Gen Z and millennials are “hacking” the housing market as high prices and interest rates make affordability difficult.
The term “house hacking” refers to the practice of renting out a portion of your home or an entire property for an additional stream of income.
Almost 4 in 10, 39%, of recent homebuyers say the practice represents a “very” or “extremely” important opportunity, according to a new report by housing market site Zillow. That share is up eight percentage points in the past two years.
Younger generations are especially keen on the idea. In Zillow’s survey, more than half of millennial, 55%, and Gen Z home buyers, 51%, expressed positive views on house hacking.
Zillow polled more than 6,500 recent homebuyers between April 2023 and July 2023. Respondents were adults who moved to a new primary residence they purchased in the past two years.
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The additional income from house hacking can “help make those dreams of homeownership penciled into reality, given that there’s so many affordability constraints on the current market,” said Manny Garcia, senior population scientist at Zillow.
The median sale price for a house in the U.S. was $413,874 in October, up 3.5% from a year ago, according to a report by real estate site Redfin.
The average rate for 30-year mortgages hit 8% in October, the highest level seen in 23 years, according to Bankrate. To compare, rates bottomed out slightly below 3% in January 2021.
While renting out portions of a newly owned property can help offset higher costs of a home, potential buyers will need to make a few considerations beforehand.
‘You need to earn six figures to afford a starter home’
As home prices and interest rates have risen, potential homebuyers need a salary of $114,627 to afford a median-priced house in the U.S., a recent report by Redfin found. Redfin’s analysis used the median home price of $420,000 in August.
“In many places, you need to earn six figures to afford a starter home, so it makes sense for young people who are seeing how expensive homeownership is to want options,” said Daryl Fairweather, chief economist at Redfin.
With few small starter homes available, a millennial or Gen Z buyer may have to jump on a more expensive home than they would have wanted, Fairweather said.
“Having the option to rent or have a roommate is important in an environment where there just aren’t that many small homes for sale,” she said.
House hacking may help those homeowners by providing them additional income for expenses or even help cover the mortgage.
More apartment buildings are available
The opportunity to house hack may be short lived. In some markets, new apartment buildings are under construction that will have available units next year, especially smaller, one bedrooms.
Rental market inflation, which had been stubbornly high for much of 2023, has cooled due to new inventory, pushing the rental vacancy rate up to 6.6% in the third quarter, the highest level since the first quarter of 2021, according to Redfin data.
“We’ve already seen rent prices stabilize, especially for single occupancy rentals,” Fairweather said. It’s going to be harder to rent out a room as more rentals become affordable, she added.
Despite the growth in available apartments, the U.S. is facing a “massive shortage of housing, especially affordable housing options,” said Zillow’s Garcia.
“If you’re pricing your home competitively, renting out can be a reliable source of income because there’s no shortage of people looking for a place to live,” he said.
What to consider before ‘house hacking’
While renting out a portion of your home can serve as an additional income, interested buyers would still need to gather a sufficient down payment and proof of income to show they can already afford the monthly payments.
“If you’re going to rely on rental income in order to qualify, you’ll have a problem,” said Melissa Cohn, mortgage banker and regional vice president of William Raveis Mortgage.
“They need to prove they can afford the mortgage without the rent,” she said.
Banks won’t consider potential rental income and they will require the buyer to be able to qualify for the financing without the support of potential rental income, she said.
There is another risk to buying a bigger house with the intention of renting out part of it: You could wind up stuck with an expensive mortgage and a room you can’t rent out.
If renting out part of your home — or the entire property — is optimal for you, do your research on what the current rate is for your type of home. Consult with rental managers who can help draft leases and give you a good estimate on the going rate in your area, said Garcia.
“There’s a lot of homework to be done to make sure that you’re pricing correctly when you’re posting your unit for rent,” Garcia said.
Additionally, keep in mind that there is a big chance the house you are considering may be subject to local ordinances on renting or homeowners association regulations.
Breaking a lease can be a daunting task, but circumstances may arise that necessitate early termination of a lease agreement. Whether it’s due to a job relocation, changes in personal circumstances or dissatisfaction with the rental property, understanding the process and your rights is crucial. This guide aims to provide a comprehensive overview of everything you need to know about how to legally break a lease, ensuring you navigate the complexities with confidence.
Understanding lease agreements
A lease agreement is a legally binding contract between a tenant and a landlord, outlining the terms and conditions of the rental arrangement. It typically includes details like rent amount, lease term and responsibilities of all parties. Breaking a lease involves terminating this contract before its specified end date, which can have legal and financial implications.
Lease termination options
Early termination clause: Some leases include an early termination clause that allows tenants to end the lease before its expiration date, usually for a fee. Review your lease agreement to understand the terms and conditions of this clause.
Negotiating with the landlord: Communication is key. Discuss your situation with your landlord openly and negotiate the terms of breaking the lease. Some landlords may be willing to work with you, especially if they can find a new tenant quickly.
Subleasing: In certain situations, subleasing might be an option. Ensure that your lease agreement permits subleasing and follow the necessary procedures outlined by your landlord.
Sublease agreements
Subleasing can be a viable option for tenants looking to break a lease early. In a sublease arrangement, the original tenant finds a replacement tenant to take over the lease for the remaining duration. However, it’s crucial to check the lease agreement to determine if subleasing is allowed, as some leases may explicitly prohibit this practice.
If permitted, the tenant must follow the specified procedures, which may include obtaining the landlord’s approval and ensuring the new tenant meets certain criteria. Subleasing can provide a way for tenants to fulfill their lease obligations while offering flexibility in changing life circumstances.
New lease agreements
In some cases, tenants may negotiate with their landlords to break the existing lease and enter into a new lease agreement. This approach requires open communication between the tenant and landlord to discuss the reasons for the lease termination and the terms of the new lease.
Landlords may be willing to accommodate tenants’ needs, especially if there is a valid reason for the lease break. However, both parties need to formalize any changes in writing to avoid misunderstandings and ensure that the new lease agreement clearly outlines the terms, conditions and responsibilities of all parties involved.
Fixed terms
Leases are often structured with fixed terms, specifying the duration for which the lease is valid. Breaking a lease with a fixed term typically incurs additional challenges, as the agreed-upon timeframe binds tenants. Early termination may be allowed by most landlords under certain conditions, like the inclusion of an early termination clause in the lease.
Tenants must carefully review the lease agreement to understand the implications of breaking a lease with a fixed term and work within the parameters outlined in the contract. Communication with the landlord and, if necessary, legal advice can help tenants navigate the complexities of breaking a lease with fixed terms.
Giving written notice
Most leases require tenants to provide written notice when intending to break a lease. This written notice typically includes the reason for the lease termination, the intended move-out date, and any other relevant details.
It’s crucial to follow the specific notice requirements outlined in the lease agreement, which may specify the notice period and the method of delivery. Providing written notice establishes a clear record of the legal reason for the tenant’s intent to break the lease and helps both parties navigate the process in accordance with legal and contractual obligations.
Rental history
A tenant’s rental history can significantly impact the process of breaking a lease. If a tenant has a positive rental history—consistently paying rent on time, maintaining the property, and adhering to lease terms—it may positively influence the landlord’s willingness to negotiate or provide flexibility.
On the other hand, a history of late payments or lease violations may make the process more challenging. Communicating openly about the reasons for the lease break and demonstrating a commitment to fulfilling any outstanding obligations can help mitigate potential issues related to rental history.
Landlord responsibilities
Understanding the landlord’s responsibilities is crucial when contemplating breaking a lease. Landlords are generally obligated to properly maintain the property in a habitable condition, address repairs promptly, and adhere to health and safety codes. If the landlord fails to fulfill these responsibilities, tenants may have legal grounds for breaking the lease.
Documenting instances of neglect or code violations and communicating these concerns to the landlord in writing is essential. If the issues persist, tenants may need to seek legal advice to navigate the process of breaking the lease based on the landlord’s failure to meet responsibilities.
Landlord harassment
Harassment by a landlord can be a challenging situation for tenants. If a landlord engages in harassment tactics to force a tenant out, it may constitute a breach of the lease agreement. Examples of harassment include unwarranted and repeated entry into the rental unit, threats, or creating an environment that interferes with the tenant’s right to peaceful enjoyment of the property.
In such cases, tenants should document instances of harassment, keep written records, and seek legal advice. Breaking a lease due to landlord harassment may require demonstrating that the harassment has created an uninhabitable living situation for new tenants.
New owners
If the rental property changes ownership while a tenant is still under lease, it may impact the lease-breaking process. In many cases, the new owner is obligated to honor the existing lease agreement.
However, tenants should carefully review the lease to understand any provisions related to changes in ownership. Communication with property management and the new owner is essential to ensure a smooth transition and clarify any concerns or questions regarding the lease terms and conditions.
Legal considerations
Landlord-tenant laws: Familiarize yourself with the landlord-tenant laws in your state. These laws govern the rights and responsibilities of both parties and may affect the process of breaking a lease.
Written notice: Most leases require tenants to provide written notice before breaking a lease. This notice period varies by state and is often 30 days, but it’s essential to check your lease agreement for specific requirements.
Early termination fees: Be aware of any early termination fees specified in your lease agreement. These fees are intended to compensate the landlord for the financial loss resulting from the early termination.
Security deposit: Understand the conditions under which you may be entitled to a full or partial return of your security deposit. Failure to adhere to the terms of the lease could result in the forfeiture of this deposit.
Legal protections
Servicemembers Civil Relief Act (SCRA): Military personnel may be protected under the SCRA, allowing for lease termination under certain circumstances, such as deployment.
Domestic violence and family violence: Some states have provisions allowing victims of domestic or family violence to break a lease without penalty. Check your local laws to determine eligibility.
Constructive eviction: If the rental unit becomes uninhabitable due to the landlord’s negligence, you may have grounds for constructive eviction, justifying the termination of the lease.
Seeking legal advice
If you are unsure about your rights or encounter challenges during the lease-breaking process, seeking legal advice is crucial. Consult with an attorney who specializes in landlord-tenant law to ensure you make informed decisions and protect your interests.
Handling the lease breaking process
Lease breaking steps: Follow the specific steps outlined in your lease agreement for breaking the lease. This may include providing written notice, paying any applicable fees, and adhering to the agreed-upon timeline.
Replacement tenant: If your lease allows for subleasing, actively search for a replacement tenant. Ensure that the new tenant meets the landlord’s criteria and follows the necessary application procedures.
Rent payments: Continue paying rent until the lease termination process is complete. Failure to do so may result in additional fees or legal consequences.
Document everything: Keep detailed records of all communication with the landlord, including written notice, emails, and any agreements reached during negotiations. This documentation can be crucial if legal issues arise.
Understanding the fine print
Lease terms and conditions: Read the fine print of your lease agreement thoroughly. Understand the consequences of breaking the lease, including any financial penalties or legal actions that may be taken by the landlord.
Credit report impact: Breaking a lease can impact your credit report. Be aware of this potential consequence and take steps to mitigate any negative effects by fulfilling your obligations as outlined in the lease.
State and local laws
Local laws and regulations: In addition to state laws, be aware of local laws and regulations that may impact the lease-breaking process. Some cities or counties may have specific requirements or protections for tenants.
Health and safety codes: Familiarize yourself with health and safety codes that may affect the habitability of the rental unit. If the property violates these codes, it may provide legal grounds for lease termination without penalty to the tenant.
Special circumstances
Job relocation: If you’re breaking the lease due to a job relocation, check if your employer offers any assistance or resources to help with the relocation process.
Health issues: In cases of severe health issues, consult with your landlord and provide any necessary documentation to support your need for early lease termination.
Knowledge is power
Breaking a lease is a significant decision that requires careful consideration and adherence to legal obligations. Understanding your lease agreement, state and local laws and exploring all available options for legal action are essential steps in the process.
By approaching the situation with transparency, communication and knowledge, you can navigate the complexities of breaking a lease while minimizing potential legal and financial consequences. Remember to seek legal advice when needed and always act per the terms outlined in your lease agreement to protect your rights as a tenant.
The information contained in this article is for educational purposes only and does not, and is not intended to, constitute legal or financial advice. Readers are encouraged to seek professional legal or financial advice as they may deem it necessary.
A native of the northern suburbs of Chicago, Carson made his way to the South to attend Wofford College where he received his BA in English. After working as a copywriter for a couple of boutique marketing agencies in South Carolina, he made the move to Atlanta and quickly joined the Rent. team as a content marketing coordinator. When he’s off the clock, you can find Carson reading in a park, hunting down a great cup of coffee or hanging out with his dogs.
When cityapproval of a proposed $350 million skyscraper in downtown Los Angeles was on the line, project manager Hamid Behdad knew he had to give in to the last-minute demand of a planning commissioner to quadruple the number of electric vehicle charging stations in the condominium tower.
“When you are in the heat of the hearing in the last leg of the proposal, you aren’t going to say no,” Behdad said, even though he thought the requirement was overkill.
Today, with the Perla on Broadway complete and angling for buyers, Behdad said he is “extremely glad that commissioner forced us” to install chargers on 20% of the building’s parking stalls.
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“If we didn’t have these 90 chargers, we would be in real trouble selling units,” he said.
Landlords of apartments, hotels, office buildings and other commercial properties are rushing to avoid similar trouble. And owners of convenience stores, fast food chains, movie theaters and big box retailers are hoping to cash in on EV chargers to lure customers with time to kill as they fill up.
Charging centers are just the first step of commercial landlords scrambling to adjust to a historic burst of change in the world of transportation, with once fantastical notions like autonomous cars and air taxis nearing fruition.
Some companies are building charging centers that are a giant step beyond electrified gas stations. Elon Musk’s Tesla, for instance, is building a whimsical drive-in movie and diner complex in Hollywood where Tesla owners can entertain themselves while loading their batteries.
Fancy L.A. shopping centers such as the Grove and Westfield Century City have chargers, as do the more workaday Walgreens, Walmarts, Subways and 7-Elevens.
The arrival of Tesla’s Model 3 and other more affordable electric vehicles are helping EVs seize market share from gas-powered vehicles, putting more pressure on the historically slow-changing real estate business to get with the times.
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The immediate issue is installing enough chargers to meet growing demand and seize business opportunities. But other advances in transportation technology stand to rewrite centuries-old rules about how buildings are designed and built.
When cars no longer spew toxic fumes and can park and drive themselves, hotel and office lobbies might be designed for cars to drop off people inside and go off and do their own thing. In the not-too-distant future when visitors arrive by electric air taxis, buildings might need a second entrance lobby on the roof for the drones to land. Los Angeles officials are planning for such flying vehicles to be operational by the 2028 Olympics and are looking at how to regulate them.
“What happens when you blur boundaries between automobiles and architecture?” said Dylan Jones, a strategic planner specializing in mobility for architecture firm Gensler. “Do you need a garage in the building? Can you sell your car’s energy” to your landlord?
Such technological shifts could require dramatically different building designs, but few developers are looking that far ahead, he said. It’s the nature of the business that typically operates in five-year cycles of building and selling.
“The real estate industry is funny because developers don’t want to speculate about the far future,” Jones said. Developers “want to be able to just peek around the corner and see what’s coming” and be set up to succeed with technology that will exist when the building opens.
Los Angeles developer Walter N. Marks III sees a lure in new technology for a luxury apartment tower he is planning on Wilshire Boulevard with a mechanized parking system that will whisk cars out of sight and charge them if desired.
Tenants will drive their cars onto a movable metal pallet that will quickly park them underground andpower up electric vehicles if the resident plugs it in.
Marks is already operating a mechanized parking system at Helms Bakery District, a historic collection of shops and restaurants his family owns in Culver City. It doesn’t charge cars, but in the future he wouldn’t install a system that didn’t, he said.
All new automobiles and light trucks sold in California will be required to be zero-emission by 2035. The electric age is here. But the autonomous one is less certain. Marks is skeptical of predictions that consumers will give up their private automobiles in the near future and rely on fleets of robot taxis to ferry them about.
“I do believe that the car culture in Los Angeles is unique and very powerful,” he said. “People take their cars extremely seriously, and I think we need to recognize that and honor it.”
Jones thinks attitudes about driving your own car may change quickly when autonomous vehicles are reliably safe and data show that people are more likely to be killed by human-driven vehicles than autonomous ones.
“Drivers will become the smokers of the future; they’ll be socially shunned,” he said. “People will look at them and say , ‘Oh, you drove to work today? My kids are on the street. What are you doing?’”
That era is yet to come. At this point, the push is on among housing developers to provide charging stations to the growing number of tenants demanding them.
Socially conscious housing developer Cityview is rushing to add them to its existing apartments, including a building with only eight units, Chief Executive Sean Burton said.
Cityview usually adds as many stations as existing buildings’ electrical systems can handle, he said. Properties that weren’t constructed with charging in mind are often limited in how much power they can supply to chargers.
“In general I think building owners are adopting more slowly than they should,” Burton said. “We try to be more leading edge on sustainability issues.”
An apartment management company that manages 76,000 units for various owners is racing to meet rising demand in part by retrofitting garage electrical outlets to handle 210 volts for Level 2 charging, said Jackie Impellitier, vice president of operations for ZRS Management. That is the common commercial system for charging that takes about three to eight hours. The price of charging is added to tenants’ electrical bills.
“The thing we are all acknowledging is having charging stations is no longer an amenity, it’s a necessity” to attract and keep tenants, she said. “We are going to start losing renters if we don’t have easy and convenient access” to charging.
Most apartment developers and owners “weren’t even paying attention to EV drivers” as a category of tenants five years ago, Impellitier said, when Tesla stood practically alone as the provider of electric vehicles. “Now, every carmaker has an electric model.”
Charging stations are commonly installed and operated by third-party vendors. The big expense for landlords is getting sufficient electricity to garages and parking lots to support Level 2 charging. (The lower Level 1, plugging into a common 120-volt electrical outlet, can take more than a day if you’re charging from empty).
Level 3 chargers that can charge a car sufficiently in as little as 20 minutes run on at least 400 volts. They are expensive to set up and require electrical infrastructure not typically found in residential buildings
Automotive data provider S&P Global Mobility estimated in January that there are about 126,500 Level 2 and 13,487 Level 3 commercial charging stations in the United States today, plus another 16,822 Tesla Superchargers and Tesla destination chargers. The number of chargers grew more in 2022 than in the preceding three years combined, S&P said.
Among them are chargers at fast-food and other convenience businesses that hope customers buy things while their cars charge. Earlier this year 7-Eleven Inc. said it intends to build one of the largest fast-charging networks of any retailer in North America and already has chargers in four states, including California. Drivers pay through a phone app.
“7-Eleven will have the ability to grow its network to match consumer demand and make EV charging available to neighborhoods that have, until now, lacked access,” the company said in a statement.
Sandwich maker Subway is rolling out a variation on the theme — charging “parks” with multiple charging stations that also happen to have restaurants. These Subway Oasis charging parks will have picnic tables, Wi-Fi, restrooms, green space and playgrounds, the company said. They’ll be rolled out across the country at new or newly remodeled locations
Drug store chain Walgreens claims to be “the nation’s largest retail host” of chargers with more than 430 locations offering them. Other household-name retailers installing chargers include Ikea, Kohl’s, Walmart, Starbucks, Whole Foods, Taco Bell and theater chain Cinemark.
Additional concepts for charging stations with retail services intended to attract customers with time to kill are emerging.
Tesla, the giant of the EV industry with a growing network of fast chargers, is rolling out what it calls a supercharger diner and drive-in theater in Hollywood that promises an “American Graffiti” style pit stop for Tesla drivers perhaps running 24 hours a day.
Tesla is constructing the charging and entertainment complex on Santa Monica Boulevard — historic Route 66 — near a trendy stretch of Sycamore Avenue that has celebrity-favored restaurants, upscale shops and art galleries.
The car maker paid $16.7 million last year for a corner lot at Orange Drive where a shuttered Shakey’s Pizza Parlor was demolished to make way for the two-story project that could become an iconic venture for Tesla. The plan calls for a restaurant and two movie screens showing features that last half an hour, roughly the time it takes to charge a vehicle.
The complex is to have 29 fast superchargers and five Level 2 chargers available around the clock, while the theaters, visible from both cars and rooftop seating, would operate from 7 a.m. to 11 p.m. A screen of bamboo would shield Tesla’s movies from the street.
On the I-15 freeway between L.A. and Las Vegas, the developers of a charging station set to open in January expect to charge around 10,000 vehicles per month. The 24-hour outpost will have 40 fast charging station around a yet-to-be-announced nationally known coffee seller, said Lester Ciudad Real, co-founder of StackCharge, which is developing the project near a freeway exit in Baker.
The opportunity to charge while parked at the office has also emerged as a must for tenants. A recent survey by real estate brokerage JLL found that tenant-demanded clauses calling for charging were among the least likely to be included in existing office space leases signed in years past but would be the top priority in future negotiations.
But office building owners are stuck trying to strike the right balance. They must keep up with growing demands without overspending on chargers that aren’t needed yet, said Rex Hamre, national director of sustainability for JLL. It’s usually easy to add up to 10 stations, but trying to make even 20% of the spaces charge-ready in a 600-car parking facility could incur steep costs for electrical infrastructure.
“We are still at the cutting edge of this transition,” Hamre said. “Innovative companies are taking advantage of it as an opportunity.”
EV refueling could lead to changes in how cities look in ways that have yet to be fully imagined, architect Jones said. Gas stations in prime urban locations could give way to hybrid buildings with coffee bars, co-working offices and meeting rooms, built around indoor charging points.
“Word Perfect made typing easier, and then computers became more ingrained and it did things a typewriter could never do,” Jones said. “We’re in the early stages where the first EV charging infrastructure we’re seeing is a replication of what we understand is a refueling station. But in the future they’re going to look and feel much different.”
Inside: Ever wondered how much rent you can afford on a particular hourly wage? Use the rent calculator to see what you can afford on $20 an hour. Find out from the experts in this guide.
Honestly, this is something most people don’t think about until after they get themselves in a troubling situation.
Determining rent affordability is paramount in your financial planning. It’s important to strike a balance between comfortable accommodation and fiscal responsibility to avoid financial strains down the road.
There exists a direct correlation between your income and the rent you can afford to pay. Higher income opens doors to pricier accommodations while lower wages might enforce budget constraints. Understanding this relationship is crucial.
It guides your housing decisions and helps maintain a stable financial footing.
By calculating your rent affordability, you can set a clear budget, establish your housing needs, and navigate the real estate market with ease.
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How much rent can I afford making $20 an hour?
If you make $20 an hour, based on a standard 40-hour work week, your gross income would come up to approximately $3,467 per month.
If you follow the 30% rule, this means you should allocate a maximum of $1,040 each month for rent.
$3467 x 30% = $1040
However, remember this is a rough estimate and your specific expenses and financial obligations should also be taken into consideration before deciding on a rent budget.
What Percentage of My Income Should Go to Rent?
This is a good question to consider.
Even better when you are trying to figure out how much to save before moving out.
The 30% Rule Explained
The 30% rule is a simple guideline suggesting that one should allocate no more than 30% of their gross (before taxes) monthly income toward rent.1
This rule of thumb has been widely adopted as a measure of rent affordability. The beauty of the 30% rule lies in its simplicity and ease of use, allowing for quick budgeting while maintaining room for other essential expenses.
Be Conservative and Stick with 20%
According to Money Bliss budgeting percentages, adopting a more conservative approach to budgeting by allocating only 20% of your income towards housing costs can be more beneficial.
If you follow the 20% rule, this means you should allocate a maximum of $693 each month for rent.
$3467 x 20% = $693
This strategy helps to account for additional expenses such as utilities, unexpected repairs, and other costs that often accompany home ownership or renting.
This reduced allocation promotes being smart with your money to avoid unnecessary financial stress.
When to Consider Stretching the 30% Rule
At times, it might be necessary to stretch the 30% rule particularly in high-cost areas or during short-term situations. It’s crucial, however, to understand the potential ramifications and adjust other spending habits to compensate.
A temporary overshoot could be justifiable if it leads to significant future benefits, like proximity to a well-paying job. Always remember, that this should be an exception rather than the norm.
How Does the Rent Calculator Work?
A rent calculator is a practical tool that aids in estimating the rent you can afford.
This simple calculator is based on your hourly income and spending either 20-30% of your gross income on rent.
Fine-tuning your budget is possible by adjusting the percentage you wish to spend on housing. Remember, the final number serves as a guide and may require adjustments based on your financial situation.
Breaking Down Your Monthly Budget
For savvy budgeters, adhering to the 50/30/20 rule can provide a clear framework for managing your expenses and growing your savings. While at Money Bliss, we went a step further to define it as the 20-50-10-20-0 budget rule. (save-basic expenses-give-fun spending-debt).
This approach gives a precise breakdown of your monthly budget, ensuring that you are living within your means while also setting funds aside for future financial security.
Housing Costs
The basic 50/30/20 rule suggests dividing your monthly net income into 50% for necessities such as rent and groceries, 30% for personal wants like clothing or travel, and designating the remaining 20% for savings goals or debt repayment.
By adding these to your housing budget, you get a realistic picture of your monthly accommodation costs.
When budgeting for rent, one must account for other housing costs. These may include utilities like gas, electricity, and water, as well as internet, cable TV, and trash collection. You might also need to factor in the renter’s insurance and potential parking fees.
Essential Living Expenses
In addition to housing, remember to consider essential living expenses in your budget. These include food, transportation, health insurance, and childcare.
In addition, we advise our readers to put aside about 15-25% of their net income for savings. Accounting for these factors ensures you don’t stretch your budget to the limit solely on rent.
Discretionary spending
While you need to cover essential living expenses, it’s also important to allocate funds for discretionary spending – we call it FUN spending.
This category involves non-essential purchases like eating out, entertainment, vacations, and shopping. Using the 50/30/20 rule as a guideline, 30% of your net income can be put towards these wants, allowing you to enjoy your income while staying financially sound.
Factors Influencing Rent Affordability
There are many factors that impact how much you can spend on rent. As such, this will vary from person to person as situations vary. While these numbers are gross income, you need to realize the amount of money coming out for taxes. Many people don’t understand gross income vs net income.
Furthermore, the cost of living and rental prices in your chosen location can greatly impact how much you can afford. So, use the rent affordability calculator!
Location and Rent Prices
The location of a home greatly influences its rent prices. HCOL vs LCOL is a real thing!
Proximity to the city center, schools, parks, and shopping centers typically equate to higher costs. For example, renting trends in 2023 indicated an increase in prices the closer you get to these amenities.2 By choosing to live a bit further out, you may be able to find more affordable rent payments.
Areas with higher crime rates will have lower rents but these tend to come with more issues.
Size and Type of Housing
The size and type of your dwelling can also significantly affect your rent. Large houses with multiple rooms naturally cost more, whereas smaller apartments or studios are less expensive.
The type of housing also plays a role; for instance, a modern, furnished apartment might cost more than an unfurnished one. Tailoring your choice to your needs and budget allows for comfortable living without overspending.
If you have a pet, don’t forget it may cost more plus you have a pet deposit.
Lease Length Considerations
Lease length can directly impact your rent. Longer leases often equate to lower monthly rents, offering landlords a sense of security. On the contrary, short-term or month-to-month leases typically come with a higher price tag due to their inherent flexibility.
Assess your personal situation and potential need for flexibility before deciding on the lease term.
Also, the amount you need to put down as a security deposit can be negotiated.
Tips to Maximize Your Rent Budget
Plan your budget carefully taking into account factors like income, potential expenses, and the cost of living in your chosen location. So, if you are thinking $5000 is enough to move out, you may be surprised.
Use the 30% rule as a guide but be aware that in high cost of living areas, you may need to adjust this percentage. When searching for a rental, compare the cost and amenities of different apartments in your preferred areas and see if there are nearby neighborhoods with cheaper rental costs.
Also, you may need to embrace cost-saving measures such as cooking at home and shopping frugally to free up more income for rent.
You can learn more about those areas on our site.
Tip #1 – Reducing Costs and Saving
There are several ways to reduce housing costs and save more in this tough rental market.
Consider downgrading to a smaller place or moving to a less expensive area.
Negotiate a longer lease term for a reduced monthly rent.
Maybe even consider becoming a permanent housesitter to free up your budget.
Small changes can lead to substantial savings over time.
Tip #2 -Planning for Future Rent Increases
Each year when your lease is about to renew, always factor in the possibility of future rent increases, which could be influenced by trends in the real estate market and inflation.
Ensuring your income can keep up with these increases is necessary for maintaining affordability. Continually reassess your rent affordability, especially during annual lease renewals or job changes.
Tip #3 – Get Roommates
Sharing your space with a roommate is a practical way to cut down on your living expenses substantially. By having one or more people to share the rental costs, utilities, and even groceries in some instances, you are likely to free up a considerable portion of your budget.
However, it’s important to clearly set boundaries and expectations to maintain a smooth living arrangement.
FAQ on Rent Affordability
Spending more than 30% of your income on rent is generally not advisable. It risks leaving you cash-poor, having insufficient resources for other important expenses like groceries, utility bills, health expenses, retirement savings, or emergency funds.
However, in certain scenarios like living in high-cost areas or prioritizing proximity to work (thus lowering your need for a car), bending the rule temporarily might be justifiable. Always reassess your budget to account for flexibility.
Yes, an increase in your hourly wage can slightly affect the amount of rent you can afford. The raise translates to an increased monthly income, which may enable you to comfortably afford higher rent.
However, it’s important to ensure this does not erode financial stability because lifestyle creep is real. Aim to maintain the key balance between comfortable living and responsible saving.
It’s recommended to reassess your rent affordability annually or when there’s a significant change in your financial situation.
Such changes could be a raise or decrease in income, new financial obligations, or plans to save for major future expenses. Regular evaluations ensure your housing budget aligns with your current financial realities.
Is $20 an hour a livable wage?
Given the average rent in the United States is $1702, $20 an hour is not a livable wage, especially in San Francisco or New York. As such, the maximum you should be spending on rent is $1040.
If workers are unable to afford to live in the communities they work in, it puts the whole system under stress. While there have been movements to create low-income housing, it is slow to happen and for many, difficult to apply.
Ultimately, whether this wage allows for a comfortable lifestyle depends largely on your financial habits, commitments, and where you live.
With good financial planning, including a solidly crafted budget that factors in rent, savings, and living expenses, a $20 hourly wage can indeed cater to a decent lifestyle.
Remember to reassess your budget regularly and adjust as necessary to meet changing financial landscapes.
Making wise financial decisions now can lead to a financially secure future. Now, do you have the habits needed to be financially stable?
Source
FiftyThirtyTwenty. “About.” http://fiftythirtytwenty.com/about.html. Accessed November 13, 2023.
Rent. “Rent Growth in Half of Suburbs Outpacing Metro’s Core City.” https://www.rent.com/research/suburban-growth-outpacing-core-city/. Accessed November 13, 2023.
Rent Cafe. “Average Rent in the U.S.” https://www.rentcafe.com/average-rent-market-trends/us/. Accessed November 13, 2023.
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US mortgage rates are forecast to be higher than expected in the coming year, according to Goldman Sachs Research. Home prices are also projected to increase, even as borrowing costs remain elevated.
As interest rates have risen, 30-year-mortgage rates are now expected to be 7.6% at the end of 2023, up from the previous estimate of 7.1%, Goldman Sachs Research analysts Roger Ashworth and Vinay Viswanathan write in the team’s report. Similarly, the forecast for rates at the end of 2024 now stands at 7.1%, up from 6.8% previously. At the end of 2025, rates are predicted to be 6.6%.
The new forecast for mortgage rates reflects a steeper yield curve (longer-maturity Treasury yields are rising, which tends to increase mortgage rates) and Treasury yield volatility that remains “stubbornly high,” according to Goldman Sachs Research. The latter is keeping spreads (the extra interest a security yields relative to risk-free Treasuries) for mortgage-backed securities wide and is raising funding costs for mortgage originators. Over the past six months, the secondary market for MBS has begun to price in mortgage rates that stay “higher for longer.”
US home prices are forecast to climb
Meanwhile homes have appreciated despite the rise in borrowing costs: Prices grew in August by 0.9% month-over-month, reflecting an annualized 11% pace, according to Case-Shiller data. “The continued strength of the data surprised us,” Ashworth and Viswanathan write. Goldman Sachs Research expects home prices, adjusted seasonally and accounting for the full year, to appreciate 2% in 2023, 1.9% in 2024, and 2.8% in 2025.
Home prices have been buoyant amid tight supply. When it comes to existing homes, the inventory available for sale is historically low. New listings are being added at the slowest pace on record. And while new home inventory continues to rise statistically, most of this new inventory is still under construction.
Persistently higher interest rates are expected to dampen mortgage origination. Our analysts forecast $1.5 trillion in mortgages will be originated in 2024 — a figure similar to their full-year projection for 2023 — before rising slightly to $1.8 trillion in 2025. Meanwhile homeowners looking to sell their houses and buy new ones face the daunting prospect of having to prepay their current mortgages and take out fresh mortgages at today’s higher rates. This “lock-in” effect is projected to depress sales of existing homes to 3.8 million in 2024, the lowest level since the early 1990s, according to a separate report from Goldman Sachs Research.
US housing has become much less affordable
“An unfriendly byproduct of our forecasts for resilient home prices and limited rates relief is enduringly poor housing affordability,” Ashworth and Viswanathan write. The Goldman Sachs Housing Affordability Index touched a record low in late 2023, and is expected to improve only gradually over the next three years.
Affordability issues could explain why rent growth has been stronger than home price growth over the past 12 months, based on Zillow estimates. The payment gap between new mortgages and new rental leases has grown considerably across geographies (largely a function of mortgage rates), potentially encouraging first-time homebuyers to hold off purchasing a home.
“While rental affordability is also challenging in absolute terms, the stark deterioration in mortgage affordability has made renting more compelling for potential homeowners,” Viswanathan writes in a separate report.
This article is being provided for educational purposes only. The information contained in this article does not constitute a recommendation from any Goldman Sachs entity to the recipient, and Goldman Sachs is not providing any financial, economic, legal, investment, accounting, or tax advice through this article or to its recipient. Neither Goldman Sachs nor any of its affiliates makes any representation or warranty, express or implied, as to the accuracy or completeness of the statements or any information contained in this article and any liability therefore (including in respect of direct, indirect, or consequential loss or damage) is expressly disclaimed.
Oklahoma is more than OK in these reasonably priced metros.
Oklahoma is a lot of things, and not a lot of things. It’s in the South, but not genteelly Southern. It sits across the Red River from Texas, but most certainly not Texas. And it’s at the bottom end of the Great Plains but doesn’t have flowing fields of wheat and corn.
Oklahoma is dusty but contemporary. It’s diverse but steeped deep in Indigenous tradition. It’s the NBA, but also Bedlam. And from modern skyscrapers to a long, endless panhandle, it’s an inviting place to live.
Luckily, it’s also an affordable place to live. Rents are low and mostly reasonable. And options are diverse. The state features gleaming cosmopolitan cities, college towns, independent suburbs, close-knit farm communities and much more.
But with such a cheap state to live in, what are the cheapest places to live in Oklahoma? Where can the most affordable rental cities be found?
Average rent prices in Oklahoma
First, let’s take a look at rent prices in Oklahoma as a whole. Overall, the Sooner State is a fairly inexpensive state in which to live.
The average rent for a one-bedroom apartment across the state is $733. That’s a good bargain price for most renters. In fact, all but one of the cheapest places to live in Oklahoma fall below that figure.
Much of the country has seen a significant jump in prices from this time last year. However, Oklahoma remains fairly consistent. That number is up just two and a half percent from a year ago.
The cheapest cities in Oklahoma for renters
There are a number of reasons Oklahomans are looking for cheaper places to live, or assessing the price of where they currently reside. Among all the cities and towns in the Sooner State, what are the most affordable for renters? Below are the 10 cheapest places to live in Oklahoma.
10. Sapulpa
Average 1-BR rent price: $737
Average rent change in the past year: +1.38%
Like many below, Sapulpa is an Oklahoma city born as a railroad town and modernized as a stop on old Route 66. Today, it sits as Tulsa’s fourth-largest suburb, with a population of 22,000, fourteen miles from downtown. Sapulpa remains a commuter town, mostly residential with small pockets of service shops and fast-food restaurants. Its primary commercial strip is along the Dewey Avenue corridor, part of Route 66.
As a residential district, Sapulpa has a plethora of parks and green spaces. The town offers over 500 acres of land spread out among two dozen parks and recreation facilities. As well, there are nearly five miles of running and biking trails along five designated park paths around Sapulpa. For water enthusiasts, Sahoma and Pretty Water Lakes cover 300 acres combined. The destination is known for its excellent fishing, with stocks of trout and catfish.
“Oklahoma’s Most Connected City” is also one of the cheapest places to live in Oklahoma. On average, a one-bedroom apartment in the growing suburb leases for $737 a month.
9. Oklahoma City
Average 1-BR rent price: $711
Average rent change in the past year: -13.90%
Oklahoma has “plenty of air and plenty of room to swing a rope, plenty of heart and plenty of hope,” according to its eponymous musical. At its heart is its capital and largest city of Oklahoma City, with more than its fair share of that plentiful air and room. At over 600 square miles, O.K.C. is the second-largest city in the continental U.S. by area with a population of more than 100,000 residents.
The city where the wind comes sweepin’ down the plain is more than its roots as an oil and cattle town. “Oklahoma City is mighty pretty,” sings Nat King Cole on his hit “(Get Your Kicks on) Route 66.” Anyone who has visited O.K.C. can confirm that statement’s validity. It’s a bustling city of vibrant neighborhoods, close-knit communities and big business sectors. More than a fossil fuel hub, Oklahoma City is a leader in tech, healthcare and even sustainable energy.
It’s been a quarter-century since the attack at the Murrah Federal Building and two decades after the Moore tornadoes. The city has taken great strides in rebuilding, as well as revitalizing its city center. Downtown’s Bricktown entertainment district is one of the most vibrant in the Great Plains.
However, rents have remained affordable throughout the city. An average one-bedroom apartment runs $711 a month on average, a 14 percent drop over the last 12 months.
8. Tulsa
Average 1-BR rent price: $695
Average rent change in the past year: +1.30%
Be sure to take note, Tulsa is not some sleepy Midwest oil town. The city, one of the 50-largest in the nation, centers a metro area of over a million residents. It presents as modern, clean and metropolitan, more so than its larger neighbor and state capital to the west. It’s a city of big money, Great Plains skyscrapers and a bustling downtown with its gleaming BOK Center.
Tulsa is a growing tech, healthcare and finance hub, not to mention great for beef lovers. It offers a diverse population, over-40 percent non-white, and a rich history. Its cosmopolitanism has allowed it to become the leading arts, culture and nightlife destination in the Sooner State.
The Tulsa Zoo was voted “America’s Favorite Zoo.” The Linde Oktoberfest is ranked one of the top German celebrations and food festivals in the nation. And don’t forget the barbecue. Tulsa staples RibCrib, Billy Sims Barbecue and Oklahoma Joe’s are shipped across the country.
An affordable locale in the up-and-coming Ozark Plateau region, Tulsa is attractive to renters. The cheapest large city in Oklahoma, one-bedroom rents sit just under $700 on average.
7. Stillwater
Average 1-BR rent price: $668
Average rent change in the past year: +3.88%
Oklahoma State fans will be happy to find out their beloved Cowboy town is one of the cheapest places to live in Oklahoma, while the Boomer Sooners’ Norman failed to rank. One-bedroom apartments in the Frontier Region college town of Stillwater rent for an average of just $668 a month.
Stillwater — equidistant from Oklahoma City, Tulsa and the Kansas border — is a full-fledged Southern Plains small city college town. Washington Irving described it as a “glorious prairie spreading out beneath the golden beams of an autumnal sun.” Activity obviously centers on the university, but Stillwater offers plenty for urban living, as well. The city of 45,000 offers a number of museums, cultural institutions and a legendary music scene. It’s even home to the National Wrestling Hall of Fame.
But Stillwater is still chock full of college town favorites. World-famous sports bar Eskimo Joe’s is a hub for students, music enthusiasts, ‘Pokes fans and T-shirt-toting tourists. It even was named “Best College Post-Game Hangout,” as well as serving “America’s Greatest Cheese Fries.” The bar sits steps from both 60,000-seat Boone Pickens Stadium and Gallagher-Iba Arena, one of the oldest in the NCAA.
6. Midwest City
Source: ApartmentGuide.com
Average 1-BR rent price: $575
Average rent change in the past year: -12.09%
Most cities at the top of this list are old homestead towns that boomed when the railroad came through. Not Midwest City. O.K.C.’s third-largest suburb, Midwest City only dates back to World War II. The city was created around the then-new Tinker Air Force Base.
Thanks to considerable media attention, it quickly became a national model for community development after the war. A grocery store opened, a hospital, a junior college and a mall soon followed. By 1970, the city that rose out of empty land had nearly 50,000 residents.
Like several of the other cheapest places to live in Oklahoma, the military base is still the focal point of the town. But the heart of residential Midwest City lies in its thriving central business district. The commercial district lies across I-40 from the base. Revitalized at the turn of the century, the city’s main street follows SE 29th Street and centers on bustling Town Center Plaza. The area features big box stores, a walkable row of national chain casual dining and Tinker Bicentennial Park.
For suburban commuters to Oklahoma City or military families, Midwest City remains affordable. A one-bedroom apartment leases for an average of $575 a month. That figure has dropped over 12 percent since this time last year.
5. Enid
Average 1-BR rent price: $573
Average rent change in the past year: N/A
Just 30 miles from the Kansas border, Enid is the cheapest place to live in northern Oklahoma. Its proximity to Kansas explains its notoriety as the “Wheat Capital of Oklahoma.” In fact, the small city of 50,000 features the third-largest grain storage capacity in the world. This agricultural skyscraper city of silos is now the Enid Terminal Grain Elevators Historic District.
While Enid is still “where the best wheat grows and the oil flows,” there’s much more to the town life. Downtown Enid is low-slung among wide thoroughfares. That is except for the 14-story Broadway Tower, the tallest building in Enid. The district also features a children’s museum, railroad museum and western museum and Cherokee Strip Heritage Center. Enid even features the oldest symphony orchestra in Oklahoma.
The southern tip of town is occupied by the large Vance Air Force Base. With such a large military facility, affordable rental housing is important. An average one-bedroom apartment leases for just $573 a month.
4. Lawton
Average 1-BR rent price: $558
Average rent change in the past year: -7.95%
At just $558 a month for an average one-bedroom, Lawton is the cheapest city to live in southwestern Oklahoma. Significantly, rents in the Frontier Region city have dropped nearly eight percent from this time last year. With nearly 100,000 residents, it’s the fifth-largest city in the Sooner State.
Lawton’s primary landmark and largest employer is Fort Sill. The massive base on the north end of town is one of just four Army Basic Combat Training facilities in the U.S. While growth can be attributed to the base, the city has diversified into manufacturing, higher education and health care industries.
Unlike many cities, the focal point of Lawton’s downtown isn’t the main street or a town square. It’s the nearly 50-year-old Central Mall, an enclosed shopping mall smack in the middle of downtown. When built, city officials thought the mall would attract shoppers from surrounding suburbs. Today, renewal efforts are focusing on building more appealing and pedestrian-friendly blocks north of the mall.
Some of those revitalization efforts are centered on the area around Elmer Thomas Park. Here lie two of Lawton’s largest museums. The Museum of the Great Plains and Comanche National Museum and Cultural Center sit side-by-side adjacent to the park. The park is the city’s largest, but just one of 80 parks and recreation areas operated by the city.
3. Pauls Valley
Source: Facebook.com/CityofPaulsValley
Average 1-BR rent price: $554
Average rent change in the past year: +1.84%
Deep into the Chickasaw Nation is the small Interstate city of Pauls Valley. Grammar nerds take note, there is no apostrophe in “Pauls,” though named for original settler Smith Paul. The lack of punctuation can be attributed to a singular tradesman. In 1887, a painter hired by the railroad to hang the Santa Fe Railway station sign failed to add the possessive apostrophe and the name stuck.
Pauls Valley’s quaint downtown lies at the northeastern corner of the city. The district radiates out from the easement of the town’s historic railroad line. In its heart is the old Santa Fe Railway Lone Star depot. Closed in the ’70s, the century-old depot now houses the historical society museum. However, right next door is the active Pauls Valley Amtrak station on the Heartland Flyer train line. Despite the city’s diminutive size, it’s one of just five Amtrak passenger stations operating in Oklahoma.
Elsewhere, downtown features pizza places, diners, service centers and community shops along Grant Avenue and Chickasaw Street. It’s also home to the award-winning Toy and Action Figure Museum. In the city’s western portion, numerous hotels and truck stops lie at the exit to Interstate 35.
The largest city and county seat of Garvin County, Pauls Valley has a population of only 6,000. The city is quaint and also cheap. To live here will cost you $554 a month on average for a one-bedroom unit. That figure is just $2 more than the city ranked No. 1.
2. Ada
Source: Facebook.com/CityofAdaOK
Average 1-BR rent price: $553
Average rent change in the past year: N/A
Ada is a small but bright town in south-central Oklahoma. It’s the county seat and largest city in Pontotoc County, but with a population of just 17,000. It’s the second cheapest place to live in Oklahoma. At $553 monthly, the average cost of a one-bedroom is just a buck more than the number one city. Oh, so close.
Ada is best known as the headquarters of the surrounding Chickasaw Nation, which encompasses 7,700 square miles of southern Oklahoma. While Ada itself is nearly three-quarters white, a significant 15 percent of all residents are of Native American descent. Around 2,500 Ada residents speak Chikashshanompa’, the Chickasaw language. As such, much of the public signage, including many traffic and directional markers, is written bilingually.
Most commercial activity in Ada centers on the downtown area along Main Street and Mississippi Avenue. Native American shops and eateries mingle with fast-casual restaurants, outdoor outfitters, beer bars and locally owned boutiques. Off the east edge of downtown is the spacious campus of East Central University.
1. Shawnee
Source: Facebook.com/VisitShawneeOklahoma
Average 1-BR rent price: $552
Average rent change in the past year: +0.41%
On the eastern edge of the Oklahoma City metro is the satellite city of Shawnee. It’s convenient, modern and accessible. And this suburb of 31,000 tops the list of the cheapest place to live in Oklahoma. An average one-bedroom apartment runs just $552 a month.
Only 45 minutes from downtown OKC, Shawnee is a convenient commute into the city. But Shawnee maintains distinct independence. Its bustling Main Street sits alongside its historic railroad right-of-way. This design dates back to the city’s founding, eschewing a town square for a primary business thoroughfare. The district offers a number of coffee shops, comfortable bars and casual dining spots.
But Shawnee’s most famous restaurant was located a couple of miles north on North Harrison Street. That was the spot of the original Sonic Drive-In. Then known as Top Hat Drive-In, the original site was moved in 2017 to the corner of Harrison and Highland streets.
Located downtown is the brand new Pottawatomie County Museum of railroad and transportation history. The new building opened at the start of 2021 as the collection outgrew its old home. That original site was located in the adjacent historic, castle-like Santa Fe Depot. Shawnee is also home to the Heart of Oklahoma Exhibition Center that features both indoor and outdoor performance arenas. And on the north end of town is the Black Hawk Casino. The vibrant gaming center is operated by the Sac and Fox Nation.
The most expensive places to live in Oklahoma
There are plenty of options to finding the cheapest places to live in Oklahoma, and which is right for you. But the Sooner State isn’t all about affordability. There are plenty of pricier places to lay your head at night.
The five most expensive places to live in Oklahoma are primarily large suburban edge cities. In fact, both Oklahoma City and Tulsa’s largest suburbs — Moore and Broken Arrow, respectively — are among the most expensive. Nearly all have also seen large jumps in rent prices for an average one-bedroom from this time last year.
Methodology
Rent prices are based on a rolling weighted average from Apartment Guide and Rent.’s multifamily rental property inventory as of August 2021. Our team uses a weighted average formula that more accurately represents price availability for each unit type and reduces the influence of seasonality on rent prices in specific markets.
We excluded cities with insufficient inventory from this report.
The rent information included in this article is used for illustrative purposes only. The data contained herein do not constitute financial advice or a pricing guarantee for any apartment.
The world of real estate is vast and varied, with numerous options catering to renters’ diverse needs. Among the many choices available, private-owner house rentals have carved out a distinct niche, appealing to those seeking a more individualized experience.
These rentals, run by individual homeowners rather than large corporations, possess their own unique set of merits and challenges. We’ll provide an in-depth exploration of the benefits, drawbacks and nuances surrounding houses for rent by a private owner, contrasting them with more traditional rental avenues.
Defining private-owner house rentals
Private-owner house rentals refer to properties that are rented out by individual homeowners rather than by property management companies or real estate corporations. These private-landlord rentals can range from vacation homes to apartments to single-family residences and more.
Pros of privately owned house rentals
If you’re looking for a place to rent, private-owner house rentals emerge as a unique option, often favored for their personalized approach and distinct charm. Unlike properties managed by larger firms, these rentals offer potential benefits that arise from direct interaction with individual homeowners and the idiosyncratic character of their properties. Let’s delve into some of the prominent advantages of choosing private owner house rentals over those run by large companies.
Personal touch: Private homeowners might offer a more personal touch compared to larger property management firms. This could mean more flexibility in terms of lease agreements, move-in/move-out dates or any other limitations and stipulations.
Direct communication: Renters often communicate directly with the property owner, often leading to quicker response times for maintenance requests or other concerns.
Unique properties: These rentals might have distinctive and unique properties that aren’t typically found in larger apartment complexes or managed communities. Think crown molding, brick walls, hardwood floors and more.
Potential for lower costs: Without the overhead of a property management company, private owners might offer better rental prices.
Flexible terms: Some private owners might be open to short-term leases, month-to-month arrangements or other non-traditional rental agreements.
Cons of privately owned rental properties
Now that we’ve covered some of the most appealing aspects of private-owner rentals, let’s dive into some of the downsides and pitfalls that can potentially affect your experience with a private-owner house rental.
Inconsistency: The experience can vary widely from one private owner to another. While some might be highly professional and organized, others may be less so.
Limited amenities: Private rentals might not offer the same amenities that larger complexes or communities do, such as swimming pools, fitness centers or security services.
Maintenance delays: Some private owners might not have the resources or connections to address maintenance issues as promptly as larger management firms.
Lack of formal process: There may be a lack of formal processes in areas like application screening, security deposits and lease agreements, which could lead to potential legal disputes.
Potential for bias: Without the procedures and policies of a larger company, there might be more room for unconscious bias or discrimination in the rental process.
Private-owner house rentals present a compelling blend of advantages and challenges. While their personal touch can provide renters with a tailored experience, the potential inconsistencies and lack of standardized processes can pose challenges.
As with any rental decision, potential tenants should carefully consider the pros and cons before making any decisions, ensuring that their choice aligns with their preferences, needs and expectations for a harmonious living arrangement.
Other considerations when looking at houses for rent
Like most of life’s major decisions, there’s more to consider about private-owner house rentals than just the pros and cons.
Research is key: Due diligence is essential when considering a private owner house rental. Potential renters should research the property, check references and understand the lease terms thoroughly.
Legal protections: Both renters and landlords should be aware of local rental laws and regulations to ensure that they’re both protected. This might include understanding rights related to security deposits, eviction processes and property maintenance.
Contracts: even if renting from a private owner, having a written lease or rental agreement is crucial. This document should clearly outline the terms of the rental, including rent amount, duration of the lease, maintenance responsibilities and any other relevant details.
While there are many advantages to this type of arrangement, potential challenges can arise. As always, thorough research and understanding of the rental agreement are essential for a successful rental experience.
Nuances in legalities between a house and an apartment
Understanding the differences between renting a house and an apartment from a private owner goes beyond just the physical structure; there are also legal nuances to consider. Both situations will involve lease agreements and rights for tenants and landlords, but there are some distinctions to be aware of:
Zoning and land use
Houses might be situated in areas with zoning restrictions that dictate how the property can be used. For instance, certain residential zones might prohibit running a business from home or may have specific parking regulations. On the other hand, apartments are generally in zones designated for multifamily dwellings, which can come with their own set of rules and regulations.
Maintenance and repairs
For houses, the responsibility for external areas like lawns, gardens and driveways often falls on the tenant unless otherwise stipulated in the lease. With apartments, the responsibility for maintaining common areas typically rests with the property management or homeowners association.
Security deposits
Both houses and apartments usually require security deposits to cover wear and tear. However, with houses, there might be additional deposits or fees for landscaping or potential damage to larger outdoor areas.
Utility responsibilities
In apartments, certain utilities like water, trash collection or electricity might be covered by the landlord or the property management, especially if they are shared resources. In contrast, tenants renting a house usually bear the responsibility for all utilities, including water, electricity and garbage.
Liability
Homeowners might have broader liability concerns. For example, suppose a person gets injured on the property, like slipping on an icy driveway. In that case, the responsibility might fall onto the homeowner or the tenant, depending on the terms of the lease. In apartment complexes, the liability for common areas is usually on the property management or owner.
Subleasing and assignments
Lease agreements for houses might be more flexible compared to apartments, which may have stricter guidelines enforced by property management. This isn’t a strict rule, but a general trend given that a private landlord might negotiate these terms.
Pets and modifications
Apartments often have strict rules regarding pets, alterations or additions to the unit. Houses might have more flexibility, but that’s not a given. Still, a house renter might have more latitude to request permissions for larger modifications or to keep larger pets, possibly dodging some breed restrictions in the process.
Is a private-owner house rental right for you?
While the basic principles of landlord-tenant law apply to both houses and apartments, the specific responsibilities, rights and restrictions can differ based on the nature of the property. Renters and landlords need to be clear on these nuances to ensure a smooth rental experience and avoid potential disputes. Navigating the intricacies of real estate rentals requires a nuanced understanding of each available option. Private-owner house rentals offer an alternative to the conventional rental route, underlined by a personalized touch and distinctive property features.
However, as with all choices, potential renters must balance these benefits against possible drawbacks. By staying informed and conducting thorough research, renters can make educated decisions and find a home that aligns seamlessly with their needs.
A native of the northern suburbs of Chicago, Carson made his way to the South to attend Wofford College where he received his BA in English. After working as a copywriter for a couple of boutique marketing agencies in South Carolina, he made the move to Atlanta and quickly joined the Rent. team as a content marketing coordinator. When he’s off the clock, you can find Carson reading in a park, hunting down a great cup of coffee or hanging out with his dogs.
Knowing the right questions to ask when touring an apartment puts you in that get-to-know-you space with each prospective home. It ensures the time you spent touring a potential rental isn’t a waste of energy and gives you a chance to see if the space, and the management company, are the right fit.
The first time you see a place is the best time to get all your questions answered. Not sure what to say? Here are the 21 best questions to ask when touring an apartment.
1. What are the lease terms?
Ideally, you should already know when the lease begins and ends before you even start asking questions while on an apartment tour. If for some reason you aren’t, make sure you get clarification on when move-in is and how many months the lease is for.
Inquire if there are any other common lease terms you should know like quiet hours or restrictions on painting or putting holes in the walls.
2. How much is the rent?
It is also essential to know if the apartment you’re looking at really fits into your budget. Ask how much the unit will cost per month and what the manager’s late rent policy is. Be sure to find out if there’s a grace period if you get delayed making a payment.
Also, ask about fees and how much money you’re expected to bring with you when you sign the lease. This should include a security deposit and possibly first and last month’s rent, but other costs could factor in.
If upfront fees are too costly, ask if there are any you can roll into your monthly rent and pay over time.
3. What’s required to move in?
Each property handles moves differently, so make sure to ask what moving in will look like for you financially while visiting apartments.
For instance, are there any moving or elevator fees? Do you have to get a special permit to have a moving van parked on the street? What area of the parking lot can you take over on the move-in day and does the management company block it off?
If you’re moving in on a popular day you may have to compete for space and wait to use the elevator. If that’s the case, see if you can delay your move by a day or come a day early to have an advantage.
4. Are utilities included in the cost?
Utilities aren’t always automatically included in the cost of the rent. Water is commonly factored in, but heating, gas and electricity are often paid for by the tenant. If you’re concerned about utilities, contact your local provider for an estimate.
5. How much do utilities cost, on average, if they’re not included?
Your property manager will most likely only be able to guess, but based on the size of the apartment, they should have some idea what you’ll end up paying, out-of-pocket if items aren’t included with rent.
To cover your bases, the average for basic utilities is around $172 per month. However, climate and energy costs vary between states — so always budget for a little more.
Do I need to get my own internet? Apartments rarely come with Wi-Fi waiting for you. Instead, you’ll have to find your own internet service provider to hook you up. Look for deals and make sure to price compare. Also, take into account the bandwidth you’ll need to ensure the right connection.
6. What’s your pet policy?
Whether you own a pet or think you might want to adopt one, you should absolutely ask about a building’s pet policy while touring an apartment. Make sure pets are even allowed before getting into the nitty-gritty details like pet fees, extra cleaning charges, etc. Pet policies vary widely, but most properties charge a non-refundable pet deposit or monthly pet rent.
Never try to hide a pet in an apartment where you know it’s not allowed. Getting caught can get costly, and lead to you having to get rid of your animal. Check to see if there are restrictions on breeds or types of pets allowed as well.
7. How about your guest policy?
When touring an apartment you might not think to ask questions about guests, but it’s an important thing to know. Most leases mention a guest policy but some are stricter than others. For instance, in some places, having a visitor for longer than two weeks isn’t technically allowed (which means your friend’s plan to spend the summer on your couch won’t work).
It can also impact your ability to have overnight guests for even a short time. So, make sure you know what’s allowed before you make any plans.
8. How do you handle subletting?
Say you were between jobs and wanted to go home for a month to see family. You don’t want to lose your apartment, so the best thing to do is sublet. But, is it allowed? Your lease should specify, but don’t hesitate to ask an apartment manager or landlord to clarify the situation.
Subletting without permission can lead to eviction. There’s also the fact that you’re still responsible for any damages to your apartment — even if they’re not made by you.
If you do end up subletting, make sure the person is reliable and will treat your space right.
9. Am I allowed to add a roommate?
While you may start your apartment hunt a little earlier than a close friend, you could already know that you’ll want to pull him or her into your place to live as roommates. This may mean you’d sign the initial lease on your own, so find out if it’s OK to make changes later.
Your property manager may require you and your roommate to come in and sign an updated lease together so both your names are on the document. It may also change how you pay rent.
Don’t forget to talk about expense sharing, in general, with your roommate before they move in and make sure they understand the apartment rules. You may even want to establish some of your own for when you’re living together.
10. Do you require renters insurance?
Renters insurance is another thing to think about while apartment hunting. Renters insurance provides coverage for your property in the event of things like a fire, flood or theft.
It may also cover injuries that happen within your apartment. This type of coverage tends to cost very little per month, so it’s a good idea to add it anyway.
While renters insurance is always a good idea, some apartments require it — so it’s important to ask while making visits. You don’t want to scramble to get insurance the day before you move in, otherwise, you might not get the keys.
11. How do I pay rent?
Saving up for rent each month isn’t the only thing you need to consider. At some point, you’ve got to get that money into the right hands.
Most management companies will offer you a few options when it comes to paying rent. These can include online payments or going through a service. This is the easiest way to make payments since you can often set up an auto-draft, but if you’re dealing with an individual property owner, ask about limitations. Even if you’re delivering or sending in a check each month, make sure you have clear information on where it goes, who it’s addressed to and by what day it should arrive.
12. Is there a penalty for breaking my lease?
It’s a good idea to become familiar with the process should have to break your lease. While that’s never the plan, knowing ahead of time what you’d have to do helps you prepare for anything.
Especially if you move around a lot for work or anticipate upcoming life changes, signing a year-long lease might be the wrong choice. Make sure you understand the penalties for early termination and ask if it’s possible to sign a month-to-month lease instead (just make sure you know how early you have to give notice when it’s time to go.)
13. How are repairs handled, especially in an emergency?
Even if everything appears in good working order when you’re looking around, questions to ask when touring an apartment should always cover maintenance.
Ask how emergency repairs get handled. Clarify if there’s maintenance available 24/7 or just within specific hours, and find out what the average response time is.
Now is even a good time to figure out what types of repairs your property manager would rather you handle (if any). Whatever the process, you want to know ahead of time to ensure a speedy conclusion to any emergency (or everyday) needs.
14. How do I file a complaint?
Again, even if you casually meet the people living near the vacant apartment you’re considering and they seem nice — it’s hard to tell what living with them will be like. Your lease should break down the process for filing a complaint, but you may want to go over it with your property manager just in case. Often, they’ll prefer something submitted in writing.
It’s also worthwhile to note that complaints aren’t always about noise. While that’s a big one, common complaints are also about pets, trash in the hallways and even strange smells coming from another unit.
15. How secure is the property?
As you’re walking around, ask the property manager to cover the building’s security features. You will want to know about both inside and external security measures (like a buzzer system or doorman). If there’s a parking structure, go over how you enter from there to make sure you feel safe.
It also doesn’t hurt to ask about the neighborhood and how safe the area is as a whole. Go online to check crime statistics if you’re concerned, but often just walking around the area yourself will give you a feel for its safety.
You don’t want to move somewhere that doesn’t feel comfortable to you whether you’re inside your apartment or not.
16. What’s your pest control policy?
A perk of living in an apartment building is that you don’t have to handle pest control. Since a pest invasion affects the entire property, it’s up to your property manager to keep pests away. This includes everything from ants to roaches, bedbugs to rodents. Ask if they have a regular pest control company come and spray, whether they’ll set traps if necessary and how to report a pest infestation within an actual apartment.
You don’t want to live somewhere that doesn’t take pest control seriously, however you can definitely get proactive and set some bait traps yourself if you notice a few ants here and there. Anything larger — call in the big guns.
17. How often does rent go up, and by how much?
Many apartments increase the rent upon renewal of the lease. These types of charges aren’t always spelled out in the rental agreement, so make sure you know going in how much you can expect to pay if you decide you want to live in the same apartment after your lease term is over.
If you’re looking for a long-term apartment, but the rent goes up by quite a bit each year, see if you can sign a long-term lease, say for two years instead of one and lock in a lower price.
18. What is the parking situation?
If you own a car, parking will sit high on your priority list. In many neighborhoods, especially in larger cities, street parking is hard to find and expensive to pay for separately so renting an apartment with a parking garage or lot will be necessary.
However, a personal parking spot or pass is often an added charge, so ask about any costs associated with owning a vehicle. You may not have a choice if you live somewhere that isn’t particularly walkable, but it helps to budget for the cost upfront rather than finding out about it later.
19. What other amenities are on site?
You’ve seen the apartment unit and parking if it’s available, now make sure to ask about the other amenities on site. Is there a pool? On-site laundry? An exercise room? A clubhouse? Ask about the hours of operation and whether any are available to reserve for special events. Find out how to do this and if there is an extra fee.
These extras usually only sweeten the deal once you’ve already found an apartment you love, but it’s nice to know upfront when and how you can use them.
20. Is smoking allowed indoors?
You may be of the mind that ‘to each their own’ when it comes to smoking, but sometimes a smoky apartment affects the neighboring units. Especially if you have an allergy, it might be best to live in a smoke-free building.
If it’s not something you mind, make sure to inquire about how often they check smoke detectors within each unit, and in public areas, and whether there are fire extinguishers on hand on each floor. About five percent of home structure fires start from smoking materials.
21. Are there plans to update the building?
This question covers a lot of things you’ll want to know. Construction or other work on the building is a sign of a lot of things — both positive and negative.
Construction in the building can mean you’ll be dealing with a lot of noise from every direction. However, renovated apartments are likely nicer than the unit you live in already, so you might get the chance to move once they’re completed. Improvements, though, can also be a sign rent is going up to repay the construction costs. Whatever it means, you’ll want to factor it all in before you sign the lease.
Know the best questions to ask when touring an apartment
There is an infinite number of questions to ask when touring an apartment, so make sure you prioritize.
Start with your deal-breakers since a ‘no’ to any of those means you’re moving on to the next apartment. You can even consider making a cheat sheet of questions for each apartment tour to keep track of answers, but also ensure you remember all the vital information once you’re back at home.
Regardless, don’t forget to speak up. This is, after all, your next home.
Many people are lured into the world of real estate investing by stories of millionaires who started their journey with no money down or no steady employment. But the reality is that making money in real estate isn’t easy; a good credit score, investment capital and steady income can help in the beginning.
You’ll also need to grasp the nuances of the local real estate market and learn how to manage financial aspects such as cash flow and property taxes. While real estate buying, selling, and renting may not be much like a game of Monopoly, it is possible to earn steady side income, supplement your retirement, or even build a full-time real estate investment business with the right tools, knowledge, and patience.
Unlike mutual funds, the stock market, cryptocurrency or many other investments, real estate is tangible. Real estate is a concrete asset—one can see, touch, and even reside in. That gives investors a sense of security. However, it also creates unique challenges.
Managed well, the stability and passive income from rental properties can be a safety net against more volatile investments.
This guide is here to clarify the process for beginners. It aims to empower you to make informed decisions, reduce risks, and lay a strong foundation for your real estate investing journey.
Benefits of Investing in Real Estate
The allure of real estate goes beyond the mere ownership of tangible assets. It presents a robust suite of financial benefits that have the potential to amplify wealth and provide stability in uncertain times. As we navigate the advantages, it becomes evident why many seasoned investors prioritize real estate in their portfolios.
Steady and Passive Income
Real estate investing, especially in rental properties, stands out for its potential to provide a consistent revenue stream. When you own a rental property, the monthly or quarterly distributions from tenants contribute to steady income, which can safeguard your finances against unexpected events or economic downturns.
This consistency contrasts with the often erratic nature of the stock market, which can fluctuate daily based on global events, company performances, and other factors. Additionally, for those aiming to attain financial freedom, the passive income generated from real estate can be a step closer to achieving that goal. Over time, as the mortgage payment decreases or remains static, rental rates may rise, increasing your monthly cash flow.
Appreciation Potential
Every investor dreams of their assets appreciating, and real estate often doesn’t disappoint. While there can be periodic downturns in the real estate market, historical trends suggest that properties generally gain value over the long run.
This means that not only can investors benefit from rental income, but they can also potentially see substantial gains when they choose to sell the property.
Tax Benefits
Navigating the world of taxes can be intricate, but real estate investors often find several advantages here. The ability to deduct mortgage interest and property taxes from taxable income can be a significant financial boon.
Furthermore, strategies like depreciation allow real estate investors to offset rental income, reducing their tax burden. Consulting with a financial advisor can help investors maximize these benefits and understand other potential tax advantages, such as 1031 exchanges or deductions related to property management.
Diversification
The saying “don’t put all your eggs in one basket” is sound investment advice. Diversification is a fundamental strategy to mitigate risks. By adding real estate to an investment portfolio, investors introduce a separate asset class that doesn’t directly correlate with the stock market or mutual funds. This can provide a buffer, ensuring that a downturn in one sector doesn’t wholly derail an investor’s financial trajectory.
Leverage
Leverage, in the context of real estate investing, refers to the ability to use borrowed capital to increase the potential return on an investment. When you purchase property with a mortgage loan, you’re often putting down only a fraction of the property’s total cost, while still reaping the benefits of its entire value in terms of appreciation and rental income.
This magnifies the return on investment, as the gains and income generated are based on the property’s total value, not just the down payment. It’s a powerful tool but should be used wisely. Over-leveraging or not accounting for potential rental vacancies can turn leverage into a double-edged sword.
Types of Real Estate Investments
As one dives deeper into the world of real estate, it becomes evident that this asset class is multifaceted, with various avenues to explore and invest in. The right choice often depends on an investor’s goals, risk tolerance, budget, and expertise. Here’s a closer look at some prominent types of real estate investments:
Residential Properties
Residential properties cater to individuals or families. They range from single-family homes to duplexes, triplexes, high-rise buildings with apartments, and other multi-unit properties. You may encounter the term “MDU” or “MUD,” which stand for multi-dwelling unit or multi-unit dwelling, to describe anything more than a single family home, or SFR (single family real estate).
Investing in residential real estate, especially the SFR market, is often a beginner’s first step due to its familiarity and the perpetual demand for housing. While these properties can be a reliable source of rental income, investors should be prepared for the challenges tied to property management, tenant turnover, and ongoing maintenance.
Commercial Real Estate
When one thinks of skyscrapers lining city horizons or sprawling office parks in suburban locales, that’s commercial real estate. These properties are tailored to businesses, and can include complete corporate headquarters or individual offices.
Commercial leases often run longer than residential ones, offering the potential for stable, long-term rental income. However, the entry point can be higher, with larger down payments and a more extensive due diligence process. Additionally, commercial real estate values can be closely tied to the business environment of the locality.
Industrial
Industrial real estate encompasses properties like warehouses, distribution centers, and manufacturing facilities. They’re integral to business operations, ensuring products move efficiently from manufacturers to consumers.
Investing in this sector can offer substantial rental yields, especially if the property is strategically located near transportation hubs. However, the nuances of industrial real estate, such as zoning laws and environmental concerns, necessitate a more in-depth understanding than residential or commercial sectors.
Retail
This sector includes shopping malls, strip malls, and standalone stores. What’s unique about retail real estate is that leases sometimes include a provision where the landlord gets a percentage of the store’s profits, termed as “percentage rent.”
In a thriving commercial area, retail properties can be quite profitable, with long-term leases and the potential for appreciating property values. However, investors should be mindful of shifts in consumer behavior and the evolving retail landscape, especially with the rise of e-commerce.
Multi-Purpose Commercial
A new breed of commercial real estate has emerged to compete with the growth of e-commerce. Multi-purpose commercial spaces blend housing units with office space and retail, often adding hospitality and entertainment venues.
Typically, these spaces are the domain of large real estate investment and property management firms. But if you invest in commercial office space or retail, you will be competing with these multi-purpose properties for tenants, so they are worth acknowledging.
Real Estate Investment Trusts (REITs)
For those not keen on direct property ownership, REITs present an attractive alternative. These are companies that own, operate, or finance income-producing real estate across various sectors. What makes REITs distinctive is that they’re traded on stock exchanges, similar to stocks.
By investing in a REIT, you’re buying shares of a company that manages a portfolio of properties, thus gaining exposure to real estate without the hassles of property management. Moreover, by law, REITs are required to distribute at least 90% of their taxable income to shareholders, leading to potentially attractive dividend yields. However, it’s essential to remember that like all publicly traded entities, REITs can be subject to market volatility.
9 Ways to Invest in Real Estate
Investing in real estate can seem tricky for beginners. But, with time and patience, anyone can master it. Focus on simple investment methods first to get to know your local property scene, meet experienced investors, and learn how to handle money wisely. As you learn and grow, you can dive into more complex investment options.
Here are some great ways for beginners to start in real estate:
1. Wholesaling
Acting as the bridge between property sellers and eager buyers, this method primarily focuses on securing properties at a rate below the prevailing market value. The secured contract is then transferred to an interested buyer, ensuring a margin for the wholesaler.
2. Prehabbing
Unlike intensive property renovations, prehabbing is about amplifying a property’s appeal through minimalistic enhancements. These properties, once given their facelift, usually attract investors with a keen eye for larger renovation projects.
3. Purchasing Rental Properties
An avenue promising consistent returns, this involves acquiring properties to lease them out. For those not inclined towards the intricacies of landlord duties, there’s always the option of hiring seasoned property management professionals.
4. House Flipping
A strategy that has garnered significant attention, house flipping involves a cycle of purchasing, upgrading, and promptly reselling properties, aiming for a profit. The emphasis is on swift transactions and keen market acumen.
5. Real Estate Syndication
Envision a collective where like-minded investors come together, pooling both resources and expertise. Such collectives venture into large-scale property acquisitions, and the ensuing profits or rental incomes are distributed among the participants.
6. Real Estate Investment Groups (REIG)
Primarily, these are conglomerates that steer their operations around real estate investments. By amassing capital from a plethora of investors, they dive into acquisitions of sizeable multi-unit residences or commercial holdings.
7. Investing in REITs
Real Estate Investment Trusts (REITs) revolve around the ownership and meticulous management of properties that yield income. However, investors don’t have to handle the management themselves. Instead, participants can relish the benefits of the real estate sector without the responsibilities of direct property ownership.
8. Online Real Estate Platforms
A fusion of technology with real estate, these platforms seamlessly connect potential investors with vetted property developers. This synergy enables backers to finance promising property ventures and, in exchange, enjoy periodic returns that encompass interest.
9. House Hacking
A blend of homeownership and investment, house hacking is about maximizing the potential of a multi-unit property or a single-family home. Investors live in one segment while leasing out the remaining portions. This dual approach can significantly reduce or even negate monthly housing expenses, serving as an excellent introduction to the world of property management for novice investors.
6 Steps to Get Started in Real Estate Investing
Starting on the path of real estate investing requires careful planning, due diligence, and a methodical approach to ensure that your investments are sound and have the potential for fruitful returns. Whether you’re dreaming of becoming a millionaire real estate investor or merely looking to diversify your investment portfolio, following a structured process can be the key to success. Here’s a step-by-step breakdown:
1. Assess Your Financial Health
Every investment journey should begin with introspection. As an aspiring real estate investor, it’s essential to have a clear understanding of your current financial standing. Ask yourself questions like:
How much capital am I willing to invest?
What are my short-term and long-term financial goals?
Do I have an emergency fund set aside?
Evaluating your risk tolerance is equally crucial. Some might be comfortable flipping houses, while others might prefer the steadiness of rental properties. Consulting a financial advisor at this stage can provide insights tailored to your financial health, enabling you to make informed decisions as you proceed.
2. Dive Deep into Market Research
Knowledge is power in the world of real estate. The local market can be significantly different from national or even statewide trends. Delve deep into understanding:
The demand for rental properties in your target area.
The average property values and rental rates.
The historical appreciation rates.
Any upcoming infrastructure projects or urban development initiatives.
Furthermore, familiarize yourself with real estate terminology. Phrases like “cap rate,” “loan-to-value,” and “operating expenses” will become a regular part of your vocabulary. The better informed you are, the more confidently you can navigate your investments.
3. Assemble Your Real Estate Team
No investor is an island. Success in the real estate business often hinges on the strength and expertise of your team. Look for professionals with a proven track record and positive reviews. Your team might include:
Real estate agents who understand the investor’s perspective.
Property managers to streamline tenant interactions and maintenance.
Lawyers specializing in real estate transactions.
Accountants familiar with the tax implications of real estate investments.
4. Explore Financing Options
The path to acquiring a property is paved with various financing methods. Traditional mortgages are common, but the real estate industry offers other mechanisms like:
Hard money loans.
Private money loans.
Real estate syndication where multiple investors pool resources.
Seller financing.
Each of these has different pros and cons, interest rates, and repayment terms. Understand each deeply to determine which aligns best with your financial strategy.
5. Analyze Potential Properties
The crux of real estate investing is ensuring that the numbers make sense. Before purchasing, assess the property’s potential for generating rental income. Break down:
Monthly mortgage payments
Property taxes
Maintenance costs
Potential vacancy rates
Your goal should be a positive cash flow, where the monthly income from the property (rent) exceeds all these expenses.
6. Negotiate and Close the Deal
Once you’ve zeroed in on a property, the negotiation phase begins. Here, understanding the property’s market value, any existing damages or repair needs, and the local real estate market dynamics can give you an edge.
When it comes to closing, be aware of all associated costs. These might include inspection fees, title insurance, and escrow fees. Being well-informed can help you negotiate these fees and ensure that you’re not overpaying.
Risks and How to Mitigate Them
Like any investment, real estate comes with its set of challenges and uncertainties. The difference between successful real estate investors and those who falter is often the ability to anticipate risks and prepare for them. Here’s an exploration of some prevalent risks in real estate and actionable steps to manage them:
1. Market Fluctuations
Real estate markets can be volatile, with property values rising and falling based on a myriad of factors.
Mitigation: To protect against market downturns, it’s essential to buy properties below their market value. Conducting comprehensive research and seeking expert investment advice can help investors make informed decisions. Remember, real estate is often a long-term game, so a short-term dip can be offset by long-term appreciation.
2. Unexpected Repairs and Maintenance
Properties can often come with surprises, from plumbing issues to roof repairs.
Mitigation: Regular property inspections can catch potential problems before they become major expenses. Setting aside a buffer fund specifically for maintenance can also cushion the financial blow of unforeseen repairs.
3. Vacancy Periods
There might be periods where your property remains unoccupied, leading to loss of rental income.
Mitigation: Properly vetting and building a good relationship with tenants can lead to longer lease periods. Diversifying your investment properties across different areas can also help, as vacancy rates might vary from one location to another.
4. Legal and Tax Implications
Real estate investors can sometimes find themselves entangled in legal disputes or facing unexpected tax bills.
Mitigation: Regular consultations with a tax professional or attorney familiar with the real estate industry can keep investors informed and protected.
Long-term Strategy and Growth
Real estate investing is not just about making a quick buck; it’s about building lasting wealth. Adopting a long-term perspective and continuously refining your strategy can pave the way for consistent growth in the real estate industry. Here’s how:
1. Define Your Real Estate Identity
Are you more comfortable with a buy-and-hold strategy, where properties are retained for long-term growth and steady rental income? Or do you thrive on the excitement of flipping houses, where properties are bought, renovated, and sold for profit? Understanding your preference can help tailor your investment strategy.
2. Reinvestment is Key
For those adopting a buy-and-hold strategy, reinvesting the rental income can substantially grow your real estate portfolio. By channeling profits into purchasing additional properties, investors can benefit from compounded growth.
3. Diversify Your Portfolio
As you gain experience, consider diversifying across various real estate sectors. Branching out into commercial real estate or exploring real estate investment trusts (REITs) can provide additional avenues for income and growth.
4. Continue Your Education
The real estate industry is continually evolving. By staying updated on market trends, attending seminars, and networking with other real estate professionals, you can adapt your strategy and seize new opportunities as they arise.
5. Scale Strategically
A real estate empire begins with just one property. With time, dedication, and a sound strategy, it’s possible to grow your holdings into a substantial full-time income. As you scale, ensure you’re not overextending; always prioritize the quality of investments over quantity.
Key Tips for Beginners
Embarking on a journey into real estate investing can be thrilling, yet the complexities of the industry can sometimes overwhelm beginners. Simplifying the learning curve is essential for novice investors to make informed decisions and find success. Here are some pivotal tips to guide those just starting out:
1. Start Small and Scale Gradually
Many millionaire real estate investors began their journey with a modest property. Purchasing a smaller, more manageable property as your first investment can help you navigate the nuances of the real estate business without being overwhelmed. As you gain confidence and experience, you can then venture into bigger and more diverse properties to scale your portfolio.
2. Prioritize Education
The world of real estate is vast and ever-evolving. Leverage online real estate platforms to learn about market trends, investment strategies, and financing options. Additionally, joining real estate investment groups can be invaluable. These groups not only provide mentorship but also offer opportunities to share resources, insights, and deals with other investors.
3. Location is Crucial
In the real estate realm, location often takes precedence over the type or condition of a property. A mediocre house in a prime location can fetch better returns than a grand mansion in a less desirable area. Research local market dynamics, neighborhood amenities, future development plans, and other location-specific factors before making an investment decision.
4. Networking is Key
Surrounding yourself with knowledgeable people can fast-track your learning process. By connecting with seasoned real estate investors, you can gain insights from their experiences, avoid common pitfalls, and even discover potential partnership opportunities. Attend local real estate seminars, join investor forums online, and participate actively in real estate conferences to grow your network.
5. Stay Updated and Adapt
The real estate industry is not static. Market conditions, property values, and investment strategies can change. Being adaptable and staying updated on industry trends will ensure you remain ahead of the curve and can capitalize on new opportunities.
6. Always Conduct Due Diligence
Before diving into any real estate transaction, thorough due diligence is imperative. From understanding property taxes and zoning laws to estimating potential repair costs and evaluating tenant profiles, leaving no stone unturned will protect you from potential setbacks.
8 Terms Beginner Real Estate Investors Should Know
Venturing into real estate can feel like you’ve entered a world with its own language. Don’t worry; everyone feels this way at the start. Knowing basic real estate terms can help you communicate confidently and make informed decisions.
Dive into these essential terms every beginner should grasp:
Appreciation: Appreciation is the increase in the value of a property over time. It’s one of the primary ways real estate investors make money, especially in growing markets. Appreciation can result from factors like inflation, increased demand, or improvements made to the property.
Capitalization rate (cap rate): Think of the cap rate as a tool to gauge the potential return on a property. It’s a percentage derived from comparing a property’s net operating income to its current market price.
Cash flow: This term captures the money dance – what’s coming in and what’s going out. In the context of rental properties, it means the rental earnings minus all the costs. Positive cash flow indicates you’re earning more than you’re spending.
Equity: Equity represents the value of ownership in a property. It’s calculated by taking the market value of the property and subtracting any outstanding mortgage or loans against it. As an investor pays down their mortgage or if the property appreciates in value, their equity in the property increases. This equity can be tapped into for various financial needs or reinvested.
Leverage: This term refers to the concept of using borrowed money, often in the form of a mortgage, to invest in real estate. It allows investors to purchase properties with a small down payment and finance the remainder. When used correctly, leverage can amplify returns, but it can also increase the risk if property values decline.
Net operating income (NOI): Simplified, NOI is the profit made from a property after deducting all operational costs. It’s your rental income minus all the expenses, showing the true earning potential of a property.
Real estate owned (REO): An REO property is one that didn’t sell at a foreclosure auction and is now owned by the bank. These properties are often sold at a lower price because banks aim to sell them quickly, making them attractive to investors.
Return on investment (ROI): In simple terms, ROI measures the bang you get for your buck. It’s calculated by comparing the profit you made to the amount you invested. The higher the ROI, the better your investment performed.
Conclusion
Real estate investing offers an avenue to diversify your portfolio, generate steady income, and potentially achieve long-term growth. With due diligence, a clear strategy, and the right team, beginners can successfully navigate the complexities of the real estate industry and lay the foundation for a prosperous investment journey. Remember, every millionaire real estate investor started with their first property. Your journey is just beginning.
Rent abatement is a powerful tool that can benefit both landlords and tenants, providing a financial cushion in times of hardship or unexpected events. By understanding the ins and outs of rent abatement, you can ensure a mutually beneficial agreement and avoid potential legal disputes. In this blog post, we will delve into the different types of rent abatement, negotiation strategies, common scenarios, insurance options, and legal aspects to help you navigate this crucial aspect of the landlord-tenant relationship.
Key Takeaways
Rent abatement is an agreement between landlords and tenants which can provide mutual protection while potentially increasing tenant attraction.
Negotiating rent abatement requires understanding one’s rights, being prepared for counteroffers, considering the entire agreement and relevant market conditions.
Successful implementation of rent abatement requires open communication and a thorough review of lease terms to ensure mutual protection.
What is Rent Abatement?
Rent abatement, including partial rent abatement, is a temporary reduction or suspension of rent payments in specific situations, such as property damage or natural disasters, benefiting both landlords and tenants. It is a powerful financial tool that can help protect both parties from unforeseen circumstances, especially in commercial real estate where businesses can be significantly impacted by property damage or other issues.
A smooth and successful relationship between landlords and tenants is facilitated by incorporating rent abatement terms in the lease agreement. These terms can provide substantial protection and lead to increased tenant attraction and revenue for landlords, while tenants may enjoy a partial discount on the overall rental period.
Commercial Lease Rent Abatement
In commercial leases, rent abatement can be negotiated during tenant improvements, as a concession, or due to the space being untenantable. Rent abatement is often viewed by landlords as a necessary compromise, given it is a more attractive option than having an empty office space during the abatement period.
Typically, rent abatement is applied in commercial leases when the tenant’s space is undergoing construction or to cover the tenant’s business opening. This can result in a rent reduction for the tenant during the specified period, helping businesses minimize their financial burdens during times of transition or renovation.
Residential Lease Rent Abatement
Residential rent abatement typically applies when a property becomes uninhabitable due to damage or necessary repairs. This form of rent relief helps protect tenants from financial hardships when they are unable to fully utilize their living space. During this period, the tenant may be eligible for abated rent, depending on the terms of the lease agreement.
Both landlords and tenants have specific rights and responsibilities regarding rent abatement in residential leases. Landlords must ensure that the rental property is safe and habitable, while tenants must adhere to the lease agreement and make timely rent payments.
For a successful rent abatement implementation, open communication, thorough review of lease terms, and preparedness to negotiate are key strategies landlords and tenants should adopt.
Negotiating Rent Abatement in Lease Agreements
Successfully negotiate rent abatement in lease agreements by understanding your rights and responsibilities as a landlord or tenant and being prepared for counteroffers from the other party. This process can be complex and requires careful consideration of the entire agreement, as well as an understanding of the relevant market conditions.
Landlords may offer alternative options such as longer lease terms, higher lease rates, and higher yearly rent escalations in lieu of rent abatement. To navigate these negotiations effectively, it is advisable to save the abatement request for a later stage, after addressing the primary requests and concessions. Flexibility and openness to compromise can lead both parties to an agreement that offers mutual benefits.
Know Your Rights and Responsibilities
When negotiating rent abatement, landlords and tenants should be aware of their rights and responsibilities. For landlords, this involves:
Evaluating the tenant’s request and determining the legitimacy of the stated reasons
Communicating with the tenant
Negotiating the terms of the rent abatement agreement
Tenants, on the other hand, have the right to request rent abatement if they are experiencing issues with their rental unit that may affect their ability to pay rent. They also have the responsibility to communicate with the landlord, provide necessary documentation or evidence, and negotiate the terms of the rent abatement agreement.
A comprehensive understanding of these rights and responsibilities can enable both parties to collaboratively reach a fair agreement.
Be Prepared for Counteroffers
When negotiating rent abatement, tenants should expect counteroffers from landlords, such as longer lease terms or higher rent. These counteroffers may be offered as alternatives to rent abatement, so it’s important for tenants to be ready to negotiate and be amenable to compromise.
To effectively negotiate counteroffers, tenants should engage in transparent dialogue with their landlord, thoroughly analyze the lease terms, and be willing to meet halfway. Preparation for counteroffers and a clear understanding of their rights and obligations under the lease agreement can empower tenants to successfully navigate rent abatement negotiations and reach an outcome that benefits both parties.
Rent Abatement Scenarios
Rent abatement scenarios include property damage and repairs, as well as natural disasters and evacuations that render the property unusable. In these situations, rent abatement provisions in lease agreements can provide financial relief for tenants and help landlords avoid potential legal disputes.
Whether the property is commercial or residential, understanding the various rent abatement scenarios and the implications for both landlords and tenants is crucial for a successful landlord-tenant relationship. By being aware of these scenarios, both parties can work together to address the issues and find a fair solution that meets everyone’s needs.
Property Damage and Repairs
Rent abatement may apply when a property is damaged and requires repairs, making it temporarily uninhabitable. In such cases, the landlord is obligated to cover the costs of repair, and their business liability insurance typically provides the necessary coverage.
During the rent abatement period, rent abatement can provide tenants with financial relief, allowing them to stop paying rent for an unusable space and focus on finding temporary housing or alternative arrangements without the burden of paying rent.
It’s important for both landlords and tenants to understand the terms of their lease agreement regarding property damage and repairs to ensure a smooth rent abatement process.
Natural Disasters and Evacuations
Natural disasters and government-mandated evacuations can also trigger rent abatement provisions in lease agreements. In these situations, the property may be rendered unusable, and tenants may require financial assistance to cope with the unexpected event.
By incorporating rent abatement clauses in lease agreements, both landlords and tenants can be prepared for such scenarios and ensure that their rights and responsibilities are clearly outlined. Understanding the role of rent abatement in natural disasters and evacuations can help both parties navigate these challenging situations and reach a fair resolution.
Insurance Options for Landlords and Tenants
Insurance options for landlords and tenants include renter’s insurance, business liability insurance, and business interruption insurance to cover various risks and expenses. These insurance options provide financial protection for both parties in situations where rent abatement may be applicable, as well as in other unforeseen events.
A clear understanding of the available insurance options and their respective coverages enables landlords and tenants to make informed decisions on the best policies to suit their needs and mitigate potential risks. This ensures that both parties are adequately protected and prepared for any challenges that may arise during the rental period.
Renter’s Insurance
Renter’s insurance covers personal belongings and temporary housing in case of property damage or rent abatement ineligibility. This type of insurance is essential for residential tenants, as it provides financial protection against theft, fire, natural disasters, and other unexpected events that may affect their personal property.
Obtaining renter’s insurance is a recommendation applicable to all tenants, irrespective of their rental situation. This way, they can safeguard their personal belongings and enjoy peace of mind knowing they are covered in the event of unexpected occurrences.
Business Liability Insurance
Business liability insurance protects commercial tenants from property damage and loss of personal property caused by the rented space. This type of insurance is crucial for commercial tenants, as it provides coverage for losses incurred due to property damage and helps them avoid potential financial hardships.
Commercial tenants should carefully consider the extent of their business liability insurance coverage for their commercial property, as well as any additional coverage options that may be necessary for their specific situation. By doing so, they can ensure that their business is adequately protected against potential risks and unexpected events.
Business Interruption Insurance
Business interruption insurance covers lost income and operating expenses due to property damage or destruction. This type of insurance is particularly important for commercial tenants, as it provides financial assistance to businesses that experience a loss of income due to a covered peril, such as a natural disaster or property damage.
When obtaining business interruption insurance, tenants should ensure that they have set appropriate policy limits and understand the coverage provided by the policy. This will help them to be prepared for any unexpected events that may impact their business operations and minimize potential financial losses.
Legal Aspects of Rent Abatement
Legal aspects of rent abatement include incorporating rent abatement clauses in lease agreements and taking a rent abatement case to court if necessary. Understanding the legal implications of rent abatement is crucial for both landlords and tenants, as it ensures that their rights and responsibilities are clearly outlined and that any disputes can be resolved fairly and efficiently.
Awareness of the legal aspects of rent abatement enables landlords and tenants to collaboratively address potential issues and find a resolution benefiting both parties. This helps to maintain a positive landlord-tenant relationship and minimize the risk of legal disputes.
Rent Abatement Clauses in Lease Agreements
Rent abatement clauses in lease agreements outline the terms and conditions under which rent abatement can be applied. These clauses are essential for ensuring that both landlords and tenants understand their rights and responsibilities in case of property damage, natural disasters, or other scenarios that may trigger rent abatement.
Incorporating clear and comprehensive rent abatement clauses in lease agreements helps both parties sidestep misunderstandings and potential disputes. This helps to maintain a positive landlord-tenant relationship and ensures that both parties are protected in case of unexpected events.
Taking a Rent Abatement Case to Court
Tenants can take a rent abatement case to court if the landlord fails to meet lease terms or provide a habitable property. In such cases, tenants may be required to request an inspection by city officials and, if the landlord still does not comply with the required repairs, the tenant can bring the case to court.
Understanding the process of taking a rent abatement case to court is crucial for tenants who may need to pursue legal action against their landlord. Preparation and knowledge about the legal aspects of rent abatement empower tenants to protect their rights and ensure they receive the appropriate financial relief.
Tips for Successfully Implementing Rent Abatement
Successfully implementing rent abatement requires open communication between landlords and tenants, as well as a thorough review of lease terms. By maintaining a positive dialogue and understanding the legal implications of rent abatement, both parties can work together to reach a fair and mutually beneficial agreement.
Maintaining a successful rental relationship and ensuring protection of respective rights and responsibilities can be achieved by landlords and tenants through proactive addressing of potential rent abatement scenarios and adherence to these tips.
Communicate Openly and Honestly
Maintaining open and honest communication between landlords and tenants is essential for ensuring a smooth rent abatement process. By being transparent in their communication and receptive to each other’s perspectives, both parties can work together to address any issues that may arise and find a fair solution.
Maintaining open communication can be achieved through strategies such as proactive discussions about potential rent abatement scenarios, clear and timely updates on property repairs, and a willingness to compromise and negotiate. Through effective communication, both landlords and tenants can build trust and ensure a successful rental relationship.
Review Lease Terms Carefully
Both parties should review lease terms carefully to understand their rights and responsibilities regarding rent abatement. By being aware of the specific clauses and provisions related to rent abatement in their lease agreement, landlords and tenants can avoid potential misunderstandings and disputes.
Review of lease terms by both parties should take into account clauses related to rent abatement. These clauses may include stipulations for:
Rent reductions or waivers in the case of property damage
Rent reductions or waivers in the case of natural disasters
Rent reductions or waivers in the case of other scenarios
By understanding these terms and ensuring that they are clearly outlined in the lease agreement, both landlords and tenants can work together to address potential rent abatement issues and find a mutually beneficial solution.
Summary
In conclusion, rent abatement is a powerful financial tool that can benefit both landlords and tenants in times of hardship or unexpected events. By understanding the different types of rent abatement, negotiation strategies, common scenarios, insurance options, and legal aspects, landlords and tenants can navigate this crucial aspect of their relationship and ensure a successful rental experience. Remember, communication is key, and a thorough understanding of your lease terms is essential to protect your rights and responsibilities.
Frequently Asked Questions
What is the rent abatement in NJ?
In New Jersey, a rent abatement is a court order resulting from a finding that the property was not maintained in a habitable condition. It allows the tenant to be charged only with the reasonable rental value of the property in its imperfect condition during the tenancy.
How do I request rent abatement in NYC?
To request rent abatement in NYC, you can submit an individual complaint by using the DHCR Form RA-81 or submitting a complaint online at www.hcr.ny.gov.
How do you use rent abatement in a sentence?
Tenant acknowledges and agrees to a rent abatement granted as additional consideration for entering into an amendment and paying rent under the lease.
What is the main purpose of rent abatement?
Rent abatement is a beneficial measure which allows landlords and tenants to temporarily reduce or suspend rent payments in specific situations, such as property damage or natural disasters.
How is rent abatement negotiated in lease agreements?
Rent abatement can be successfully negotiated in lease agreements by being knowledgeable about your rights and responsibilities and being prepared for counteroffers.
This article is intended for informational purposes only and should not be considered legal advice. Always consult a qualified attorney in regards to any legal matters.