs can be spread out.
Other essential facts that you might want to consider about this arrangement are that The Guarantors still want you to have a 630 credit score and make 27 times monthly rent. You read that right, 27 times, and that’s actually a low number. These policies are insurance: If you default, they will pay your rent directly to the landlord, which puts them at ease.
With tight rental markets, asking for a guarantor is typical and customary. Take a moment to understand the landlord’s point of view: If their tenant doesn’t pay their rent on time, eviction is a costly process that can lead to financial ruin for landlords. If they owe money on the property that you’re renting, they could lose the property to foreclosure.
Companies like The Guarantors are helping level the playing field for those of us who weren’t born into privilege. Nevertheless, guarantors and apartment shopping underlines why wealth gaps have been so common in America– those of us whose parents can’t help us get started in life pay more for everything.
The growing gap between the rich and the poor is one of the defining challenges of our time. Go shopping for an apartment in a major American city, and you’ll understand why it’s such a challenge to make it without significant resources behind you.
GenFKD is equipping millennials with the skills and education necessary to create and lead the “new economy.” To learn more, head over to GenFKD.org.
Founded in 2013 as a financial literacy organization, GenFKD is growing into an organization that’s revolutionizing American higher education. Through skills-based training and student-first reforms, GenFKD is advancing a system of “new education” focused on improving post-graduate outcomes in areas of gainful employment, financial preparedness and entrepreneurial readiness.