HOMES - RENTING
"This section
contains additional data that supplements basic information contained in
Your
Money Matters
and should be used
in conjunction with the material contained in Your
Money Matters."
Whether you are a first-time renter or a seasoned renter, the
following information will help you make the most of your rent
dollars. Housing costs are usually the largest single living cost, so
it behooves you to become a smart apartment-seeker and tenant.
You may luck into the apartment you want right off the bat, but chances are you won’t. The general rule should be: The more time you give yourself to search for the right apartment for the right price, the more likely you are to find it.
Don’t take on more rent than you can afford. Figure out what you can afford, and stick with it. If you’re paying more than 28 percent to 30 percent of your net income on rent – including utilities – you’re paying too much! Just because an apartment is a temporary living space doesn’t mean you should be less focused on more lasting financial goals. The quickest way to becoming a permanent renter is to take on more apartment than you can reasonably afford.
The affordability of your apartment will affect your savings plan for the future. If you are unable to save at least 10 percent of your net income, after taking care of all the necessary line items – rent, utilities, phone, food, and transportation – then you are either paying too much in rent, or you are squandering too much on ephemeral fun.
If you are new to a city or state, your best bet is to talk to a few realtors about neighborhood qualities, such as convenience to supermarkets, transportation, and entertainment. If you know that you will be moving to a new location, try to stay with a relative or friend for a period of two weeks to one month – offering to pay for your share of the food, utilities, and phone bills. That way you can have a base from which to launch your apartment search, as well as a home guide to where you might best situate yourself. Also, visit local realtors, read the local papers, and talk to your new colleagues at work. If you are familiar with the city or suburb in which you would like to reside, then chances are you will know what newspapers to go to for good rental listings.
A realtor may not be a renter’s best friend, but he or she can be very helpful and many have just the apartment you’ve been looking for. Realtors can also offer advice – what prices you can expect to pay for the apartment you want, where the best deals are, what areas to avoid – on the rental market. You might even set up some appointments to view apartments with a realtor – you’re under no obligation to rent any of them – so you can get a better feel for what’s out there.
Advertised apartments must be seen to be believed. There’s no other way to look for an apartment. But looks can be deceiving, too. Most people think that because they can read, they can understand the meaning of what is written. Likewise, most apartment hunters think that because they have eyes, they can see what is right and wrong with a place.
Don’t be deceived. When you cross the threshold into a
prospective apartment, there are so many concerns vying for your
attention that making objective observations and decisions is
difficult. What you should do is create a notebook that contains a
checklist of the pros and cons of each apartment you’ve seen.
You might even go as far as to sketch out a rough outline of the
rooms, the number of windows, and comments on the views (for example,
the bedroom has no windows, and the living room’s big
plate-glass window looks out onto a golf driving range).
v Always view an apartment twice – at least once in bright daylight. Artificial lighting can hide material damage to walls and floors, and it can easily create artificial feelings about a place. You also want to be sure that you’re not renting a dark, gloomy place.
v Always view a prospective apartment at night. Viewing an apartment by day won’t give you a sense of how noisy your new neighbors may be.
v The top floor tends to be the
safest floor, and the one with a view. (Of course, you might want to
keep in mind that fire truck ladders reach only to the sixth floor.)
v What can you afford to pay?
v What terms (lease or tenant-at-will)? (See below for more information on tenant-at-will.)
v What utilities are you responsible for – and does the landlord have documented utility bills to substantiate the quoted figures?
v Is there another tenant that you can talk to about the apartment building and the landlord?
v Are there laundry facilities in
the building? If not, where is the nearest coin-op located?
v Check all appliances in the kitchen: stove, sink, dishwasher, refrigerator, and disposal. Let each item run until you are satisfied that it functions.
v Check all bathroom facilities: toilet, sink, and shower. Does the hot water work? Does the hot water change temperature when you run the sink or flush the toilet? If it does, you can be sure that when someone flushes the toilet in the apartment above or below yours, you will have a cold or scalding burst of water in your shower.
v Ask other tenants in the building if there have been any problems with bugs or rodents. If there have been, what was done about it, what is the situation now, and what are the procedures should the problem arise again?
v Have there been any break-ins
into the apartment itself, or into the apartment building?
v If there is no off-street
parking, ask a few tenants what it’s like to park on the street.
Is it congested? Is your car radio safe? (Note: If you’re
living in a city, a car is probably an unnecessary expense and should
be avoided if at all possible.)
v The landlord is overly pushy in asking you to sign a lease.
v The landlord’s name is not disclosed to you.
v The building
looks run-down on the outside, inside, or both. (When it comes to
heating and plumbing, there’s no such thing as cosmetic surgery.)
One of the first things to know about renting an apartment is that you can often negotiate the price of the rent to your advantage. Don’t hesitate to try to do so. Another important thing to know is that depending on the landlord, you might be required to fill out a lengthy application for the apartment you desire. Moreover, if you don’t have a good credit history – delinquent student or credit card loans, for example – you might be turned down. So if your credit record is less than stellar, be prepared to do some explaining.
A reference is someone who can vouch for your reliability and responsibility, ideally as a tenant. But if you’re a first-time renter, an employer or relative who lives in the area might do the trick. Most landlords will ask for references. So be sure to have at least two – three is better – readily available.
Many landlords require first and/or last month’s rent as a deposit. In addition, most landlords require a security deposit (usually equal to one month’s rent). Be sure they put that deposit in an interest-earning savings account (which may be required by law), and that you receive the interest!
A lease locks you into a legally binding contract for a set period of time. A tenant-at-will is an open-door agreement between you and your landlord – you are free to terminate the agreement, but so is the landlord. If you are planning on living in the apartment for at least one year, then a lease will have the advantage of securing the apartment for you. (The last thing you want to do is to have to hunt for a new apartment on relatively short notice because the landlord wants to “rent” the unit to his ne’er-do-well son.)
If you are new to an area and are uncertain that the location of the apartment is ideal for your needs, or if you think you may tire of living in a basement studio before a year runs its course, then a tenant-at-will is probably your best bet. If you are thinking about a tenant-at-will arrangement, one thing you should be sure to do is to always keep enough money handy that if you have to move suddenly, you will have the resources to do so.
Warning: Never sign a lease that’s for longer than 12 months – unless you feel that the rent is likely to go sky high, and that you want to remain where you are for more than 12 months. The reason is that there are always deals to be made on better apartments. Your friends might decide to move to a new state, leaving their spacious, convenient, and low-rent apartment to you. Also, if you’re just starting out or are new to an area, you probably don't want to tie yourself to a place for more than a year.
You have certain rights as a tenant or prospective tenant. It is illegal to be turned down from renting an apartment because of your race, religion, or marital status. You have the right to receive the services (like fixing a broken window or leaky faucet) that are your landlord’s responsibility. If you think your rights have been violated, contact your local housing authority to locate the specific department that handles such complaints.
One of the most overlooked issues in renting an apartment is one of the most important ones. If you do not get renter’s insurance – most policies cost under $200 – you could wind up losing all the valuables in your apartment. The landlord does not insure the contents of your apartment.
Some cities and towns have rent-controlled apartments that can be spectacular opportunities for a would-be renter. The difficulty is getting them! The competition for them is fierce. One thing to consider, however, is that rent-controlled apartments aren’t often located in the most desirable neighborhoods.
If the bulk living arrangements of the typical apartment don’t suit your fancy, consider renting a house with some reliable friends – or maybe even with a sibling. Caveat renter: The heating and other utilities in a house can be much more costly than in an apartment.
Sharing rent with friends is how many people start out. This enables you to live in higher-quality apartment with a rent you can afford. But do prepare a written agreement between yourselves that spells out who pays for what. One of the disadvantages of roommates is that the time may come when your friends can’t abide by the rental agreement. They might have to relocate to a new job, or worse – they might be laid off. This could suddenly leave you stuck with having to pay for the whole apartment yourself.
Warning: Sharing a lease can be hazardous to friendships. So can sharing the rent with strangers – either by moving into a shared house together, or renting rooms out. The positive side is that you will meet new people and live with lower rent in a nicer place than you could afford on your own. The down side is that you will have to live with these new people day in and day out. They might become annoying or, worse, unreliable. Use your best judgment, and be sure that every detail of the living and rental arrangement is spelled out – that means written down!
Living in a crowded house – your parents’ house or the one you rent with your friends – may quickly become more of a bother than a pleasure. The option of moving out and renting on your own presents new financial challengers and responsibilities. Don’t be rent poor, in any event.
Renting with your significant other, while more feasible, is an option that requires a great deal of maturity – financial and otherwise – on both sides. Who will pay what amount of each household bill needs to be clearly determined at the outset. The question of savings can be particularly tricky.
This is a very difficult but nonetheless possible thing to do. First, talk to your landlord and give him or her the detailed reasons as to why you need to prematurely terminate your lease. Wanting to move to a new apartment isn’t a very strong reason. But if the reason is serious financial difficulty – you may have been laid off – your landlord might agree. You might have to offer to find a suitable new tenant for the apartment. In this case you will need to talk with your landlord about the cost of advertising and showing the apartment, as well as what the cost and terms of the agreement should be. It might cost you $200 or more to advertise the apartment, but it may save you money and anxiety in the long run.
Should you be a renter or a homeowner? It all depends. There are many advantages to home ownership, but it certainly isn’t for everyone. Renting allows you much more flexibility and is particularly advantageous if you aren’t sure if you’ll remain in the same locale for at least four or five years. The major problem with being a renter is that your housing costs will continue to escalate, and rent increases often outpace inflation.
If your life is settled, on the other hand, and you can afford it, home ownership has a number of advantages. One is that you can get your housing costs under control. There are the income tax advantages as well as the ability to live in better, more spacious quarters and sense of belonging to a community. Perhaps the biggest advantage of home ownership is that you can pay off your mortgage by the time you retire, so that you won’t have to worry about every-increasing housing costs during your retirement years, when most retirees’ incomes are relatively fixed.
According to the National Association of Realtors, renting with an option to buy, commonly known as rent-to-own, is becoming more and more popular today. Sometimes renting-to-own makes more sense than outright ownership. For instance, you might want to experience living in the area for a year before deciding that it is the best place for you to establish your home. Another consideration is the living space itself. Whether it’s a condo or a house, you may be able to negotiate so that you can rent-to-own the property. The benefit is that if you don’t like it for any reason, you can move on at the end of the lease term, and if you do like it, the payments you have been making for rent can, depending upon the contractual agreement, constitute a down payment or a principal reduction on the sale price.
Another advantage of rent-to-own is that if the real estate market rises or falls dramatically, you will be relatively unaffected by it. In other words, if market values drop considerably, you may be able to renegotiate your previously agreed-upon purchase price.
Warning: You will need to hire a real estate attorney to
review the rent-to-own contract in order to ensure that it contains
all the provisions asked for and agreed upon. Don’t try to go
this alone.