Selasa, 23 Desember 2008

The total cost of renting

This post comes from partner blog Blueprint for Financial Prosperity.

One of the main reasons I bought a home was because I was tired of moving. I hated packing up my things, renting a truck, moving my things, then unpacking my things. It felt like such wasted effort.

However, in my numerous moves, I did establish a great way to come up with a total cost-of-housing metric that helped me compare various housing options.

When I first started comparing apartments, I got the basics right. I compared the total rent, I accounted for utilities, and I accounted for any insurance I would need to buy. I failed to recognize commute time and cost, though, which played a significant factor in my first apartment (25 miles one way). That's just one of the considerations I missed. There are several more.

The total cost of renting should include the following factors (in the order of most likely to be overlooked):

Parking. Parking is one of those factors you're either keenly aware of or entirely oblivious to. I've been fortunate enough to have lived in apartment complexes that had ample parking, and the farthest I've ever had to park was a few hundred feet from my building's front door. In more-populated cities, parking can be a huge pain. My friends in Baltimore tell me that if they get back into the city from work past 8 p.m., there's almost no chance they'll find any street parking nearby. Having a safe place to park is crucial when evaluating places to live, and some apartment complexes charge you extra for a parking spot.

Commute mileage and time. Many people fail to seriously consider commute mileage and time when comparing rental properties because they don't see it as being significant. With the recent fall in gas prices, it's becoming less and less financially significant and people are more easily overlooking it. I think that's a mistake.

A long commute can have a draining effect on a person. Having to drive an hour home after a 10-hour day of work absolutely sucks. Having to drive an hour to work, so you can stay there for 10 hours, then drive home -- that's brutal. However, I've seen people do that drive just so they can save $100 on rent, and that seems a bit foolish. If there are other reasons for that trade, then by all means do it, but to do it just for money seems foolish.

Automobile insurance. Many of my friends love living in Baltimore but many of them also complain that their automobile insurance rates are high. That's because it's more expensive to insure a car in Baltimore than in the suburbs. While I'm not an actuary, I believe it's a combination of the higher population density, both in people and in cars, and the higher incidence of crime. That, and people aren't that great at parallel parking.

Renters insurance. This is another, though less important, insurance number that is likely higher in the city than in the suburbs. Before you select a place, call your insurer and see how much renters insurance would be in your new place. It's not likely to be significantly different because renters insurance is often very cheap, but it could be big enough to change your decision.

Deposit. Some places require one month's rent as deposit, and others require only a few hundred dollars. I prefer the apartments that require only a few hundred dollars because I don't want to have to fight with the landlord to get my deposit back when I move out. I've heard many horror stories about people getting screwed on cleaning deposits because they forgot to vacuum or were blamed for regular wear and tear, and I prefer to avoid it entirely. My first apartment had a $300 deposit ($1,200 monthly rent for my roommate and myself) and no cleaning requirement. We were allowed to leave the place as filthy we wanted and we wouldn't lose a penny of our deposit.

The laws on deposits vary from state to state. Some states require a landlord to pay you interest on your deposit, and others limit the deposit to one or two months' rent. Check your state's Web site for additional details. Plenty of unscrupulous landlords, especially individuals, try to skirt the law when it comes to deposits. Know the laws and your recourse. (If I were you and I learned that a landlord was trying to break the law with regard to deposits, I'd rent somewhere else.)

Utilities and rent. I listed these two together and last because very few people overlook utilities and rent when comparing places to live. I always prefer a place that offers utilities included over one where you have to pay the bill yourself because it gives you a bit of protection against any bad months. As for rent, I recommend you take a look at Rentometer to get a better idea of how your rent compares with others in your area.

Are there any other financial factors I'm missing?

Other articles of interest at Blueprint for Financial Prosperity:

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Tax loss harvesting

Obama's 21st century New Deal: An economic stimulus

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