10 Tips for Surviving Skyrocketing Rental Prices

May 18, 2011 by Tony Wahl

Amid still sinking home values — a trend that has lead to a new peak in the number of homes that are now “underwater” (i.e. worth less than their underlying mortgages) — one slice of the real estate market booms: rental housing.

It makes sense, really, with many consumers who would have considered buying a home still sitting on the sidelines, unsure in the future of home values in their area, and with millions of homeowners now forced to rent because of foreclosure.

But as anyone will tell you, the news of a rent hike – be it 5% or even 20% — is nothing short of shocking at a time when many of us still fear for our jobs (that is, those of us that have one). So what is a renter to do when faced with the news of increasing rent? One thing’s for sure: you can’t just give up and pay up. Here are ten tips that can help you avoid a hike in your monthly housing costs:

1. Negotiate – Have a frank conversation with your current landlord and begin the negotiation process. While it’s natural to have anxiety when asking for a rent reduction, landlords definitely do not want to be confronted at the prospect of an empty unit. The potential loss of rent may force them to reconsider their rental hike.

2. Shop Around – It pays to be picky. Especially with a solid credit score, consumers are at liberty to shop around for a new rental unit, see what other prices are being offered and take their business elsewhere. Landlords, like lenders, check credit scores and reports to make a decision.

3. Get a roommate — That will help offset the extra monthly costs. Be sure to check your lease to see if you are allowed to move forward with it and then confirm your landlord’s approval. Always screen potential candidates and ask for a copy of one of their credit reports (they can pull one report from each of the three credit bureaus, for a total of three a year, for free from annualcreditreport.com) and make sure they are not habitual late-payers. (You can also suggest that they get their Experian Equivalency Score for free, right here at Credit Sesame, anytime, with no credit card needed.)

4. Be diligent – All landlords want the perfect tenant. Pay your rent on time, follow the regulations of your lease and always keep an open dialogue between you and your landlord. You may be surprised how much leverage you gain when the topic of a rent increase comes knocking on your door.

5. Consider Buying – With mortgage interest rates still at record lows, some industry experts say now is the time to buy property. Before you make this big ticket purchase item, it is important to know where you stand and to figure out if buying makes sense for you and if you can afford it. The remaining five tips should help with that decision:

6. Down Payment – First, make sure you have money saved for a down payment – and then some. Lenders typically require two months’ worth of housing payments left in your bank account as a reserve.

7. It Pays to Have Good (or Great) Credit – Ask yourself if your credit and income will qualify you for a loan. One little known industry secret: Lenders will look at all your credit scores from each of the three credit bureaus and take into consideration the middle score. If you’re married and applying with a spouse, they will consider the lower of the two applicants’ middle credit scores.

8. Go Beyond the Lender – Take your time and really investigate the house or property you want to purchase. Consider hiring a professional engineer or a home inspector to locate potential damages, problems or repairs that may cost you money down the road.

9. Know How Much House You Can Afford – As a rule of thumb you should look at homes that are no more expensive than four times your gross income.

10. Location, Location, Location –Finally, consider whether you ready to settle down in that area. There’s no set standard rule of how long you should plan to live in the property you purchase, but a horizon of at least five years is preferable.

A self-professed mortgage geek, Tony Wahl has more than 20 years of experience in the banking, personal finance and mortgage industries. Prior to joining Credit Sesame, Tony worked at JP Mortgage Chase, Mortgage Guaranty Insurance Corporation (MGIC), and Washington Mutual (now Chase), where he was responsible for developing, managing and optimizing large mortgage operations and underwriting team