Just as the Great Recession hit homeowners with a mighty wallop, it also took a toll on rentals, with bad news for landlords and tenants alike. According to the Joint Center for Housing Studies at Harvard University, vacancy rates reached a new high of 10.6 percent in 2009, with a growing portion of renters unable to keep up with housing and utility costs. Meanwhile, affordability worsened in all 100 of the largest U.S. metropolitan areas over the past decade.
Yet there’s evidence that things are getting better — which means that 2013 could mark the best time to rent (and rent out) housing in years. With many under 30 trying tenant and/or landlord roles for the first time, we wondered: What does it take to succeed financially in the rental marketplace?
To get a renter’s perspective, we tapped Allison Beacham, a junior at Miami of Ohio University who’s experiencing off-campus life anew. She’s also the daughter of Susan Beacham, founder of Money Savvy Generation, a business dedicated to financial literacy for kids.
And for would-be landlords, we landed Melissa Hathaway, an under-30 freelance writer who’s written landlord guides on behalf of consumer advice sites in the U.K. She’s also a Money Under 30 fan and wanted to offer readers her research on the topic. (For more about the realm of renting, be sure to check out our piece on how to sublet your apartment.)
Allison’s Advice for Renters
First off, Beacham wants you to know that off-campus housing is getting competitive. She cites National Center for Education Statistics data that shows “college enrollment will grow at least 10 percent by 2016, but only 70 percent of those college students will likely be able to rely on on-campus housing.” So it helps to know what you’re looking for, and what you’re doing, before you step out.
1) Look for a furnished place
Because many college students and recent graduates are living on their own for the first time, they’ll likely need to buy furniture, which can add up quickly — unless the apartment has furniture in it. “Not only is a furnished place most convenient, but they tend to be cheaper in the long run,” she says. “Headboards, box springs, dresser drawers and mirrors add up … and that’s just your bedroom.”
2) Make sure you (really) have parking
A cheap rent may mask the fact that place lacks parking, which can mean constant jockeying for street spaces — or worse yet, a dash to move your car before you have to feed a parking meter or risk a ticket. “We have a gravel parking lot in our uptown area that rents spaces for $500 a semester,” Beacham says. “I park in my lease guaranteed parking spot included in my rent. However, my spot was originally supposed to be in a parking garage, and ‘magically’ it was moved to outside. Lesson learned: Get everything in writing — which also means taking careful notes when you first set foot in your abode. “There’s nothing more frustrating than getting an end-of-the-year bill for a hole in the wall that was there when you moved in.”
3) Find out what’s included (and not) in the rent
Inexperienced renters may think that one rent check covers everything. But are utilities included? Or are there other hidden costs you won’t know about until the first bill arrives? “One of my friends was unaware that her house didn’t have a security system until the day she moved in,” Beacham says. “This ended up becoming a huge expense for her and her roommates.” Not that the alarm kept them from getting robbed, so to speak: “They all had to invest in locks for all their doors, and ended up paying three times to have their windows fixed because their landlords didn’t cover break-in expenses.”
4) And finally: Have a roommate reality check
When picking roommates, we tend to focus on superficial qualities, like a shared affinity for “Jersey Shore” and craft beer. But you’d better make sure your roommates are honest and that you have measures in place to hold everyone accountable. A dishonest roomie could wreck your finances, or worse. “I had a friend whose roommate pocketed all the cash and never paid any bills,” Beacham says. “They ended up getting evicted. You wouldn’t think these things happen, but they do.”
Melissa’s minders for landlords
Hathaway notes that there’s a common misconception of the landlord’s life: “Just buying a house, renting it, and sitting back while the money comes in is not quite how it goes in real life,” she says. “There is quite a lot of work to do to get a property rental business off the ground, but with good foundations it can be solid, just the same as a house.”
1) Keep it legal
OK, so you know you won’t be a slumlord. That doesn’t mean you can’t run afoul of the law or get into a dispute with a tenant that goes awry. “You need to know about things like fair housing laws, lease termination, tenant and landlord rights and other areas of the law that are specific to the landlord-tenant relationship,” Hathaway says. “Landlord-tenant laws and statutes do differ from state to state, so make sure you know what laws apply to your property’s location.”
2) Insure your property
Just as homeowners need insurance on the houses they live in, you’ll need insurance on the properties you rent out. It will not only protect you from flood, fire and other acts of nature, but from naughty tenants as well. “Whether they keep defaulting on their rent payments, are being a nuisance to neighbors, are not looking after the property, or you want to evict them, you could stand to lose a lot of money if you don’t protect yourself against destructive tenants,” Hathaway says. “Insuring your property is a must.”
3) Know the carrying costs
As any homeowner will tell you, a property title carries with it countless burdens of upkeep. You might never have thought about roof repair before, but now you will — and the same goes for every piece of machinery on the premises. “You have a responsibility to keep appliances that you provide, like washing machines and gas boilers, in good working order,” Hathaway says. “To save a few bucks, try to carry out as many maintenance tasks that you are capable of yourself, but do not get in over your head. For some types of maintenance you will inevitably need the services of a registered plumber, carpenter, electrician, or other type of technician. If you have friends in these trades, then use them and build a working relationship that benefits the both of you.”
4) Watch the market and price competitively
“Make sure that you set your rent at a competitive price, but do not go lower than you have to,” Hathaway advises. “After all, your aim is to make a profit, and the more profit you make the better. Also, keep checking how much your property is worth for sale on the housing market, so that you know what profit you can make on selling it. You might find a sudden spike in house prices, which means you can sell the property, pay off the mortgage and still be left with a healthy profit from your investment.”