Knowledge is power, especially when it comes to renting in New York City. The more you know about the deals that are out there and the more you consult with your agent, the more you will be able to save. Take charge of your lease by learning the details of rent stabilized buildings, preferential rent, and rent concession and how they may impact your lease in the future.
The Holy Grail: Rent-stabilized Apartments
In rent-stabilized buildings, the city regulates the maximum rent that landlords can charge. This “legal rent” changes each year based on guidelines from the NYC Rent Guidelines Board. In addition, rent in rent-stabilized buildings is dependent on whether the tenant is signing a one-year lease or a two-year lease. Triplemint agent Jim Moorehead, who lives in a rent-stabilized apartment himself, strongly recommends signing a lease for two years. “In a rent-stabilized apartment, make sure to sign the lease for the longest period you can. This way, you’ll ensure to lock in a low price for as long as you can”, he suggests.
Preferential rent is a form of stabilized rent and is a discount provided by your landlord for a specific period, as defined in your lease. Preferential rent is more moderate than the legally regulated rent, which is the maximum rent that a landlord can charge a tenant. Therefore, “preferential rent is what the market can bear”, says Arielle Carraha, experienced Triplemint agent. Landlords like to offer preferential rent especially when the building is being renovated, for example.
What’s the downside?
All this talk about rent-stabilization and preferential rent makes the rental market of NYC look like a dreamland. And we all learned early on that things that sound amazing, normally have a downside nobody talks about.
Josh Juneau, rental expert at Triplemint, makes one thing clear: “You have to qualify as a tenant for a rent-stabilized apartment. Your income definitely must be 40 times the monthly rent, and your credit score has to be above 650; or you’ll have to bring in a qualified guarantor.” This means that if you don’t meet these requirements, you won’t be able to surpass them by offering to pay a year upfront, for example, which is possible for market-rate apartments.
Jim Moorehead emphasizes another disadvantage: “Your neighbors are going to hate you. Don’t let them know that you’re living in a rent-stabilized apartment!” Noted.
Will Your Landlord Raise Your Rent?
Currently, an owner can only set the exorbitant legal regulated rent once the lease expires or the tenant vacates the apartment. In order to have the ability to stop charging preferential rent, the owner must cite the legal regulated rent that they are not currently charging in the original lease. Let’s take a look at each of these scenarios.
- You sign a one-year lease for a preferential rate of $3,000 and the lease does not cite the legally regulated rent; your rent cannot be raised to the legally regulated rent at the end of your lease.
- You sign a one-year lease that cites a legal regulated rent of $3,500 and a preferential rent of $3,000. At the end of your lease, your rent can be raised to $3,500.
Make sure to be cautious as your rent can be raised from a preferential rent to a legal regulated rate if the legal regulated rent is cited in your lease.
How to find rent-stabilized apartments
Now that we’ve established that rent-stabilized apartments will make you happy, how can you score one? According to streeteasy.com, there are more than one million rent-stabilized apartments in New York City, but there is one problem. Once a tenant moves into a rent-stabilized apartment, they are unlikely to move out anytime soon, so there isn’t much fluctuation.
However, your real estate agent can definitely point you in the right direction, and look out for listings advertising rent-stabilized apartments! Triplemint agent Erik Heitz explains: “I often find that agents advertise their listing as rent-stabilized unit. It’s such a selling point for many.”
Free Rent Concession
One more way to save on rent is to score a concession. Landlords offer concessions such as a free first month of rent in order to make an apartment look more attractive. There are two types of free rent concession commonly used in the New York real estate market:
- You sign a 13-month lease, and your last month is free.
- You sign a 13-month lease with one month free, but the dollar value of the rent-free month is pro-rated over the course of the entire lease. This is also known as prorated free rent concession.
Wondering why landlords would do that? Lucas Callejas has a really good reason: “If a landlord offers you a concession and it is spread out over the course of your entire lease, your net-effective rent will be lower than the original gross rent, meaning that you might qualify for it even if your income didn’t meet the legal requirements before.”
Since this sounds a bit complicated, here’s an example: The gross rent is 2,166 and your landlord offers one month for free for a 13-month lease. Your net-effective rent will therefore be 2,000, which will also be written down on your lease. The apartment will therefore be advertised as $2,000, and more tenants will qualify for it according to their income.
If a landlord offers a free rent concession for your lease, make sure the details are clearly stated in your lease. This will ensure that you don’t encounter any unwelcome surprises over the course of your lease.
Once the free rent concession has been offered, landlords seldom agree to the same concessions in the next year. If you’re looking to score a great deal like that again, you might have to move to another apartment.