Blog: Financial Strategies For First-Time-Renters

Renting an apartment for the first time is a liberating experience that involves a plethora of considerations and responsibilities. It is also a significant financial decision and can present its own set of cash flow challenges. Researching, prioritizing needs, and reducing costs are typical of what renters should do. Together we’ll cover the basics; down payment requirements, financial preparations you should make before renting, deciding on a rental, credit scores, and reports, negotiating your rent, the “nitty-gritty” of leases and contracts, as well as various financial considerations related to the long term living arrangement.

Budgeting Tips — Budgeting and forecasting tips for First Time Renters

Preparation Is Key: Benchmark & Set Expectations

The preparation process begins by setting a plan. The first step to proper planning is to conduct a thorough situational analysis. Analyzing your current situation, finances, needs, and wants, will allow you to be better prepared to achieve financial success as a renter. In the context of apartment renting, some important questions to ask yourself are:

How much is your annual salary?
Do you foresee an increase in income within the next year?
Are you self-employed?
Do you have a solid credit history?
How much do you have in savings?
How much, if any, of your savings are you willing to allocate towards rent?

Once you have gone through your current financial standing, you’re now in a better position to set realistic expectations for your first apartment. But don’t get too ahead of yourself as the next step, arguably the most important is to prepare a budget and a forecast analysis.

Budgeting Best Practices

Did you know that 1 in 4 people are paying more than 50% of their monthly income on rent and utilities? At all costs, no pun intended, you should avoid drowning yourself financially by signing up for an apartment you can afford. Let’s introduce you to two budgeting best practices that will help you achieve financial success.

The 30 Percent Threshold

Financial experts believe your rental budget should not exceed 30% of your net income. You don't have to follow this rule as a strict guideline but rather as a gauge that will further lead you towards finding the perfect apartment.

The 50/30/20 Rule

A well-known budgeting technique which suggests allocating your income into three separate categories:

50% allocated towards your needs
20% allocated to savings
30% towards wants

Budgeting Preparation & Analysis

To save your future-self financial difficulties, we strongly recommend you create a detailed budget that includes an annual forecast of expenses and income. Completing this exercise will allow you to determine the optimal price range to search for your next apartment.

Assuming you already have your income forecasted, the next step in the budgeting process is to examine your personal expenses, followed by projecting the costs associated with renting an apartment.

Understand The Costs

Renting an apartment comes with more than just a monthly rent payment. The broad array of costs can pose a challenge for all renters, especially first-time renters. To help you better grasp the cost obligations, we’re going to break them down into three separate categories: (1) Upfront costs; (2) recurring costs; and (3) additional costs.

Upfront Costs: These costs are typically due at the time of your lease signing and may include; a security deposit, first and last months rent, broker fees, and a lock and key fee.
Recurring Costs: Recurring costs are expenses that happen on a regular basis, usually monthly, and may include; rent, utilities, parking, insurance, storage, phone and cable bill.
Additional Costs: During your time renting you may incur additional costs that can arise such as damage to the apartment or a rental increase. For budgeting purposes, we’ve listed various personal expense items along with expenses associated with renting.

Ultimately, performing a budget analysis prior to actively searching for your next apartment is advised, as doing so, will result in a more refined apartment search. In addition, budgeting and forecasting your finances will mitigate the chance of you being caught off-guard from the additional costs of renting and any unforeseen events.

Prioritizing Needs & Wants

Location, Location, Location

Deciding where you're going to call the next place home is a challenging endeavor that can feel daunting. That's why preparing a checklist to narrow down your seemingly unlimited amount of choices makes the task an enjoyable experience.

Answering the questions listed below will allow you to begin refining your scope and provide assistance in building the criteria you are looking for in your new apartment.

How close do I want to be from work? Do I need to drive to work, take public transportation, or would I be able to walk?
Would I like to be in the middle of the city, somewhere in between, or a rural area?
What type of neighborhood am I okay with living in? Do I want to be in an upscale apartment, or would I prefer to live in a more spacious and affordable apartment?

The more questions you can ask yourself and answer, the more clarity you'll have in determining the perfect location for your new apartment.

Consider The Parking Situation

Contemplating whether or not to pay for a parking space is a decision many renters face. Parking is a nuisance that costs drivers more than just tickets and parking fees. In fact, on average, drivers in Boston spend as much as 53 hours a year searching for a parking spot! In addition, 23% of drivers say they’ve experienced road rage while looking for a parking spot. Therefore, if you want to remain sane and save time, we recommend finding an apartment that offers a parking space. This way you’ll avoid unnecessary stress and have more time to yourself.

Other Considerations

Renter's Insurance

You may believe that paying for a renter’s insurance is a waste of money. However, the protection renter’s insurance offers, at a relatively low cost, can mean saving thousands of dollars if something were to happen. According to the National Association of Insurance Commissioners, the average renter’s insurance policy costs anywhere between $15 to $30 per month.

Renter’s insurance can provide protection against physical damages to your property - including, theft, water damage, vandalism, fires, and other hazardous events. For more information regarding renter’s insurance, please see our infographic below.

Maintain Good Credit

Most shrewd landlords will run a credit check on you before they let you in their place. Therefore, it's essential to show a clean credit history (free of defaults) and a good credit score. If this is your first time renting, you may want to do a quick check of your credit score and credit reports before filling out an application to prevent being blindsided by a rejection due to poor credit.