How to Be a Savvy Tenant in a Landlord's Market
In the first quarter of 2011, rents rose 2% nationally and are expected to increase by 3% to 4% over the remainder of the year, according to Christina Aragon at Rent.com (EBAY). Vacancy rates have been dropping as well. Nationwide, they were 8% in the first quarter of 2010. This year, in the same period, that number was down to 6.2%. According to a new survey of 1,252 property managers by credit research company TransUnion, 64% of large property owners raised rents last year. TransUnion also reported that half of all property managers saw an increase in applicants moving into rentals from foreclosed properties. Demand is also stemming from young professionals ready to move out of roommate situations into one-bedroom apartments, says Aragon.
The tightening rental market may be a good sign for home sellers (some economists say it's an early indicator for a housing market rebound) but not so great for renters, who face rising costs, fewer concessions, and more competition for good apartments. If you're in the rental market -- and more than a third of Americans are -- what can you do?
Understand How a Landlord Reads Your Credit Report
Applying for an apartment or other rental, invariably requires a credit check. As more and more foreclosed homeowners move into the by-lease market, the emphasis on sterling credit scores is lessening. Instead, landlords are focused on other credit indicators, like a good track record for recurring monthly bills.
Christina Aragon, director of strategy and consumer insights for Rent.com, says potential renters need to understand what is an explainable ding on a credit report, and what is not. The ones in the latter category include late payments for utilities and day-to-day bills. For smaller landlords who may not impose a formal credit check, the most important thing for rental applicants is to show is the ability to pay rent on time with a letter or recommendation from prior landlords.
But landlords, especially in large properties, are not just reading your credit report. "Consumers need to understand that the majority do check credit and criminal background," says Roe.
Know What You Can Afford
Multifamily rental buildings are typically classified either A, B or C. A-class buildings are exactly what they sound like: New buildings that offer location, amenities and other luxury perks. Move down the ladder and the combination of location, amenities and building age place a building in a category. What can you afford?
Many landlords look at an applicant's rent-to-income ratio. One rule of thumb, especially in big cities like New York, is that income needs to be around 40 times the monthly rent. For a $1,000 monthly rent, that means an income of $40,000. A slightly more lenient rule of thumb for affordability is that monthly rent should not be more than one-third of monthly income. If you're bringing home $2,100 in pay every month, that means you can afford around $700 in rent. Bigger landlords may also keep an eye on an applicant's debt-to-income ratio, which is sum of all your debts (credit cards, auto loans, etc.,) compared to your income.
Be A Proactive Renter
If you are happy in your rental unit and plan to stay awhile, Aragon advises locking in a rate with a 12- or 18-month lease, as prices are only going to continue rising in the next year. In the not-so-distant past, landlords were giving away concessions, like a month or two of free rent, to tenants. That time has come to and end, says Gary Malin, president of CitiHabitats. While he says there is little room for negotiation in today's tight market, it never hurts to ask. Landlords are eager to keep good tenants who pay rent on time and abide by the lease terms, which may give such tenants negotiating power.
Read more about rentals at AOL Real Estate
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• Tips for Finding a Rental Apartment