Dealing with hefty upfront rental costs
Q: We’re about to rent our first apartment, moving from a parent’s basement to something more desirable. However, to move we need a lot of cash upfront for the deposit and rent for a month. Is there any way to rent without such a large chunk of our savings?
A: It’s easy to understand that upfront rental costs are big and getting bigger.
Rent.com reports that in March the typical one-bedroom unit rented for $1,697 while the average rent for a twobedroom property was $2,050. Pay a month’s rent in advance plus a deposit equal to one- or two months’ rent, and suddenly you need a big deposit check.
These figures are a lot higher than just a year ago. Rent.com says that rents nationwide for a one-bedroom unit rose 22.2% in a year.
Two-bedroom properties saw rents go up 22.8%. And in some jurisdictions the 12-month increases were much higher: Durham was up 49.2%, Nashville rents grew 46.9% and rental units in Austin increased 43.4%.
Typical local rents in March for a onebedroom unit, according to the Zumper National Rent Report, included $3,260 in New York, $2,420 in San Jose, $2,500 in Miami and $2,230 in Washington. Of course, as rents have risen so have deposit requirements.
As much as rental rates are high and getting higher, they reflect rising property values. If you can rent a one-bedroom condo for $2,300 a month and the property is worth $300,000, the landlord has a lot of risk because a tenant might not pay the rent on time, pay at all or — worse — might damage the property.
One reason for the sudden rental increases is that various eviction moratoriums were in place at the local, state and federal levels because of COVID-19. The federal moratorium lasted from March 2020 through July 2021.
It has been estimated that unpaid rent during this period topped $50 billion. Meanwhile, although landlords were not getting their money, they still had cash costs for property taxes, insurance and repairs.
Also, a large proportion of all rental units belong to small landlords. According to the Brookings Institution, “The loss of rental income under the eviction moratorium represents a significant income shock for smaller landlords of modest means. Our analysis finds that 40% of residential property units are owned by individual investor landlords.”
What can you do to lower upfront rental costs? Here are two strategies.
First, don’t pay. A service such as Obligo (myobligo.com) typically charges $10 to $20 a month in exchange for covering a $1,500 deposit. This approach substantially reduces the need for upfront cash.
Second, pay overtime. Some landlords may be willing to accept additional monthly payments until the full deposit has been paid.
Lastly, thank Mom and Dad for the use of their basement. It may not be fancy or formal, but it does have the advantage of low cost and perhaps home-cooked meals every so often.